Modest loans to world's poor smarter than shoring up profligate banks
Chron.com (Houston Chronicle)Good as gold
Copyright 2009 Houston Chronicle
Average Americans, struggling to survive in a disintegrating economy, might be forgiven for assuming that people and institutions who lend, manipulate and otherwise handle other people's money are greedy, unprincipled wretches.But there's a movement afoot that's far from business as usual. In fact, it's pretty much the antithesis of mainstream banking practices. It's microlending — making very small loans easily accessible to the poor — and its major proponent is Bangladeshi economist Muhammad Yunus.
In 1974, Yunus loaned $27 to 42 villagers, who were being exploited by local usurers, to buy the materials they needed to make and sell bamboo stools. They all repaid the loans and their mini-businesses flourished. Yunus began making more loans to the desperately poor and started the Grameen Bank.
By 1997, almost 8 million people had received microloans. Ten years later, that total exceeded 154 million. Of these, 106 million were among the very poor. In 2006, Yunus and his Grameen Bank were awarded the Nobel Peace Prize. Over the years the bank lent only to poor people, with no collateral. The repayment rate is 98 percent.
A major reason for the dramatic increase in loans over 10 years was that in 1997 the Microcredit Summit Campaign was launched, building on the foundation established by Yunus, with the goal of drastically expanding the accessibility of microloans to the extremely poor around the world.
Their report, published last Monday, illustrates the dramatic impact that the smallest of loans can make on the lives and circumstances of borrowers. Speaking to journalists, Yunus explained that 95 percent of the loans are to women, to help them create their own jobs and take care of their families.
"All the children of these families are in school," he said, "and we give them education loans." Those loans have placed 34,000 students, all from illiterate families, in medical schools, engineering schools and universities.
Estimating five people per family, 100 million successful loans to mothers means that half a billion people are being lifted out of poverty. Imagine the global implications.
President Barack Obama has promised to double foreign aid by 2012, and U.S. Secretary of State Clinton, on her second day on the job, said that foreign assistance programs must be "strengthened and adequately funded."
Given the dire state of the domestic economy, some Americans might balk at increasing foreign aid. But when small investments in the poor can reap massive rewards — and when mammoth investments in American banking have yet to reap much of anything — sounds like a pretty good deal.
