By  Babajide  Komolafe

Nobel laureate and founder of the first microfinance bank in the world, Professor Mohammad Yunus said that microfinance regulators and operators should stop using the principles of conventional banking to run microfinance banks.

In a keynote address at the First Bank Impact Series, Yunus said that while the goal of conventional banks is profit, that of microfinance is poverty eradication adding that this is what distinguishes microfinance banking from conventional banks.

He said that the need to help the poor and the poorest poor prompted him found, the first microfinance bank in the world 35 years ago

He said the bank which is known Gramen Bank was designed to operate only in the rural areas and serve the adding that this inspired the choice of Gramen, which means rural in Bangladeshi, as the name of the bank. Yunus said most of the debates about the operations and health of microfinance banks in Nigeria are due to the profit making approach to microfinance banking in Nigeria.

“We should remember where microfinance came from; it is banking for the poor. I am not saying that banking cannot be done for the rich. There is banking for the rich and the complaints we hear is that banking is too restricted to the rich. That is why we decided to start by reaching out the poor and the poorest. This is the most important part of it and this is the beginning of the whole idea and movement called microfinance.”

Using Gramen Bank as example to differential microfinance banking from conventional banking, he said, “What we did was not an extension of conventional banking. This is also very important because the more we try to explain things in a convention banking way the more we pull out away from the mission of banking for the poor because banking for the rich is not the same thing as banking for the poor.

In microfinance as reflected in Gramen Bank, we do the opposite of what they do in conventional banking. The conventional banks go to the rich we went to the poor. Conventional banks go to the men, we went to women. Conventional banks go to the cities, particularly the big banks, they have the largest branches, we went to the village, and the most remote village.

The remoter you are the more exited we are. That was what Gramen Bank was all about. Gramen means rural and when we were enacting the law that set it up we incorporated a clause that says this bank would never work in an urban canter, never. It is still today has never worked in any urban area, 35 years after inception, not even in the municipalities. In fact anything covered by the municipality is a no-fly zone.

And we dismiss the idea of collateral. Conventional banks want collateral, we said forget it. The more collateral one can provide the more exited conventional banks are but in our case, the less collateral people get, the more exited we are. If you have nothing, we get more excited about you. We say yes we have gotten our customer, this bad guy.

“Conventional banks ask the borrower, “How much do you know about this business”. The more he or she can convince the conventional banks he or she is an expert in the business the more excited the conventional banks, we reversed that, when a client says I don’t know anything about this business, we get excited about him, that is the person we want.

She may say I have never handled money in my life. Conventional banks are owned by the rich, Gramen Bank is owned by the poor, and poor women. Conventional banks are owned by rich men, Gramen Bank is owned by the poor women.

“And we can go on and on, then you will realise what Gramen Bank is, what microfinance bank is and you will realise most of these debates that we have are unnecessary”.