Turning unemployment into entrepreneurship

Grameen Bank started out with a tiny initiative in the village of Jobra in 1976. In 1983 it became a formal bank. Now in 2014 it has over 8.5 million borrowers. Right from the beginning we paid attention to two things: 1) borrowers build the habit of savings by putting money every week in a savings account. We encouraged them   never to give up this habit. 2) Secondly, borrowers should send their children to school. We paid highest attention to the second generation in the families of borrowers.  At the very start of Grameen Bank we encouraged our borrowers to use their Centre House, a hut under which borrowers assemble to hold their weekly centre meeting, as a place of learning for their children. They hire a local girl or a woman paying small salary (usually TK 500 or $ 6.5) to teach their pre-school kids every day. Families had no experience of schools. They could not tell their children what to expect in school. This new learning and fun centre acted as a soft introduction to the kids to get used to reading and writing, also have fun being together everyday, as a way to overcome the fear of school.  

We included the commitment of sending every child  to school in the basic charter of pledges of the borrowers, famously known as "Sixteen Decisions",  chanted by all Grameen Bank borrowers collectively, in every weekly meeting week after week, year after year.  We launched a campaign to make sure hundred per cent of the children of Grameen families go to school. This was quite a daring task when most of the children of poor families did not go to school. Grameen Bank gave scholarships to thousands of students each year to encourage them to continue in school and compete for better performance.  Our campaign worked. We succeeded in making all children go to school. When they finished primary school we encouraged them to go to high school. Most of them did. When they finished high school we encouraged them to go to colleges. But that created a problem. Going to college needed money. We came up with a solution. Grameen Bank introduced education loan to make sure they move to higher education.

NOBIN UDYOKTA: Since then thousands of students have taken education loan to become graduates, doctors, engineers and professional people. But for most of them there were no jobs. They were very frustrated. At this point we launched another campaign. We started campaigning to redirect their mind from traditional path of hunting for jobs to creating jobs for themselves and others, through entrepreneurship. We invited them to keep repeating to themselves that "we are not job-seekers, we are job-givers". We tried to inspire them to create businesses, with Grameen Bank loans, instead of hunting for jobs.  We called those who chose that path and took loans from Grameen Bank, as Nobin Udyokta (NU), Or "New Entrepreneurs".

NU programme did not pick up any speed, because parents were reluctant to let their sons or daughters take more loans while they still have the unpaid education loans. Moreover, bank staff were very slow in giving them fresh loans because they still have outstanding loans to clear.

DESIGN LAB: As the idea of social businesses was catching up by 2013, through various conferences, writings, interviews, I felt we needed a platform where we could bring the entrepreneurs to present their social business designs in front of a group of experienced business executives and social activists, to seek their advice. This would do two things, it would encourage people to come up with social business ideas, and develop this platform as a sounding board for getting the concept of social business more business-ready through its application in concrete situation. Yunus Centre organised the first Design Lab in January, 2013.  It went very well. Encouraged by its success we decided to do it every month.

As the Design Lab continued to attract new business plans we thought about inviting the business plans from Nobin Udyoktas of Grameen Bank to link them up with social business angel investors who would  invest in their businesses. It started in a slow motion, but within six months it picked up speed. By the end April, 2014, 68 NUs presented their business plans in the design labs. My expectation is, by the end of 2014, at least a total of 200 NU business plans will be approved for investment. I think this number will easily double itself each year. Once the implementation structure is built, speed of expansion will pick up easily.

FROM LOANS TO EQUITY: Impact of this shift from loans to equity to create social businesses is far-reaching. This has a possibility of addressing the issue of global problem of youth unemployment, or any unemployment for that matter, in a sustainable and a replicable way. It is simple, but very effective. It has moved the issue from traditional prescription of job creation through promoting profit-maximising investments or investments in large infrastructure projects by governments, to simple, sustainable, and direct micro equity financing of the business of the unemployed person himself within a social business format. Here the action directly aims at the very person whose problem is to be solved. It is not an uncertain by-product of an enterprise intended for profit maximisation. In a social business the investor solves a problem by creating a business. In this NU case the investor solves the problem of youth unemployment (needless to say, the method can be used in any type of unemployment situation -- whether the young, or the old). Investor, in a social business, does not take any profit from his investment, except forgetting his investment money back. The NU is responsible for paying back whatever money he received as equity within an agreed period. This offers an exciting opportunity for any entrepreneur. Imagine what a thrill it is for a young entrepreneur entering the business world for the first time.

