How to Fight Poverty: 8 Programs That Work #3
In 1976, a Bangladeshi economist named Muhammad Yunus came upon a group of 42 artisans – but perhaps the more appropriate word is "slaves." They made crafts such as chair seats, and used materials lent to them each day at exorbitant rates of interest by the buyer of their work. They were forever in debt, unable to turn enough profit to buy their materials in advance at market prices. Mr. Yunus gave the group a loan from his pocket that averaged 62 cents per person. With that, they bought their freedom.
Twenty years later, the Grameen Bank, the organization Mr. Yunus founded, has lent small sums of money to 6.7 million people in Bangladesh, almost all of them women, many of whom had never before touched money. It offers savings, insurance, home mortgages, pension funds, scholarships, credit for families to buy fertilizer, build latrines or dig wells, and a program of no-interest loans for beggars, so they can offer candy or dried chiles for sale as they go house to house.
Microcredit now reaches nearly 100 million clients in more than 100 countries. The World Bank has found that microcredit accounted for 40 percent of the entire reduction in moderate poverty in rural Bangladesh —and that it had an even bigger impact on extremely poor borrowers.
Microcredit raises an entire village's standard of living – even non-borrowers' lives improve. (Lending to men, by contrast, proved not to affect poverty at all.) Studies of microcredit programs all over the world show that it produces higher incomes and better-fed children, and improves a family's ability to survive illness or drought.
To many people, the name Grameen is synonymous with microcredit. But the Grameen Bank is not even the largest microcredit lender in Bangladesh – that is the Bangladesh Rural Advancement Committee. Nor were Mr. Yunus's 62 cent loans the first – the earliest documented microloan took place in 1973, in Recife, Brazil, lent by Accion International , a group that has now lent over $10 billion.
But what Mr. Yunus and Grameen did – why they are sharing the 2006 Nobel Prize for Peace -- was show how an idea helping a few hundred people could be expanded to help millions. Grameen has also struck the proper balance – it is sustainable and profitable, with $600 million in savings from borrowers as capital. At the same time, it has never forgotten that its mission is to fight poverty, not maximize profit. It charges interest rates far lower than other commercial microlenders.
Grameen developed a model now in use globally. Although it is a bank, in many ways it is the opposite of a bank. Traditional banks in poor countries do not lend to the poor — administrative costs are too high, and the poor were thought to be bad risks. Normal banks stick close to business districts, require collateral, and lend mainly to men.
Grameen turned this on its head. Instead of collateral, Grameen depends on social pressure to guarantee loans. Women form borrowing groups of five, and must pay back their loans regularly for others in the group to be able to get one; borrowers must pledge to eliminate dowry, eat vegetables, have small families and educate their children — requirements not likely to be found at conventional banks.
It has been a decade since Grameen Bank accepted any donations or took loans. But hundreds of newer microfinance groups still look for donors. Accion International, for example, creates new microfinance institutions in 22 countries, which stop needing help once they become profitable. It also trains traditional banks in how to lend to the poor.
Microcredit started as an antipoverty program, but continues as a business. That is one reason it has grown and grown while other forms of aid fight for governments' dollars and attention.
Credit: NYtimes,
By TINA ROSENBERG