INNOBLOG

The Nobel Peace Prize was awarded to Muhammad Yunus and his microcredit institution, Grameen Bank, today, validating the notion that disruptive innovation can be a powerful driver of peaceful, harmonious development. Disruptive innovations often democratize or decentralize a traditionally restricted product or service, enabling mass consumption. This is of course an opportunity for companies looking to create new growth, but in many cases it can also be a liberating force for underserved segments of society, enabling radically new access to the tools and levers of the modern economy. Yunus? microcredit scheme ? which is spreading from his native Bangledash across the developing world ? is a wonderful example of this sort of low-end innovation. Financial services, particularly access to credit, provide the liquidity and leverage people need for enterprise and development. In much of the developing world there are no modern financial services designed for the poor, leaving people prey to loan sharks and stuck in patterns of indenture and poverty. Grameen solves this problem by focusing on what its customers actually need ? small loans with no fixed repayment scheme, delivered to villages by ?mobile bankers? on foot or bike and enforced by a communal structure that limits loan amounts to groups of people based on constituent members? repayment status. These microloans might enable a villager to buy a new cow or school books for a child while building a credit history without getting trapped in a cycle of spiraling debt. They are so well designed that Grameen has long been profitable and boasts a 99% recovery rate; all the microamounts ? from pennies to hundreds of dollars at a time ? have added up to $5.72 billion in loans since inception. A final note: the way in which Yunus happened upon his microcredit strategy is telling. He met a poor rural weaver who told him that she was virtually enslaved to her lenders due to the massive amounts of interest they charged on the tiny loans they gave her. Yunus then spoke to others in her village and realized that the lack of access to affordable credit was their primary impediment to development and enterprise. What?s more, the amounts needed by the villagers were miniscule ? the entire village needed just $27 of capital! He immediately put up his own money and asked the villagers to repay him whenever they could. Within a year they had all paid up, and the idea for a business was born. Going to villages and talking to people in need enabled Yunus?s insight. He listened to the frustrations in their lives and designed a solution to help make things easier. Yunus helped lift millions out of poverty and built a profitable business by understanding and addressing nonconsumers? Jobs to be Done. See: http://nobelpeaceprize.org/eng_lau_announce2006.html http://www.grameen-info.org/