05/13/2010 02:27 pm ET Updated May 25, 2011

The Soul of Microfinance: Purpose, Poverty, Pitfalls and Redemption

This post will be made up of parts of a recent speech delivered by the head of the Microcredit Summit, Sam Daley-Harris entitled, "Purpose, Poverty, Pitfalls and Redemption."

"I want to talk with you today about purpose, poverty, pitfalls and redemption -- how committing my life to the end of poverty has given my life purpose, the pitfalls I have faced along the way, especially now, and how seeing redemption in the work I support has returned me to my original vision and commitment.

Let me begin with two quotes that have guided my life and point to the 'purpose and poverty' dimension of my talk.

The first is from retired Republican Senator Mark Hatfield who said:

'We stand by as children starve by the millions because we lack the will to eliminate hunger. Yet we have found the will to develop missiles capable of flying over the polar cap and landing within a few hundred feet of their target. This is not innovation it is a profound distortion of humanity's purpose on earth.'

It's time for us to consider the question, 'What is humanity's purpose on earth?'

Inventor and futurist Buckminster Fuller said:

'The things to do are the things that need doing. That you see need to be done and that no one else seems to see need to be done.'

You'll see Fuller's words at work when I tell my story and that of one of my heroes Muhammad Yunus.

After the sudden sad loss of a friend in a car accident at the age of 17, I began asking myself, "Why am I here? What am I here to do? What is my purpose?" No answers, just the questions.

Four years later, on college graduation day in 1968, Robert Kennedy died. There were more questions about purpose. Why am I here, what am I here to do? No real answers, just the questions, more and more clearly.

Ten years later I went to a presentation on The Hunger Project focused on ending world hunger. Up until that point I hadn't thought about world hunger much. Actually I was oblivious. But if you lifted up the oblivious--right underneath I felt hopeless. I was quite sure that hunger was inevitable, mostly because there were no solutions. It had to be that way, because if there were solutions, somebody would have done something about it by then.

But at the presentation it became clear that there was no mystery to growing food, or becoming literate or gaining access to clean water or basic health. When I looked at it honestly, I realized that I wasn't hopeless about the perceived lack of solutions. What I felt hopeless about was human nature! People would just never get around to doing the things that could be done to end hunger. I also realized that there was one human nature that I had control over -- my own -- and of course I had these pent-up questions: why am I here -- what is my purpose?

I moved to Washington, DC in 1985 as the first staff member of RESULTS and we lobbied on behalf of the International Fund for Agricultural Development (IFAD) a small UN agency based in Rome. IFAD sent us videos of three groups they had invested in. One was a Dutch documentary of a little bank in Bangladesh with 42,000 borrowers called the Grameen Bank. Usually I would say that as we learned more, it took our breath away. But now I would say that we were touched by the unleashing of the human spirit, by redemption, people's honor and worth being restored.

During 1985 the 50 RESULTS chapters in 27 states would watch the video on Grameen Bank and then write their member of Congress. In 1986 we had legislation introduced supporting microenterprise as it was known then. Over a one-year period the volunteers in RESULTS generated 100 editorials on the microenterprise legislation. In 1987 Muhammad Yunus came to our office and spoke by conference phone to editorial writers in 28 cities. In 1988 Muhammad Yunus joined the RESULTS Board. Eighteen years later he won the Nobel Peace Prize.

Meeting Muhammad Yunus, who has become a dear friend, has been a critical part my life and my work for the last 23 years. Let me tell you the story of how he started Grameen Bank, but in a way I've never told it. Let me tell you with the spiritual transformation at the center.

After getting a PhD in economics at Vanderbilt in Tennessee, Muhammad Yunus returned to his newly independent country Bangladesh and taught at a university. There was a famine in the country and here is what I usually stress, 'Prof. Yunus said the economic theories in my text book are very elegant, but they aren't working in the village next to my campus. I am going to go into the village and learn economics from the villagers.

The piece that I usually leave out is the fact that this young professor of economics was having a spiritual crisis. With starving people virtually at the doorstep of his university he wondered about the value of all the fancy theories he was teaching. He said he started to dread his own lectures and their elegant theories.

