The BIG MAN who started from small things

Everyone should be able to do business: Nobel Prize winner

Nobel Peace Prize winner and founder of the Grameen Bank in Bangladesh Muhammad Yunus was recently invited to visit Indonesia by President Susilo Bambang Yudhoyono. The Jakarta Post's Abdul Khalik, Veeramalla Anjaiah and Matheos Messakh caught up with Yunus before his departure Sunday. Below are excerpts from their discussion:

Question: Your profile is very unique, changing your career path from being a professor to a banker. What inspired this change?

Answer: The reason was we were experiencing famine in Bangladesh ... when I was teaching at one of the universities. So I saw how useless the theories that I taught were. I taught economic theories while people were dying.

So I went to the villages to see if I could be useful to anybody there. Then I tried to give loans to people who borrowed from money lenders based on trust. Nobody (else) would give money like that. So, I wanted to arrange a system with the banks. But after months of roaming around the banks, they couldn't open the door. So I offered myself as a guarantor. I said "I will sign your papers, your rules are protected and I will get the money". That finally worked. So I signed all the papers, took the money and gave it to the people.

And I took the responsibility of collecting it and taking it back to the bank. It worked. So that was the beginning of the whole thing.

What was the purpose of your visit to Indonesia? What is your opinion about micro-credit and micro-finance in Indonesia?

Well, I was invited by the President to give a presidential lecture. That was the main reason, and since I was coming (anyway), the Bank of Indonesia also invited me to give a presentation to bankers.

I came here (for the first time) some 12 years back. This is my fourth visit. I can see a lot of changes. Banks here have been doing micro-finance for a long time. They are doing well and there are lots of organizations, but still each one of them is small and sticking ... to government formalities. They (haven't) opened up in a big way. There are still lots of people in Indonesia who should be reached with financial services.

Do you think the kind of system you used in Bangladesh would work in a country like Indonesia?

The basic issue is that everybody should have the right to (access) financial services. Nobody should be denied on the (basis) that they are too poor to do business. The second issue is that you have money lenders in the country. I'm sure that there are money lenders in Indonesia.

I met with 27 groups who are doing micro-credit in Indonesia. Some are lending money to five thousand borrowers, some are (lending to) 10 thousand borrowers and some are (lending to) 70 thousand borrowers.

These are all NGOs. The common question I asked was, "what is holding you back? Why have you stuck with that number?" They said "we have no money". It is because the law here doesn't allow NGOs to take deposits. Why can't we either organize a common fund or a wholesale fund, where any NGO can borrow money and lend it?

We have done it in Bangladesh. That's why micro-credit could spread. The next solution is to enable those NGOs to take deposits. Just create a law and call them micro-credit banks. Then create an independent regulatory body. When dealing with money, particularly public deposits, you need an independent regulatory body to avoid misuse.

BRI (Bank Rakyat Indonesia) has been offering credits to small-scale enterprises in Indonesia. How can they make a bigger impact on society?

In general, governments and micro-credit have bad chemistry. Because after all, the government is a political entity, and (it) is supposed to deal with poor people. But politics becomes (more) important than other aspects, including the economic side. And when people don't pay back (money), politicians don't push them too hard. After all, they are poor people.

An organization which works (at a) distance from the government can work much better than an organization close to the government. BRI, being a government organization, (has) this problem, not that they are bad people or inefficient people. Simply this closeness creates problems. And also, the government has to go through certain bureaucratic procedures which may not be appropriate for credit expansion to poor people.

Why do you believe so much in the poor?

The basic idea is that I believe that all human beings are born with unlimited potential, whether a child is born on the street or born in a palace. Poverty doesn't come with a person. It is created by the system that we created. So why don't we go back to the system to fix it up? Then nobody will be poor. That's my point.

We give opportunities to beggars and lend them money. We tell them that if they go from house to house, can they carry something to sell, some candies, some sweets, some toys, whatever they can sell. And (they) give people the option of whether they want to give (them) rice or they want to buy something.

We give them the money to expand (their business). The typical size of such a loan is about $12. With $12 she or he becomes a salesperson. Many of them are now quitting ... begging and have become sales people because everybody supported them.

During your visit did you explore opportunities for cooperation with Indonesian banks or institutions?

Not in a specific (sense) but definitely I'm sure this will bring us closer. The government themselves are pretty much interested. We discussed a lot about what steps need to be taken. This should not be stopped here. And the role of the media is to make sure this will not stop here.

The advantage of micro-credit is that it doesn't need the government all the time. It is civil society which needs to get it done. The government has to perform the role of creating an enabling environment. The law has to be fixed. Instead of pushing the government to do everything, we can just ask them to create an enabling environment and (then) leave it to the people.

Then, the provincial government can pick it up, the district government can pick it up, because you can make it as small as you want.

