Microcredit
One of the most interesting (and new) methods of alleviating poverty, especially in rural areas, is 'microcredit,' or microfinancing. In essence, it involves very small loans, usually of money, to people who need capital. After a short time, they pay the loan back, along with a small amount of interest.
Since microcredit was pioneered by Professor Muhammad Yunus in the 1970s when he created the Grameen Bank in Bangladesh, it has evolved into many different forms. Grameen Bank maintains that the best way to assist poor people is to loan to them in groups, so peer pressure can be exerted on individuals who do not repay the loans. It also concentrates on loaning to women, because of the discrimination they face in society.
Other groups now loan items other than money - Heifer International gives villages a variety of different farm animals, from chickens to oxen. Also, there is increased specialization in the type of loans given. More are more microcredit operations focus on kickstarting small business and helping local businesses expand their markets.
In the end, I wonder what the best type of microcredit program is. Grameen Bank, the organization that started it all, seems to be very successful, with almost a 99% repayment rate on its loans, and has assisted millions in Bangladesh, but I wonder if other programs have achieved similar or better results using different methods.
posted by Asif @ 10:37 AM
5 comments
5 Comments:
A recent edition of The Economist magazine carried a review of microcredit organizations around the world. Some of the points made in the review articles included:
-- Many microcredit institutions that began as charities now are making a transition to becoming more professional and business-like. That, in turn, is forcing them to be more accountable for their business practices. Questions have been raised about whether the 99% repayment rates that microcredit organizations claim reflect "good" loans as they would be measured by standard banking metrics.
My question: Will the pressure to meet standard business standards also lead microcredit organizations to become less responsive to the needs of poor customers?
-- The healthy desire for financing -- specifically, for loans -- is among customers at the bottom of the income ladder offers an as-yet-barely-tapped business opportunity for businesses that can solve business challenges such as the (relatively) high costs of servicing such small loans and servicing customers who live in remote locations.
Other microcredit organizations that pioneered the modern microcredit movement include ACCION and others in Latin America. Arguably, some started before the Grameen Bank. Few of their leaders have achieved as high a public profile, however, as Dr. Yunus. He has a tremendous ability to comunicate in simple, poweerful phrases that condense great wisdom into memorable words.
Keep up the good work Asif.
Sally Bachman
My son tells me that the United Nations declared 2005 the year of "micro-credit," a label that seems to herald the global acceptance of this intervention as an effective poverty alleviation strategy. But while micro-credit programs have raised living standards for poor families around the world, they may not be for everyone. As Muhit has pointed out to me, not everyone is entrepreneurial enough to turn a small business loan into a living. For some individuals, particularly those living in developing countries with high unemployment, the opportunity to work at a paying job—almost any job--would be welcomed. Recognizing this, some relief organizations are spearheading projects that aim, among other goals, to create jobs for poor people who otherwise would be unemployed.
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There is no doubt microcredit is an useful tool for poverty alleviation among the poor. It should be effective for the poverty alleviation of the "poorest of the poor" address-less floating citizens as well(eg homeless beggers...)
I understand something like Heifer International, where the benefits of owning a farm animal are clear. Perhaps I don't understand microcredit; if microcredit begins a store which can sell food or consumer goods, how does the poor community afford to purchase its wares?
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