The Grameen bank and the First Emperor

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The Grameen bank and the First Emperor

Many people are familiar with the story of the Grameen bank.  Its founder (Mohammad Yunus) recently won a Nobel Peace prize for his pionering work in micro-credit and poverty alleviation.  In essence, what he did was to set up a self-regulating lending system.  Before the Grameen bank came into being it was virtually impossible for a poor person in Bangladesh to obtain credit.  Because of extremely poor debt repayment rates, banks found that the cost of lending made it not worth their while to lend money to the poor.  This is largely due to their approach of designing increasingly complex credit scoring systems in order to decrease their risk.

What Yunnus did was to leverage informal trust relationships and distributed cognition to solve the problem.  Simply, anyone could take a loan up to a certain amount, if they could find 5 other people in their village who would take out the same loan amount, and they each guarentee each other’s debt.  Now, no-one would go into such an arrangement with someone they couldn’t trust, so immediately the need for credit scoring fell away.  The system was largely self-regulatory, with a very low cost of lending and a repayment rate of over 90%!

On a recent trip to London, I encountered a similar approach while viewing an exhibit on the First Emperor of China and his Terracotta Army at the British Museum.  Apparently this visionary leader (although often cruel and somewhat misguided) divided his people into groups of 5.  Each person in was responsible to see to it that his group members didn’t break the law, as they would all be subject to execution if one of them acted unlawfully.  Although it is similar, it fails to leverage the power of self-orginisation and trust, but I’m sure it had good results, as I can just imagine how inter-dependent these little groups became!

So why spend so much time on these examples?  In South Africa, as in most other countries in the world, governments face increasingly complex issues, and have ever-decreasing resources.  One example would be the enormously complex problem of dealing with thousands of Aids orphans in most African countries.  In resource constrained environments, low-cost self regulating initiatives as described above can relieve the strain most governments are under.

All it requires is a mind open to new approaches, and people who are able to break out of old, ordered system paradigms (e.g. the only way to solve the credit repayment problem in Bangladesh was to increase the number of credit scoring rules).  It also requires leaders willing to adopt a safe-fail experimentation approach to complex problems, rather than a fail-safe, silver bullet approach.  This is also the foundation of most of what we focus on, and what the Cognitive Edge methods are based on.

By |October 19th, 2007|Categories: Uncategorized|0 Comments

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