Traditional management has a wonderful track record of sidelining, downsizing or eliminating anything that is creative or imaginative or innovative. It has happened in knowledge management, in lean manufacturing, in marketing and in innovation itself.
Now Nobel Prize-winner Muhammad Yunus tells us that traditional management has turned its talents to microcredit and having the usual impact.
In 1983, Yunus founded Grameen Bank to provide small loans that people, especially poor women, could use to bring themselves out of poverty.Yunus discovered that very small loans could make a disproportionate difference to a poor person. While traditional banks were not interested in making tiny loans at reasonable interest rates to the poor due to high repayment risks, Yunus showed that given the chance the poor would band together and repay the borrowed money and hence microcredit could be a viable business model. In 2006 Yunus and Grameen received the Nobel Prize for Peace.
In some ways, microcredit can be seen as an early example of the age of customer capitalism (Capitalism 3.0) in which the customers were not seen as things to be manipulated, but as true partners who helped create the business solution.
According to Yunus:
Troubles with microcredit began around 2005, when many lenders started looking for ways to make a profit on the loans by shifting from their status as nonprofit organizations to commercial enterprises. In 2007, Compartamos, a Mexican bank, became Latin America's first microcredit bank to go public. And this past August, SKS Microfinance, the largest bank of its kind in India, raised $358 million in an initial public offering.
To ensure that the small loans would be profitable for their shareholders, such banks needed to raise interest rates and engage in aggressive marketing and loan collection. The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared. The people whom microcredit was supposed to help were instead being harmed.
Yunus says that in 1983 he never imagined that one day microcredit would give rise to its own breed of "loan sharks".
In effect, the social fabric that was the basis for the microcredit revolution—a total focus on what was good for the customer—switched to a focus of what the managers thought would be good for the bank. In the process, they started treating the customers as things to be manipulated and so destroyed the social fabric on which microcredit rested, thereby undermining the very enterprise whose interests they were trying to promote.
There is one point of detail however on which I believe that Yunus is mistaken. That is when he characterizes those responsible as "loan sharks". This implies incorrectly that these bankers were in some way doing something unusual for bankers.
On the contrary, they were managers pursuing the normal practices of traditional banking and Capitalism 2.0, trying to manipulate their customers and tweaking their value chain to improve profits for the organization, rather than pursuing the principles of radical management and Capitalism 3.0, where you start from the customer and ask: what makes sense for them? What would delight them?
Radical management and Capitalism 3.0
For those who would like to learn more about the history of dying age of Capitalism 2.0 and the future of management (Capitalism 3.0), you can read my synthesis of recent books on the subject, The Death—And Reinvention—of Management. Or you can read the books themselves, such as The Power of Pull by John Hagel, John Seely Brown and Lang Davison, or Reorganize for Resilience by Ranjay Gulati, or The New Capitalist Manifesto by Umair Haque, or Leadership in a Wiki World by Rod Collins, or my own book, The Leader's Guide to Radical Management: Reinventing the Workplace for the 21st Century.
And read the whole of Yunus’s sorry tale here.