International Development Law Organization

Yunus - Moving towards a new civilization: rule of ‘good’ law

1 Jun 2016

Taken from a speech given by Professor Muhammad Yunus to mark his appointment to the International Advisory Council of IDLO in May 2016.

‘My work with microfinance started forty years back. I posed a basic question about the banking system; I still do - it’s still not been corrected. The banking system continues to serve the rich. More than three billion people are not reached by banking services. So when you talk about poverty, one major cause of poverty is that they have no opening, no way to get out of poverty. They’re imprisoned in that situation because the system doesn’t work for them. And despite opposition to the idea that we lend money to the poor, I dared to try an experiment to see if it could work. And luckily it did. Then we dared to do it exclusively with poor women. Everybody said no, this isn’t going to work. But it did.

Today microcredit and tiny loans for poor women have become synonymous, because everywhere we do it the same way and it works beautifully.

We’re based on a very simple idea. We don’t have any legal relationship between borrowers and lenders. It gives a clearer view if you can build a human relationship, not relationships based on paper and legal resources.

Throughout the world, wherever Grameen operates, it’s the same thing – no legal papers and no collateral. It’s absurd to ask a poor person for collateral since they cannot provide any. Since we don’t have collateral, we have no legal papers to work with, since we have no legal papers to work with, Grameen is probably the only bank in the world with no lawyers. We don’t need any.

It works because it’s based on trust. Trust is still a valid thing, it’s not something you can ignore. But people forgot this. They want 5-6 signatures and pages of counter-signatures and so on. But we discovered that trust still works. Not for one day, one week, one year, but year after year, village after village. Millions of people do the same thing over and over again. Because the trust and understanding between them works.

Equally, sometimes the law can be against you, because the people who wrote the law didn’t come from your side so they made laws that are not in your interest, and we see many examples of this.

I am very committed to the rule of law, it’s the only recourse we have in the world so we can live peacefully within the designated space we have – that the law allows us. But the rule of law can be vitiated by the wrong laws. When you’re in the clutches of the wrong law, how do you get out of it?

This is one area to which I keep drawing attention and the other thing I keep raising in my work is that the law is not something that protects the poor.

For one thing, the law has to be bought, it’s not free. If you want legal recourse, you have to go to lawyers, through the legal system, and it’s a terribly difficult and complicated procedure. So poor people cannot afford it.

The law serves the people who can afford it.

Where we talk about a financial system where everyone is included and no one denied, we have to have a legal system where everyone is included, even if he doesn’t have the money or the means to buy legal protection.

But how do we do that?

The system has to be designed. I keep asking ‘why don’t you design a legal system so that even if you can’t afford to pay anyone, you’re still the recipient of legal protection?’

One example in Bangladesh is that women have no right to property because everything belongs to the man, that’s the traditional way in villages in Bangladesh and many other places. So we were doing our micro-credit work, focusing on women, and I was seeing these poor people don’t have property or houses, just shaky little huts which they have to live in in winter, in the rainy season, in difficult circumstances.

So I thought why don’t we offer a housing loan so that they at least have a decent house to live in and could pay back this money over a long period, 10-12 years, and the monthly repayments will be small? So we did, but then we worried about divorces. If the woman builds the house and the next day she is divorced, she has no right to her house. So we thought we need to address this issue. It’s a valid and important issue.

Divorce is very uncertain in Bangladesh. You only have to say ‘I divorce you’ three times and the marriage is over.

So we made a rule – if you want to take a house loan, you need to show proof of ownership of the land on which the house will be built.

Our borrowers are women, they don’t own land, don’t have any record of owning land. So we said ‘sorry, we can’t lend you money unless you bring this paper showing the land belongs to you, so that the house belongs to you.’

In one case, the woman didn’t have it and asked what she could do, so we advised her and said ‘why don’t you talk to your husband and ask him to transfer the title of the land to you? Then we can give you a housing loan and both of you can live there.’

At first she didn’t dare ask. But their need for housing was so great, eventually her husband agreed.

Hundreds of thousands of housing loans have been given, and we’ve seen that divorces often disappear in houses with Grameen loans. There’s a very simple reason - now if you divorce your wife, you are the one who has to get out of the house.

But who owns the cow bought with the Grameen loan?

In another case, the husband said he did. The village elders sat to settle the case and the woman won because she had the papers showing she took the loan and made the repayments.

We must celebrate the law but these are areas where there’s a big gap, it’s not doing what it needs to. We have this mismatch.

We need to protect what we have and the institutions we have built, so that the law protects every human being.

So I hope IDLO can protect us, addressing how to bring about rule of law – rule of good law, not bad laws – how to sift out the bad laws. We have to work together to achieve that, IDLO cannot do it alone. But it has to happen, we have to have laws to protect everyone. That’s when we move from old civilization to new civilization, and that’s our goal.'

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Professor Yunus