Muhammad Yunus Interview
Bangladesh bank offers loans to US poor
The Financial Times : Published February 15, 2008
This is the edited transcript of an interview with Muhammad Yunus, founder of the Grameen Bank. Daniel Pimlott spoke to Mr Yunus in New York on February 13. Editing consisted only in underlining.
Financial Times: I’m interested in the fact that you’re starting up here, in the context of why it is that America might need microfinance initiatives. So I wonder if you could just start off by saying what you’re doing?
Muhammad Yunus: Several things. One of the earliest countries which adopted the Grameen idea was the United States. We began in 1976, that $27 stuff, and then we became a bank in 1983. We were invited to start a Grameen programme in Arkansas in 1986, so very soon after we became a bank, and as the governor, Bill Clinton, was running the state, and he invited me to come and help him introduce the Grameen idea in Arkansas, so that idea came early on, and lots of other states adopted that. We introduced it in Chicago, right after, I think ‘89/’90, and it came to South Dakota, North Carolina, New York, and so many other places, so it was going on, the microcredit started by us and many other organisations. There are already over 200 such programs, which lend money to the people on credit.
The reason is, just like in the rest of the world, a lot of people within the United States do not have the privilege of receiving service from the financial system. So, you have a big market out there, and the indication is you go anywhere, you see the pawnshops, that’s an indication that that market is never reached by a conventional bank. You have the payday loans, you have the check cashing companies, and they’re flourishing, and they are pretty bold, the big advertisements in the newspapers, big ad in the television, pay their loans and all that, so this shows how much gap there is in the system. So, we wanted to start the Grameen programme because all these tiny programs never really took the part of becoming a financial institution, so they couldn’t address the bigger issue in a more concerted way. So, we thought we would make a beginning, and we created Grameen America, and we started building a prototype in Queens.
We thought that this would be a good area to test out our model … and also at the same time we will try to build it up as a financial institution, not as an end year activity, not as a charity activity, it’s about a financial institution.
So, we are battling with the legal framework. What kind of legal framework that we can use to create such a thing without becoming enormously costly, like creating a bank, which in banking law requires you to have lots of money to do that. You cannot, that’s not the whole idea of microcredit. So, we are toying around with several alternatives, which will be convenient and at least to start with. So, we’ve been battling on the legal front, and the creation of the institution.
Also, at the same time, developing the model, how to do the job in an efficient way and a financial service way, and then we also battled with the welfare law, because one of the problems in this country is welfare law. Once you are in welfare, it discourages you to get into any kind of income generation. If you earn a dollar, that dollar is to be deducted from your welfare check. If you want to quit welfare, then you lose your health benefits. Again, it’s an enormous disincentive for people, so people prefer to stay within than dare to get out and make a living for themselves, which is the wrong way, the wrong orientation, for a law to discourage people to get out of welfare. I think the welfare law should be built in such a way that it’s always encouraging people to get out of welfare, rather than holding them back. So, those issues were raised, and this is the beginning of such things, and we’ll start dialoguing with the law makers. So, this is where we stand right now.
FT: And, what do you ultimately hope to achieve with Grameen America.
MY: With Grameen America, highlight these issues, because people have got used to it.
If you see a pawn shop, you don’t get shocked, unless you are coming from outside. If you don’t see an advertisement for payday loans, you think this is normal, because you grew up with that. So, we are saying, this is not normal. This is an abnormal situation, because of the problem with the financial system, so we have to adjust the financial system.
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FT: Right, so you don’t see it in quite the same light as you do maybe see Grameen in other countries?
MY: Those problems don’t exist in other countries. Welfare law doesn’t exist in Bangladesh, because most poor and developing countries don’t have welfare … but once you do it in the United States, it applies to Europe. Europe has lots of problems with welfare and so on, and historically they’re supposed to protect the people at the very bottom, the safety net kind of thing, but you have to realise that it is not in the best interest of the people to keep them imprisoned in welfare. Welfare should be designed in a way that people make effort and are encouraged to get out of welfare and become a self-respecting individual, who can stand on their own feet.
FT: In Bangladesh, your ultimate goal is seems to be raising people out of poverty.