LG launches new, cheap, 3G handset

The Jakarta Post, Jakarta

South Korea-based mobile phone manufacturer LG Mobile Communications Indonesia (LGMCI) launched Tuesday a new 3G mobile phone in Indonesia, which it says is the cheapest mobile phone in its class.

Vice president of LG Electronics Bo Hoo Choi said Tuesday that with its more affordable price, the new LG KU250 handset was expected to narrow the gap between 2G and 3G handsets.

"We are aiming at first-time buyers of 3G handsets. We want to expand the market by bringing the entry level down so that people can start using 3G phones right away. We help them move from 2G to 3G technology," Bo told The Jakarta Post.

"When we use a 3G phone, there are two kind of benefits. One is video transmission and the other one is data transmission. That is why we developed this model targeting the younger generation and business people," he added.

The LG KU250 handset is the winner of a tender called "3G for All" held by GSM Associations in Barcelona in February to provide a good quality 3G mobile phone at affordable price.

Among 19 models proposed by eight vendors for the tender, LG KU250 was chosen as the winner by a jury of 12 GSM operators. The eight criteria for selection were functionality, usability, logistics, market acceptance, price, service and support, strategic commitment and form.

The 12 GSM operators that selected the winning handset, were Cingular Wireless, Globe Telecom, Hutchison 3G, KTF, MTN, Orange, Smart, Telecom Italia, Telefonica, Telenor, T-Mobile and Vodafone. These operators are now introducing this model in their respective networks.

Bo was optimistic that LG would be able to sell 10 million new handsets worldwide a year, but he was reluctant to predict Indonesian sales.

The phone is equipped with GPRS facilities, 10MB shared memory and external micro SD card slot, bluetooth and USB as well as a 1.3MP camera and a VGA camera for video calling.

He claimed that the handset, which is now available at Rp 1.4 million (about US$160), is the cheapest in its class.

"The prices of most of 3G phones in the country are above Rp 2 million. Only some old products are bellow that level. So in terms of price and value, I don't think there is any competitor for us," said Andre Tanudjaja, sales and marketing general manager of LG Electronics Indonesia.

Andre said that by June the average demand for 3G handsets in the country had reached 13 percent of the total demand for mobile phones, far higher than 6 percent last year.

Indonesia's annual total mobile phone sales reaches around 15 million.

He said that the average was likely to increase to 15 to 17 percent by the end of the year and that LGMCI was aiming to secure a share of 10 to 15 percent of the 3G market in the country. (02)

RI needs microcredit regulator

Friday, August 10, 2007
The Jakarta Post, Jakarta

Indonesia needs to establish an independent regulatory body to govern and supervise its microcredit sector if it is to grow in line with its potential, Nobel laureate and microcredit pioneer Muhammad Yunus said Thursday.

Speaking before members of the Indonesian Chamber of Commerce and Industry (Kadin), Yunus said an independent body for the microcredit sector was very important due to the specific and unique nature of the business.

"Rather than leave it to the central bank, it should instead be done by an independent regulatory body created for microcredit. It can't be just pushed into one of the corners of the central bank," said Yunus.

He said he had always promoted the idea of an independent regulatory authority, but it took decades for the Bangladeshi government to eventually agree to the establishment of such a body.

"As a bank, the Grameen Bank was regulated by the central bank, but it was not a very happy experience because we (central bank and microcredit providers) speak different languages," said Yunus who founded the Grameen Bank in 1983.

He said the ultimate solution for the microcredit sector was legal reform that would allow any financial-sector organization to become a microcredit provider.

When asked why Indonesia's microcredit experience had not been so successful, Yunus said the microcredit sector in any country should keep itself as far away as possible from the government.

He said that preventing the government from getting involved in the microcredit banking sector had been a continuous struggle for him since he first became involved in microcredit in 1976, especially in the 1990s when the microcredit concept in Bangladesh became very popular.

"The more the government is involved, the messier the business. We always make it very clear to the government that microcredit and the government is bad chemistry."

"We always told them to stay away from it, help us in the policy-making field, don't give us money directly," he said, adding that what the government could do was provide a revolving fund to provide start-up capital that would later be managed and used by the sector.

Also, he said, in order to secure more money for microcredit, all financial institutions should be allowed to create deposits for extending loans to the poor.

Grameen Bank had arranged a core deposit derived in part from the World Bank and the Bangladeshi government.

"The government's money has been paid back, the World Bank's money is about to be paid back. But the bank still has a lot of money on its own. So now, they lend the money out and recycle the money themselves," Yunus told the meeting. (02)

Pusri plans to build fertilizer plant in Mideast or N. Africa

Thursday, August 09, 2007
The Jakarta Post, Jakarta

PT Pupuk Sriwadjaya (Pusri), a holding company of state-owned fertilizer manufacturers, plans to build a plant in the Middle East or in North Africa to cope with Indonesia's increasing demand for non-urea fertilizers.