So in 1976 he went into the village next to his campus to see if he could be of use to even one person for one day. In the village of Jobra, Prof. Yunus met Sofia Khartum who made bamboo stools. She became his new teacher.

He asked her how much profit she made each day.

'Two cents' she replied.

He was shocked and asked why she only made two pennies profit for such a beautiful stool. She told him that she didn't have the money to buy the bamboo so she borrowed the money from a trader, a money lender on the condition that she sell the finished product back to him at a price he set. The moneylender's price barely covered the cost of the bamboo, leaving her with a two-penny return on her hard work.

'If you could sell the stools to anyone, could you make more?' Prof. Yunus asked.

'I could,' she replied, 'but I don't have the money to buy the bamboo so I have to keep borrowing it from the money lender.'

Prof. Yunus had a student go around the village to see who else borrowed from the moneylender. The student found 42 people who needed a grand total of $27 to free themselves from this debt trap, less than $1 each.

He lent the 42 people $27 from his pocket allowing them to pay off the money-lender, buy their raw materials, make their products and sell them to the highest bidder. Sofia Khartum's profits soared from two cents a day to $1.25 a day. Those 42 people were the first borrowers of what became Grameen Bank, which means village bank. It now has more than 8 million borrowers, 97 percent of whom are women and it affects the lives of more than 40 million family members.

Another glimpse of the revolution he promulgated came years later when he would be asked what his strategy was in forming Grameen Bank. Here's how he would reply: 'I didn't have a strategy, I just kept doing what was next. But when I look back, my strategy was, whatever banks did, I did the opposite. If banks lent to the rich, I lent to the poor. If banks lent to men, I lent to women. If banks made large loans, I made small ones. If banks required collateral, my loans were collateral free. If banks required a lot of paperwork, my loans were illiterate friendly. If you had to go to the bank, my bank went to the village. Yes, that was my strategy. Whatever banks did, I did the opposite.' Do you see the revolution here -- the rule breaking?

This should have been warning of what was to come when microfinance institutions began to run more like commercial banks and what that might do to the soul of microfinance.

I am fortunate to have been one of the leading advocates for microfinance over the last 25 years. We have been so successful in our advocacy that the field is out of control and now the profit-maximizers, those who want to make big money from the poor are rushing in. This leads me from the poverty and purpose part of my talk to the pitfalls and redemption portion.

What are the problems that have become pitfalls? There are profit maximizers who charge the poor 85% interest, 100% interest, or more. As Prof. Yunus says, we started microcredit to free people from the money-lenders, not to become the new money lenders.

The largest initial public stock offering (IPO) of the last few years generated tens of millions of dollars in profits for senior managers. Institutions that invested $1 million walked away with more than $100 million profit each from the IPO. What did the clients receive from the IPO? Zilch! Nada! Nothing!

I had an epiphany at the Africa-Middle East Regional Microcredit Summit that I coordinated in Nairobi, Kenya last month. I now see that the spiritual dimension of microfinance, the redemptive dimension of microfinance is central to my vision for the field. The technical issues are important, but only if they serve the transformational dimension.

There are many visions for microfinance including this one: using microfinance for redemption. The dictionary defines redemption as restoring one's honor or worth, setting one free.

The world's poor need this kind of redemption--redemption that restores their honor and worth and sets them free. Redemption that Prof. Yunus saw with the $27 he lent to 42 people 34 years ago -- redemption he and other microfinance leaders around the world have seen over the years.

And here is another kind of transformation the world needs--that we look at people whom we had previously seen as the problem instead as the solution. The world needs us to change our own thinking rather than writing people off as incapable of transforming their own lives.

Let me close with this quote from George Bernard Shaw's Man and Superman:

'This is the true joy in life, the being used for a purpose recognized by yourself as a mighty one, the being a force of nature, instead of a selfish, feverish little clod of ailments and grievances complaining that the world will not devote itself to making you happy. I am of the opinion that my life belongs to the whole community, and it is my privilege to do for it whatever I can. I want to be thoroughly used up when I die, for the harder I work, the more I live. I rejoice in life for its own sake. Life is no brief candle to me, it is a sort of splendid torch which I've got a hold of for the moment, and I want to make it burn as brightly as possible before handing it on to future generations.'"