MY: Sure, isn’t it a parallel, to get people out of welfare? It’s the same signal. When we say we want to create a poverty free in Bangladesh, meaning that nobody will be in poverty. Similarly, it can be said, we will not have a welfare programme in the United States, because nobody will deserve to have welfare anymore.
FT: How exactly do you expect to deal with the welfare problem? What is your plan?
MY: Bring them above the situation where they will not need any welfare anymore. Why do you need welfare? Because you don’t have an income, so somebody has to support you, so the state comes in to support you. That’s why the welfare is an excuse, because you feel sorry for them and after all they are a member of your society, and somebody is suffering because they lost jobs or some sickness or something, so if you can create income for everybody, everybody can take care of themselves, you don’t need welfare.
FT: And, do you have any specific goals, in terms of where you want to be, or how much, in terms of loans you want to be issuing within a set time?
MY: Several things…I’ve been saying that credit should be accepted as a human right … saying that nobody in this country should be rejected from a financial institution. So, that has to be established, that some financial service is available, and I can go and take it, whatever it is, so this is one establishment, and then create circumstances where the law cannot interrupt. One of the things I keep saying, that if I’m on welfare, if I’m poor or if I cannot take care of myself, probably the state or the city authority should give me my medallion that I can hang or I can display, that I can do things and the police cannot arrest me, because I’m trying to make a living. If I’m selling things on the sidewalk, police will come and stop me, today, but if I have the medallion, I will not be stopped, because I am trying to make a living, because I have lost all other opportunity, so I’m doing that, so the state should be supporting me.
MY: Almost all the laws are with the assumption that this is applicable against businesses, Food and Drug Administration, for example, so you are trying to see big business coming in, and not selling things substandard and so on, but when I try to sell a piece of paper … on the roadside, the same law applies to me, but because it’s not intended for me. Since there is no other law, FDA says, no, this is substandard. We are not fulfilling the specification. You don’t have the ingredient list, you don’t have this…I have a cake, people love it and I sell it, and I make a living out of it. So, why don’t you create a separate law to allow me to do things that I need to do.
FT: In terms of the actual reach of your organisation, do you have a sense of where you need to be, within certain timelines?
MY: Timeline is as quickly as you can to adjust these issues. For example, if you want to do a neighbourhood and within the next five years, you have to reach out to every single person who does not qualify, according to the system that we have, the banking system.
FT: But, in order to make the changes you want, you need to feel like you need to reach a certain size of you organisation, in terms of in Bangladesh, you have 27,000 employees, you made six billion in loans, do you need to be across the country in large numbers?
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MY: The interesting thing is for Grameen Bank, for microcredit, the way it came out, it’s very modular. You do one for your neighbourhood that covers 1,000 or 2,000 borrowers, so you have a self sufficient, self reliant system that you’ve built. Now, you have a question of replicating that. On day one, you don’t need 27,000 staff. On day one, you need ten staff, five staff, to demonstrate that you can create such an entity, which can serve so many people and become sustainable. Once you have done that, then it is a question of repeating this. You go on and on, as many as you need. If you have 10,000 of those units, you’ll be needing 50,000 people working, so 50,000 doesn’t bother you, because each one is self supported. Nobody is drawing money from outside, and we are saying that they should be allowed to take deposits in their neighbourhood, so the money doesn’t have to come from outside either … When we began, we began in one village, and then we repeated it at a second village, and so on, and all our history is about now repeating it in more and more villages.
FT: In five years time, do you see Grameen Banks all over America?
MY: If the prototype works, I suppose in the first two or three years we develop the prototype, repeating it will not be very difficult, because you are struggling with all the legal issues, finance and procedural issues, so that it is consistent and the law doesn’t interrupt you … you have all the legal battles and other things in the first two to three years, so in the next years, it’s a question of how many pieces you can organize.
FT: Aside from the fact that the US was one of the first places you came, is there something particular about poverty here that makes it appropriate?
MY: This is not right that we came here first. We do build, operate, transfer programmes. We’ve been doing this for the last 12 to 15 years. We are invited to a particular country, we bring our stuff, we set it up and we run it.
FT: This is the first developed country, and it’s a very big country, and it’s got a very large amount of poor people?