Pusri president director Dadang Heru Kodri said here Tuesday that Pusri was exploring the possibility of constructing a factory in Iran, Jordan, Morocco or Egypt.

PT Petrokimia Gresik, a Pusri subsidiary that produces non-urea fertilizers, had sent representatives to those countries to explore the possibilities, said Dadang.

He said the plan to build a factory in the Middle East or North Africa was the result of difficulties in procuring raw materials for the production of SP 36 fertilizers (super phosphate with 36 percent phosphorous pentoxide).

SP 36 fertilizer is made from three main raw materials -- phosphate, gas and potassium -- with the first of these being in short supply in Indonesia, said Dadang.

"Indonesia usually imports phosphate from China but recently China seems reluctant to export phosphate to Indonesia, while the price on the international market is getting higher," said Dadang.

Besides China, Indonesia also relies on countries in the Middle East for the raw materials for SP 36 fertilizer.

Pusri said that the total cost of the construction of the plant could reach Rp 2 trillion (about US$219.7 million). As the holding company of the state-owned fertilizer producers, it has submitted proposals for the financing of the construction of the plant to the Ministry for State-owned Enterprises.

Currently, PT Petrokimia Gresik is the only state enterprise that produces SP-36 fertilizer, and has a capacity of 800,000 tons per year, far below the domestic demand of 2.4 million tons per year.

Chairman of the Farmers' and Fishermen's Contact Group, Winarno Tohir, said the plan to build the fertilizer plant would solve the problem caused by the lack of SP 36 fertilizer.

At present, many farmers use other fertilizers, such as NPK (Nitrogen, Phosphorous and Potassium), and organic fertilizers, due to the lack of SP 36 fertilizer.(02)

Government and microcredit is a bad chemistry:Muhammad Yunus

Matheos Viktor Messakh/Jakarta

Nobel laureate and microcredit pioneer Muhammad Yunus said Friday that governments should stay away from directly lending microcredits to the poor and better provide good environment for microfinance banking through legal reform.

Speaking at a public discussion at the Ministry of Agriculture, Yunus said that it was a bad idea for governments to get directly involved in lending microcredits to the people.

"The position I again and again promote is that government and microfinance don't work well. It is a bad chemistry. A government basically is a political entity and political entities should not be trusted with the task of lending, particularly lending to the poor," said Yunus who was applauded by the audience.

"The moment the government starts lending to the poor, the political reaction begins: why are you charging interest to the poor people, you can't charge people. After all, you are government," he added.

He said that two conditions were absolutely needed for the development of microfinance in Indonesia. First is funding arrangement, either by allowing microfinance banks and NGOs to take deposits or by creating a wholesale fund.

"This is a fund where a government puts money and that has independent management. So that this fund can lend money to NGOs or microfinance institutions that in turn lend money to the poor. That's much safer, rather than the government running a
microfinance program by itself. Whenever the government tries to do that, it becomes a total mess," said Yunus.

The second condition, said Yunus, was that the government conducted a legal reform to allows the creation of microcredit banks.

"With this law people can specialize in microfinance banking, lending money to the poor without collateral, without guarantee, without any legal instrument, so that people can do things on their own to move up, making income better, as quickly as possible," he said.

Yunus said that several attempts on microfinance had been made in Indonesia for several years but were stuck due lack of fund from the government.

"They got stuck because financing is not available to them. A very simple solution is to create wholesale fund to lend money to microfinance organizations to lend money to the poor. It can be resolved. In Bangladesh we have done it. As a result,
microfinance flourished all over the country. That one step would help a lot," said Yunus.

"People have proved that it can be done, and it is done it very well. Anyone can go and just visit them and find out. So is not a question of whether it can't be done or it can be done. It can be done, it has been demonstrated," he added.

Yunus said that one of the key success of the Grameen Bank was institutional design.

"The institutional design should be right. If we design it right, it works. We make it very independent, we could defy everybody and carry on," said Yunus.

Focusing on the poor and women was also very important to keep the business in its track, said Yunus.

"Go to the poor as far as possible. If you mix up the poor and non-poor, soon you will see that you are not doing microfinance that you are supposed to do. You get into another kind of thing. Focusing on women is also very important. It is so much worth for their families." said Yunus.

Taking savings from the borrowers would create financial strength for the microcredit lenders, said Yunus adding that today 56 percent of deposits of Grameen Bank came from the borrowers themselves.

"They are not only borrowers, but they also save in the bank. That's become important to the bank. This provides a financial strength, and it has to be sustainable. Never shifted from the focus, in order to be sustainable and profit making. We make profit and the profit goes back to the borrowers, because they
own the bank," he said.(02)