Bangladesh's Grameen Bank founder Muhammad Yunus, who pioneered the concept of providing small, unsecured loans to the poor is "frustrated" by the controversies surrounding microcredit. The Nobel Peace Prize winner tells CNBC's Christine Tan that microfinance still works.
Q: Your successful microcredit model is being copied all over the world. But it has lost some of its good reputation because some microfinance institutions are being criticized for charging exorbitant interest rates and using aggressive debt collection tactics. How much of that can you blame on greed and how much can you blame on lack of regulation?
One thing we have to be clear what we call microcredit. What is microcredit in the first place? Everybody calls themselves "microcredit". So whatever happens in everybody else's place, all the blame comes to microcredit. For us, microcredit means loans given to the poor women without collateral for income-generating activity. We never intended microcredit to make personal money out of it.
But as it became popular, respected, recognized (and) admired, many people saw this as a good tool to make money for themselves. That to our eyes is not microcredit because you are deviating from what it should be. Not only do you want to make money for yourself, some wanted to make lot of money out of this whole thing. This is what we are fighting against, the loan sharking and other things.
Q: Your concept was something so noble to help out the poor. When you see it deviating to certain extent, are you a little bit disappointed by the way things have developed?
It's a very frustrating that people even want to make money out of poor people. I didn't expect that to happen. I understand the traditional loan sharks... the traditional moneylenders would do that but in the name of microcredit, in the name of fair business you come and do that? That was not something that I was expecting.
But it started happening and some went overboard and created lot of problems. One such instance came from Mexico... charging more than 100 percent interest. Later, they reduced it to 85 or 84 percent.
Q: So do you think there are enough guidelines out there to govern these micro, so-called microfinance companies? What do you do think needs to be done?
Not much, there was no guideline because it's a NGO (non-governmental organization) activity basically. So nobody was monitoring NGO activity. But about five years back, the government created an independent Microfinancing Regulatory Authority. This is good.
(For the) first time we have the regulatory authority that can set the rules and so on. For example in Bangladesh, they set what the maximum interest rate should be and how to express the interest rate in a way everybody can compare. So that you're not expressing it in so many different languages that people don't understand.
Q: So given all the deviations, what do you tell skeptics who still question whether your microcredit model works today. What do you tell them?
I would say, very well today. Everywhere, we have no problem. The problem area that they do hear is the one I mentioned in Mexico and the next one in India. I keep repeating that it's not India where microcredit is collapsing; it is only a problem in one state of India, which is Andhra Pradesh. So one state problem you cannot just generalize for everything. Rest of India is doing very well.
Q: Do you think Grameen Bank itself has lived up to its own hype?
It depends where you are coming from and what you are looking for. We're very happy with what Grameen Bank has done. It's owned by the poor people. It lends to the poor people. It's self-contained. It doesn't borrow any money from anybody.
And (the people) are improving their quality of life. They send their children to school. Grameen Bank gives education loans to thousands, and thousands of students from Grameen families are in higher education and medical schools.
Q: So it has made a difference?
I'm totally convinced. Of course yes.
This is an excerpt taken from CNBC’s longest-running feature program Managing Asia. Catch the show with anchor Christine Tan on 2 March at 1830 (SIN/HK) and repeats over the weekend on CNBC.