MY: Yes, so that uniqueness comes from other features, like we do it in Turkey, also a developed country but not the USA, and we came and we send our staff, and started doing this. We are doing it in Costa Rica, which is pretty developed in the context of Latin America. So, since there are lots of discussions about the problem of welfare and so on, and nobody is addressing that, we said, let’s give it a try and see if we can impact on the people here, because if it makes an impact in the USA, then the whole world will come around, accepting it, because you have gone to the toughest fort, and if you can conquer that, then the rest of it gets around easier.
FT: One of the things that people have said to me, when I was talking about the idea of bringing micro credit to the US, is that your models focuses on helping people start small businesses, and actually a lot of people in America aren’t really looking to start a small business. It’s risky to start, and they want a secure wage.
MY: We don’t have any quarrel with that. We’re not forcing anybody to take a loan. If you have a job, go ahead and do the job. It’s your decision, not my decision, but if you don’t have it and you’re looking for opportunities if you’re on welfare, and feeling sorry for yourself, that if you had some money you could have done something, we say, let’s give you the money and you do something, so that’s what we are doing. We’re not taking away from something more attractive for you.
FT: It’s more a question of how deep an impact you can really make, because to get people out of poverty, you need to reach all the people who have jobs and are making money to buy…
MY: This is a common kind of story, that you work as a janitor, at an office, and you come home, kick off your clothes, you have a push car that’s selling things on the street… Just because you have a job doesn’t mean you stop everything else.
It’s very common that you have two jobs, three jobs and all kinds of things, or jobs in one period and then your business on the other side, or you have your wife sitting at home, not bringing in anything in particular but taking care of kids, and maybe she has something to do. Given an opportunity, she can start earning an income, so you need financing and this provides you with financing.
So, you are always trying to improve your situation, given many options. It’s a question of giving people options, not forcing people to do something. If you want to do such things, here we are, providing the service.
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FT: Are you’re focusing more on immigrants?
MY: That’s just to begin, because we don’t want to get into the welfare issue right away. Most of the immigrants are outside of welfare, so we said, there are two things. They are desperate, looking for opportunities and we provide that, number one. Number two, we are not battling with the welfare yet, so when we go into welfare, we have to now start dialoguing with the city officials, the state officials, federal officials and we have to come to terms how to handle this jointly, because they also understand the purpose of welfare, and we are enhancing their chance that these people will be off their hands and they don’t have to be financed from the state exchequer. They can be done in a business way, by microcredit.
FT: One of the other things that people say is the problem is not so much that one forms finance, it’s that people are caught in a circle of debt, and they’ve had debts for years, and it’s high interest. How are you going to make sure that by issuing more loans they’re not just going to extend the problems they already have?
MY: Sure, well, that kind of question probably is not very relevant in the USA, where everybody is busy giving them credit cards to spend money and get in debt, very high interest rate and so on. Ours is different from a credit card, we are not giving money for consumer goods, fashionable goods or something. Microcredit is defined as financing for creating income, so we are not consumption loan people. We are investment loan people, creating income, creating self-employment, so the debt issue comes when you take the money and buy yourself a TV set or air conditioner or used car, which doesn’t help you earn anything extra. You’re paying more, so that’s the debt burden you take. When you take investment money, that’s not a debt burden. That facilitates you to increase your capacity to earn, so that is something that helps you to earn more. It is an investment that you are looking for, but this money was not available.
FT: How can you make sure the people don’t just use the money for, for extra spending, or it’s not being, one way or another, being used for…
MY: That’s what the whole system is, how to ensure that the purpose for which you took the money is actually used for that. That’s why we have the group system, frequent visits by the bank staff to go and talk to you. That’s why all our business is done at your doorstep, so that I know you and your children, and you are not an impersonal entity as a borrower, coming and sitting behind a desk. I don’t even look at you, I say, give me your ID. Everything is about ID, not you. I’m not lifting my face to look at you. That’s not how we work. It’s a very personal relations … We know you, we know your children, husband, neighbours, so these are the ways to make sure, as best as you can, so that the things that you promise that you’ll do, you’re doing exactly that.
FT: In terms of regulatory, financial and legal problems in the US for you, what’s the biggest one?
