Microcredit - Helping to Alleviate Third World Poverty
The application of prevailing theories of economics has so far failed to lift developing countries out of the cycle of poverty that entraps the majority of inhabitants. Worldwide there are still an estimated 1.3 billion people earning a dollar or less a day and living in excruciating poverty. Decades of huge loans by banks from affluent nations - at interest rates that cripple developing economies - do not appear to be providing a solution to entrenched poverty. Professor Muhammad Yunus' Grameen Bank, however, is taking a different approach to the problem.
In 1976, the Bangladeshi economics professor embarked upon a microcredit programme with a loan of just 62 cents (U.S.) each to a group of 42 workers. Instead of loaning large amounts of money to well-off debtors, the bank he started made extremely small loans to poor Bangladeshis who were considered a bad risk by the traditional banking system. He astounded his critics by proving that the poor were more likely to repay their debts than the wealthy. Virtually none of the thousands of women who have been financially assisted by the bank for over 20 years have defaulted on their payments. Yet all are expected to pay interest and abide by the rules of contract. These borrowings have enabled Bangladeshi women to set up numerous small-scale projects which directly benefit their families and the communities in which they live. The success of the experiment has brought about a revolution in the way anti-poverty programmes are now organised.
By the end of the century, almost 95% of borrowers in Bangladesh were women, but the bank did not set out to lend mainly to women. At first, women were reluctant to use the bank's services for fear of stepping out of line in a strongly male-dominated society. It took six years to reach a 50-50 ratio of male and female borrowers. Over time, it became apparent that improving the income of women has positive effects that are lacking when men are the beneficiaries. While men are likely to take risks with the money they have borrowed, women prove more capable of planning for the future and improving the family situation.
The Grameen Bank has loaned over $2 billion in Bangladesh to date. Over 3.5 million women from low income households have benefited from its schemes, receiving amounts that have increased to around $160 per loan. The bank claims a remarkable repayment rate of 98%. It works in 36,000 villages throughout Bangladesh, employs a staff of over 12,000, and has provided the blueprint for similar microcredit programmes working in over 56 countries, including the United States of America, where poverty remains an intractable problem in many large cities.
Offering credit to poverty-stricken women to start small enterprises is not the only way in which the bank has improved their financial status. The bank is the largest internet service provider in the country, and, in partnership with a Norwegian telecommunications company, lends cellular phones to borrowers, mostly women, who generate income by selling telephone services to the rural population. A telephone lady can earn $2 a day which amounts to $700 a year - more than triple the average Bangladeshi annual per capita income.
The success of the Grameen programme continues to confound the experts. Their reaction to Professor Yunus' bold plans to bring solar and wind energy to isolated communities, and to make the World Wide Web available to the poor is much the same as the reaction of the orthodox banks to his initial concept - condemnation and disbelief. It is sobering to reflect that despite the obvious success of the model, microcredit still receives only 2% of the world's $60 billion development budget.
It is true that the new goals of the Grameen programme are beyond mere banking and will require the involvement and funding of multinational companies and traditional aid agencies. It is equally true that engaging the poor to help with the removal of the poverty in which they find themselves is now a technique with a proven track record. This not only addresses the problem at grassroots level, but also preserves the dignity of those who participate by avoiding the need for charity.
Provided the latest extensions remain fundamentally 'bottom-up' solutions, it seems sensible to believe they have more than a small chance of success.