Silicon Insider: Social Entreprenuers Could Help Monetize the Web

Nov. 2, 2006 — -- The recent announcement that Muhammad Yunus would receive the 2006 Nobel Peace Prize was a piece of good news in a bleak year.

It's become easy to be cynical about many of our big global institutions. The United Nations, that shining hope for all mankind when I was a boy in the Kennedy era, has become a platform for homicidal thugs, a hotbed of kleptocrats, and the home of the toothless diplomatic gesture. And the Nobel Peace Prize, which I was once taught was reserved for secular saints, has been doled out the usual run of anti-Westerners and mass murderers with the right ideologies -- and most recently, it seemed destined to become the latest publicity site for celebrity do-gooders.

Thus, Yunus' award came as a pleasant shock. Here, for once, was a laureate who actually used proven practices (entrepreneurial capitalism) to produce actual, measurable good works (rather than merely good intentions) to make the world a better place. And not only that, he did so by developing a model that was both scalable and transferable. Shocking!

For those of you readers who heard the news but didn't dig deeper into the details of the story, Muhammad Yunus is the founder of Grameen Bank, the Bangladesh institution that pioneered the practice of making very small loans -- microloans -- to needy people who would normally not qualify for a bank loan.

From Generosity, an Entrepreneurial Idea

Yunus' story has become almost mythical; and it will no doubt be taught to schoolchildren for generations to come.

In 1976, as a young economics professor at Chittagong University, Yunus literally emptied his pockets -- a total of $27 -- to help out a group of local craftsmen. He then also offered to act as guarantor of an even larger loan from a traditional bank nearby.

Out of this interaction came the Grameen Project, and ultimately, Grameen Bank, today a huge institution with thousands of employees that manages these small loans to the poor.

To give you an idea of just how small, consider that Grameen itself has lent just $5.1 billion to a total of 5.3 million people. If you assume that many of these millions of lenders have taken out multiple loans as they pulled themselves out of poverty into small-scale businesses, it becomes apparent that few of these loans are for more than $100. No Western bank could afford to offer loans of 10 times that amount. Even more remarkable, Grameen Bank demands no collateral from its loan recipients -- a good thing, because they have none.

Grameen Bank alone would guarantee Yunus' place as one of the great business innovators of the last century. But the story doesn't end there. One of the glories of Yunus' model is that it can be implemented almost anywhere, and with a comparatively small amount of initial capitalization. So it's not surprising that in recent years microcredit banks similar to Grameen have sprung up throughout Bangladesh, Southeast Asia and Africa. The latest estimate is that there are now more than 3,200 microcredit institutions in the world, serving more than 90 million customers.

Yunus' model has not only spread outward around the world but also downward to the people in straits more dire than Grameen's typical customers. In recent years, Yunus has embarked on what he calls the Struggling Members Program, which offers loans, rarely more than a few dollars, to the poorest members of society. Not only do these loans require no collateral, they don't even require payback. The recipients, who might use the money to, say, buy a box of fruit to resell, are only asked to pay back if and when they can.

Not Without Controversy

Winning a Nobel Peace Prize tends to wrap one's work in a penumbra of goodwill. But the truth is that over the years, Yunus' work has been quite controversial. For one thing, his approach of bottom-up capitalism has offended the grandees of big philanthropy and global monetary funds -- and they have keyed on Grameen's fairly high interest rates as evidence of some kind of hidden exploitation of the poor.

Others have pointed to the lack of paperwork on these millions of transactions -- a necessity given the sheer numbers and the general illiteracy of the recipients -- as suggesting hidden maneuvering. And given that Bangladesh is a Muslim country, there has been considerable grumbling over the fact that more than 90 percent of Grameen's loans are made to women -- a strategy learned by Yunus and his team after considerable experience.

But like the great entrepreneur he is, Yunus has ignored these criticisms and forged ahead, changing the world for the better in the process. And many of those who slammed him have now adopted his practices. The Nobel Peace Prize is the final seal of approval.

As it happens, I know Muhammad Yunus. He was one of the individuals we profiled in the PBS miniseries on social entrepreneurs, "The New Heroes," that I co-produced. I also had a chance to spend some time with Yunus a couple of years ago at the Skoll Summit on Social Entrepreneurship at Oxford University. I found him gracious, harried and even a bit ethereal -- as if the process of converting him from flesh-and-blood man to enduring myth had already begun.

Entrepreneurship Outside of B-School Culture

I decided to write this column about Yunus not just to celebrate his award but to also note some interesting parallels that seemed to be missed in the massive press coverage over his new honor.

The first thing to note is that the idea of microcredit did not emerge in some Western B-school, but on the ground in one of the most desperately backward regions of the developing world.

This, I think, is the future: As a billion new consumers join the world market in the next decade or so, and they are armed with the tools of modern life (PC, cell phone, Web access), all of that untapped intellectual capital is going to be put into play. Some of the very best new ideas of this century are going to come from the most unlikely places. And that's a good argument for looking beyond the usual business magazines and grad schools for future fads, products and competitors.

Second, Yunus is almost an archetype for what is called a "social entrepreneur." That's a pretty popular term these days, and often sloppily applied to cover everything from NGOs to traditional nonprofits.

But Grameen Bank is something very new -- muscular, bottom-line oriented, unsentimental and driven toward a measurable success. The results may be uplifting, but the work itself is long and hard. As such, Grameen is closer in style and philosophy to a Google or eBay than to some classic notion of "do-good" charity. The world needs a lot more of this kind of approach than failures with good intentions.

Finally, at the heart of Grameen is the notion of community. Yunus didn't start out that way, but experience taught him that the most successful approach to microloans was to lend to women (they are more reliable) and to make those loans in a community mileu (because peer pressure is a far greater guarantor of payback than any other force). For that reason, Grameen makes its loans in turn to individual women who are part of a larger neighborhood loan group. If one of the ladies doesn't pay back her loan, the rest are cut off as well. It is a very, very effective system.

Monetizing the Expanding Communities on the Web

What makes this last bit particularly interesting is that we in the West currently find ourselves facing a community revolution of our own -- in our case, on the Web. YouTube, MySpace, FaceBook, Firefly and a thousand other sites are creating online communities with their own cultures, mores and customs, and, not least, peer pressures. It is often asked where these online communities go from here.

Well, the answer may lie in people like Muhammad Yunus and other emerging entrepreneurs of the developing world. What if some clever social entrepreneur were to look at these emerging online villages, in this case armed with powerful computers, cell phones and other state-of-the-art tools, and find a way to harness it for communal banking, low-interest loans, mutual support groups, or best of all, positive social change. If 90 million people can tap investment capital without collateral or even paperwork in places like Bangladesh, imagine what a comparable number of educated and comparatively wealthy people might accomplish.

When that happens, Muhammad Yunus won't be just the "banker to the world's poor," but the man who empowered the entire world.

Tad's Tab: The latest from the teen tech trenches Malone's 15-year-old son, Tad Malone.

I recently came across a site called Vox. It is basically a shared blogging site for the masses. As with other community sites, you still have your own profile -- but in this case it is in the form of your own blog. You also get sharing tools that connect you to other users while still letting you control your privacy level. Although Vox hasn't really taken off yet, it is certainly a site to watch. It might even become the MySpace for the literates.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Michael S. Malone, once called the Boswell of Silicon Valley, is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is best-known as the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the ABCNEWS.com "Silicon Insider" columnist since 2000.