MY: There is no legal framework to create a microcredit bank. You can create a whole Citibank. You bring millions and billions of dollars, which is required to create such a huge bank, but when you want to start a microcredit bank, is $2,000, $5,000 loans, you don’t want to spend $1bn to give $5,000 loans, so it’s useless to do that, and the way I describe it, by saying that existing banking law is a kind of architecture for a super tanker, which carries a lot of cargo and goes into deep sea. Microcredit is a little dingy boat, which goes into shallow water, but we cannot create the dingy boat with the architecture of a super tanker, because that’s the only architecture that’s available. So, the first problem is we need that legal framework, so that we can create a micro climate, so that we can mobilise deposits in that area, and lend the local people micro credit. That’s all. Once you start, it becomes a self sustaining system.
FT: Right, how do you establish that?
MY: Lobby, start discussing this, I write, you will be writing about it, we will be discussing about it.
FT: Specifically, what are the problems – that you can’t just set up a small bank with no deposit?
MY: We would like to take deposits. Now, we can’t take deposits. We can run a loan program, but I can’t take deposits, so where is the money coming from? So, I have to go back for money to the Foundation, charities and so on, so that I can lend money to people in the neighbourhood, which is unnecessary.
If I had the legal framework, I could create my own system, I take a deposit from you and lend money to others, and you are happy with my service, because I give you good interest, and my neighbourhood are happy because they get their loans.
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FT: You need laws to be created?
MY: Yes, that’s right.
FT: That could take years.
MY: It could, that’s why I said, it will depend how quickly we overcome the legal issues. It’s not a people issue.
FT: So, you say at the moment you’re relying on charitable loans?
MY: At the moment, it’s Foundation money.
FT: Donations and so forth.
MY: In the interim, we’re thinking about piggy-backing onto a bank, or a sales and loan association, or a credit union, wherever those legal framework exists, take advantage of that, piggy-back, but that has a difficulty, because they have to go through the other regulatory bodies, what they are going to do, and they may say, our regulatory body doesn’t allow you to do that. We will take the money from them as a kind of loan.
FT: Do you know who you’re going to work with?
MY: We are thinking about it, still discussing, we have not fixed it up yet. We’ve talked about a bank, a credit union, savings and loan association, to see which legal framework will allow the facility. If we cannot change the law or create a new law, in the meantime we’ll try to use one of the nearest possible legal frameworks, for example the credit union legal framework. We ourselves become a credit union and use it for our purpose, rather than the traditional purpose.
FT: So, at the moment is there a particular law that’s stopping you doing that?
MY: The absence of law is stopping us.
FT: How serious an obstacle do you think that is in the longer term, if you can’t…
MY: It’s very serious. That’s the most serious thing, number one, and the most difficult one.
FT: Is there any congressman working on putting together this stuff?
MY: We have talked and many congressionalists are very sympathetic about it, but the moment you step into the financial world … [the] financial world vested interests, and conservatism is very strong. You don’t want to disturb your financial system, so you are always reluctant. You will have committees after committees to go through. Sometimes I’ve even heard, why don’t you do it not as a permanent law, but as an experimental law, try it out in a small area, give us permission as an experiment, see how it works, so that you can overcome your fears and we can demonstrate our points, and see whether you want to go for a full law, or let it expire.
FT: So, you think there is opposition, have you seen opposition from parts of the financial world?
MY: One or two.
FT: What do you mean by vested interest then?
MY: This means that it is not easy. The moment you step into the financial world, it thinks it is perfect now, don’t disturb it. We’re saying, it’s not perfect, and now is a good time, because of the Middle East crisis, the subprime crisis, and that highlights the issue that the financial system is not perfect. They are giving the impression so far that they are perfect, and this kind of showed that they are not.
FT: So, what kind of things have people said to you, who would be important for you to get through and create the structures you want to get? What response have you had from people in the financial world?
MY: In general discussion, very sympathetic. I’ve met the Chairman of the Fed. We see the sympathy, but when you talk about changing a law, or even allowing experiments with it, you are really shaking up the whole system.
