The beauty of microcredit
adamsmith.org
By Eamonn on Globalization
I learn from the Globalization Institute's excellent daily news digest that Business Week has spotlighted the rise of microcredit. Quite right: it can be a powerful agent for economic development.
Recently a friend gave me a short paper on an interesting example, the Grameen Bank in Bangladesh, which (it explained) is owned by its borrowers, the overwhelming majority of whom are poor women. It takes no donor funds, but almost always turns a profit.
Small loans are available for housing, for education, and for micro-enterprises. For example, the Bank has provided loans to 90,00 women to buy mobile phones, which the borrowers then charge other people to use: an easily-managed business for a poor woman in Bangladesh. The Bank proudly claims that over half its customers have been helped to rise above the poverty line through its programmes.
All this happens without written loan agreements -- most clients are illiterate anyway. But the Bank insists that borrowers should belong in five-member groups, which perhaps places some social pressure on them to use the money wisely. If someone cannot repay a loan, the Bank says its focus is to help them, rather than pursue them as 'defaulters'. There is an insurance plan so that loans are repaid on the death of a borrower.
The Bank even tries to help beggars out of poverty by providing interest-free loans to them. And it teaches borrowers the basics of self-reliance and sustainability: hygiene, cultivation, having small families and ensuring that children are educated.
Microcredit takes many forms, but it seems to work because it is built entirely around the needs of those who actually use it. And if it can provide poorer people with the small capital they need to educate their families or start micro-enterprises that will lift them out of poverty, that must be a good thing. |