RELATIONSHIP BETWEEN INVESTOR AND NU: The entrepreneur may have some or no shares in his business. He can be the managing partner or a paid manager of the business owned by the investor. Investor will be monitoring the performance of the manager/managing partner, but will not get involved in the actual running of the business. As the business makes profit, the investor receives his dividend. When he has received enough dividends to equal the amount of equity he has invested, he stops taking further dividend. It is time for him to move on to the next investment with the money he got back. But his objective will not be achieved until he establishes the entrepreneur as the owner, because his intention was to transform a job-seeker into a job-giver. This was his objective.  If his intention had been merely to create job for a young unemployed person, his objective would have been achieved right at the start. Even if he holds on to ownership of the business, the business would already be a successful social business. But his objective was bigger than just providing employment; it was to transform a job-seeker into a job-giver, that is, creating an entrepreneur. This he does by selling the shares to the entrepreneur following social business guidelines.

Question comes, what price would he charge to the entrepreneur for his shares?  He is entitled to sell them at the book value, or at the market value of the shares. Both these values are higher than the face value because the business has already paid back the original investment amount. According to social business guidelines, investor can sell his shares at the market value, but he has to reinvest the additional money he receives beyond the face value, into another social business, or in the same social business. In other words, he cannot enjoy additional value created by his investment. In our NU programme, we made an easy rule. In selling the shares of a NU business, the investor will take an amount equivalent to the original investment amount plus additional fixed sum of 20 per cent over it. We call the additional amount a "share transfer fee". The entrepreneur finds it very attractive offer, because, firstly, he is buying the shares at the face value, not at the book value. That itself is a big gain for him. Secondly, fixed charge of 20 per cent on the original equity over the entire pay back period is a rather modest amount to pay to the own shares. For example, if the entrepreneur is paying back the investment amount of Tk 1.0 million he will have to pay back a total fixed amount of Tk 1.2 million irrespective of how many years it takes to pay back the money.  Instead, if he had borrowed the money from a bank his interest burden will grow each day, making the total repayment burden twice or thrice the original loan amount in a few years.

What would be the justification for charging the "share transfer fee" in the NU programme? We point out two reasons: one, in social business shares are transferred at market value. In NU programme the entrepreneur is asked to pay the amount equivalent to face value, which would be much smaller than the market value in a successful business.  Two, investor in the case of NU programme is not a passive investor. He is a very active investor. He prepares the entrepreneur to become an efficient entrepreneur, arranging training for him, providing guidance to him, monitoring his business performance, providing support services, bearing the business risk, helping him to handle emergencies etc. Fixed amount of 20 per cent is only a small fee for covering all these services over a period of several years.

By September, 2013, we had got some early experience in handling the NU programme. During this period, we developed basic methodology, reporting formats, identification and assessment procedures, etc. Initially, Grameen Telecom Trust was the investor. They brought the NU projects to the Design Lab for getting critical assessment from a group of experienced professionals. Usually there are around 150 people participating in a Design Lab. It is live streamed through the internet. Participants from 70 to 80 countries attend the session in live stream. Participants ask questions, make suggestions to the investor to improve the project or raise issues which they thought had been missed out in the project preparation.

By now, one year later, methodology has been made sharper. More Grameen companies (Grameen Telecom Trust, Grameen Kalyan, Grameen Trust, Grameen Bybosha Bikash, Grameen Shakti) have initiated their own NU programmes. Common facilities, like computerised MIS, and accounting software, common training facilities, are being developed. Innovations are added by each Grameen company to make the programme more effective. A rigorous implementation structure is emerging to make sure NUs get thorough orientation, training in business management, accounting, reporting, and have access to support services.

Professor Muhammad Yunus is Nobel Peace Prize winner