People get very scared. So that may take time, but luckily many of those talking right now in this country are very familiar with microfinance. You look at Hillary Clinton. She was the First Lady of Arkansas. She was involved in planning programmes in Arkansas, and later on, when she was in the White House, she was a strong supporter.
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FT: Okay. Other organisations have tried microfinance along the lines based on your model, but they none of them have managed to do it in a self-sufficient way. Why do you think that you’re going to be different?
MY: Others didn’t try hard enough, because they were depending on stolen money, either coming from the City office or space, etc., or federal money or foundation money. So they are not as worried, because the money is coming in. Right from the beginning, our core objective is to make it self-sufficient. We are not dependent, we do want to get rid of external money coming in and supporting us. It should be internal money, business money. We give the best rate on deposit, because it will be 100% dependent on deposit money, not from the advertising, and then recovery of costs. The moment you pay your attention to covering your costs, you start looking at how to cut down your costs, and how to increase your revenue, how many kinds of services you must provide, so that it becomes less habitual services, not just long-term … And that’s our objective.
FT: Okay. Its been said that one, your rates of repayment haven’t always necessarily been as high as 98%, that they did lower sometimes; and two, that, you receive quite a lot of government subsidies and other kinds of subsidies by agreement. Is that true?
MY: They’re just not informed.
FT: Right, okay.
MY: We never had any government subsidy; not only now, we never had any government subsidy, so…
FT: In terms of your bonds?
MY:… The government gave us the guarantee of that bond.
FT: That’s a subsidy of sorts.
MY: That’s a subsidy of a sort, not a subsidy only. Because of the legal requirement, our law … requests that whenever we sold a bond, the government must guarantee. Government shall guarantee – that’s the word – shall guarantee. It’s not necessary, but the law says shall guarantee… So we went to the government, and the government gave us a guarantee … So that was one occasion you say that’s a subsidy; okay, that’s a sort of subsidy. But that’s got one linked on. That was a [related to a major disaster] and we needed to lend more money. So we had to bring the money instead of going to outsiders, we could do this with floated bonds. So we did have people looking at it that other people said, ah, you’re getting a subsidy from the government. That was not the purpose. Subsidy was not the purpose. Subsidy just happened because of the legal obligation, not that we were… And then they were paid back anyway.
FT: And what is it about…?
MY: About repayment and other things?
MY: What is it, that our staff is fixed up wrong? Then everything is wrong. Our number of borrowers is wrong, our staff is wrong, and if you start, doubting one figure that we supplied into dollars, forget about it. Just don’t think about it any more. … We always make profits.
FT: And what is this about New York support? Why did you decide to start the project in New York?
MY: Well, we think the United States, that’s the most effective area, where we see the possibilities and we see the options. One reason is the immigrant community, a most vibrant community here, and you have to start some place.
FT: So do you see it as more of a kind of training centre operation?
MY: We want to avoid training as much as possible, because then you’re confused, because whether you’re spending your money to put a proper business or you’re just spending money for the training. And training is a very expensive item…
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FT: On a slightly different topic, obviously there’s been a massive financial crisis going on in the west, in America and in Europe. Have you see any effect of that in the Grameen Bank, or in…
MY: In Bangladesh?
MY: Not yet, not yet, except that overall the business environment is hesitant right now. If the US economy slows down, the US economy is the epicentre of the global economy, so any kind of little tremor here shakes up the rest of the world. So that we feel, that businesses are slowing down, orders are slowing down, and you don’t know whether this is temporary.
FT: Have you seen that actually with the Grameen…?
MY: No, not in the Grameen. I’m talking about Bangladesh as a whole.
FT: Do you think Grameen bank is more resilient [to this financial crisis]?
MY: More resilient, yes, yes… at this bottom level, things don’t shake up very quickly, until it has been sustained for a long period of time … But in a dynamic economy, a very enthusiastic economy, definitely the bottom benefit very quickly, because their business goes very well. People are buying things, people are selling things, and the bottom of the community flourishes. But if the economy suddenly slows, it doesn’t slow down as quickly. It continues but it gets sustained slowing down, there’s a long depression and so on. Probably it will happen.
FT: You said to me you’d issued bonds. Do you still do that now?
MY: No, no, no.
FT: Was that just a one-off?
MY: Ever since that ’98, ’99 tragedy, that was us getting flooded – one of the worst in history – we never borrowed from outsiders, from a bank … We never took any money from outside ever since. So that was the last time we did that. In the meantime we are paying back all our loans and everything.
FT: Is there anything about the way that people are poor or the way that people are made poor or that they stay poor here, that you think [makes Grameen a good model for the US]?
MY: … One of those terrible things going through the construct of the economic theory of the capitalist system, business needs business to make money, and maximisation of the profit is the sole goal of business … Imagine them as a money-making machine. Human beings are much bigger as beings than money-making machines. So they interpreted it too narrowly, as if God had created the world where the business people behave like gods, that’s the law defined by the theorists. So everybody stands to make money. The other part, where they want to be helping each other, they want to be good to the people is suppressed, so it doesn’t have any expression. But they have to step outside of the business economy for 24 hours, to express themselves in those qualities to people, to become philanthropic, become creating charity programmes. This is not part of business culture. I think that really went wrong in terms of realising human value, and it’s damaging in a human way. It makes them only respect what they look for. The real people are multi-talented people. And if you want to do justice to the whole human bank, not just part of the human bank, then you need to be at least two persons: one who is doing wrong, which centres around me – everything is for me – and not for the public good; the other one is just the opposite way round: everything is for others, nothing for me. I’m not following social rules. If you allow that to take place, that feeds into the theory.
And I’ll give an example, which is a very popular one in the United States, where there are over a million people who don’t have health insurance in this country. And not having health insurance is to hand over money in terror that you can be sick, even for a little bit.
So I said, if we allow this social business niche into our business plan, then health insurance could be a very good social business. Money-making is not the main goal, because they don’t make money out here, so social business because this is just where you don’t want to make money. We want to help people to be self-sufficient. Or housing, or even jobs for the people who are unemployed, because we are a social business.
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FT: So this requires a charitable donation by an insurance company?
MY: No, no, no, it’s a proper investment, not a charitable investment, only because you enjoy it. Just think about enjoyment. They clearly state, the only enjoyment you can get is by making money. And any other enjoyment you are making up.
FT: How do you start off, if you’re locking up a bit of your money and get no return on this?.
MY: I would use the word charitable for whatever purpose. Here for me, this is a genuine benefit. I make this investment to make myself rich; one above. I make this investment to make things happen that I want to make happen. Shouldn’t I do that? If somebody does so, learning from the whole, and the highest is coming and holding it up, there are one million benefits. You want to make money out of it? No, I don’t want to make money. I just thought that this should be done. It’s a genuine need.… It’s like leading in circles. You help homeless people get out of homelessness. Enjoy it, like you say. Life is about enjoyment. Life is not just money or something else. What I want is to enjoy what I do, and I want people to have self-sufficiency. I could have done it as charity, but the dollar would tell me, charity money can be used only once. Once you’ve used it, it’s gone. But if I design this as a social business, it is endless, and it achieves more, so it becomes more powerful. And I’m using my talent as a businessman, how to run business. And I’m building an institution. In a charity, you don’t build institutions, you just run a programme. If you’ve a business, you keep it coming. This company brings good quality water to the people who cannot afford good quality water. So I designed a company who brings good quality water, not to make money, to save lives. That’s what I am trying.
FT: Just to bring everything back, this is the final question. You said the needs of microclients can be seen, to pay their landlords and cartels, all those pawnshops. Presumably you can’t really expect to replace them, because again, you’re only lending to small businesspeople, and those things people need money to spend on, consumer products and on debts and bills and stuff, so it’s not quite the exact comparison. It’s a forty billion dollar market to pay their loans, but you can’t really expect to get anywhere near that.
MY: Why shouldn’t I ? If I can eliminate daily loans in my neighbourhood, haven’t I proved that I can do it everywhere? … If I can eliminate it in one place, I can eliminate it every where.
FT: Okay. Well, thanks very much for your time.
MY: Thank you.
The Financial Times Limited 2008
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Indian microfinance is attracting big business – Oct-12
Fund manager profile: Proactive social investor – Oct-01
Analysis: Building Latin American futures – Aug-28
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Creating A World Without Poverty