BAREFOOT CAPITALISM: the Phenomenon of Microcredit
The 2006 Nobel Peace Prize was awarded to Muhammad Yunus of Bangladesh, the economics professor who is the “grandfather” of microcredit. According to Barron’s, the award honored his “mission to make real credit – not loans from sharks who keep the poor is a perpetual debtor’s prison – a human right.”
Microcredit in a Nutshell
Microcredit puts the basic tools of private enterprise–money, credit and motivation–into the hands of some of the world’s poorest people, and it has been remarkably successful.
It means that millions of people who were once denied the most fundamental access to banking, many of them the poorest of the poor, can now receive small loans for self-employment. The loans have to be repaid at interest. And worldwide the average repayment rate is more than 95 per cent, which makes these ambitious borrowers from the ranks of poverty among the best loan risks on earth.
The loans are created with money made available by a network of non-profit organizations, foundations, individuals, investors and government agencies from the industrial world. These institutions work with thousands of partner lending organizations that administer the loans in the poorer countries. Because the money is tracked each step of the way, from donor group to borrower, the system is virtually free of the corruption that has looted billions in conventional humanitarian aid.
Microcredit works because the borrowers bank as part of a group of peers of from 5 to 50 people. More than 90 per cent of those people are women because they invest their earnings in their families. As members of the solidarity group they apply for their loans, set aside a percentage of the loan money for personal savings, and pay interest to service the loans. The group must approve the loan applications. Through its elected officers it sets deadlines and keeps a record of the repayments. Well-trained indigenous loan officers carefully follow every transaction and, in the field, become friend, counselor and bookkeeper to their clients.
The poor historically have been denied credit by commercial banks because they had no collateral. The village group now represents their collateral. The businesses they operate are tiny–selling grain in the market, making clothes, fattening a goat, selling fruit, baking bread and hundreds of other enterprises. But thousands have now built their lives to a level where they have been able to improve family health, feed their children and send them to school, in many cases on to college. With the loans comes social development–training in disease prevention, literacy and a self-respect and independence that millions have never before experienced.
Other terms often used to describe this phenomenon: microfinance, microenterprise, MED or microenterprise development. Today there are numerous outgrowths of microcredit: housing loans, life and health insurance, education loans for borrowers’ children, or loans to orphan heads of household to enable them to support their brothers and sisters.
Many economists and social developers now believe that microcredit has become the single most reliable force in women’s empowerment and poverty alleviation around the world.
Microcredit is Multifaceted:
Micocredit can alleviate many of the conditions that plague the poor, their families and their communities. There are myriad examples of microcredit’s impact on development throughout the world.
- Poverty:microcredit creates the possibility of a living wage and its advantages. It teaches banking and business skills and provides financial services to the poor.
- Health and HIV/AIDS:women and their daughters do not have to resort to prostitution to feed their families. Families learn safe health practices. Empowered women can demand that their husbands use condoms. (Men who work in the cities for months often bring AIDS home.) Even AIDS victims use microcredit as long as they are able to work to bring money into their families.
- Illiteracy:thousands of borrowers learn to read and can afford to send their children to school, especially the girls, attend school. 65 million girls in Africa are not in school.
- Swelling Slums:rural microcredit programs enable families to make a living on the land rather than seeking work in cities and ending up in slums.75% of the farmers in Africa are women.
- Environmental Degradation:rural microcredit programs can teach sustainable land practices, preserve trees that would have been lost to firewood or sale and encourage water conservation.
- Violence and Trafficking:women and girls, who have the alternatives offered by microcredit, are less available and vulnerable to traffickers. Men are less likely to beat wives who are contributing to family finances.
- Political Powerlessness: microcredit groups of women are empowered to demand education, health and social services from their local governments. Microcredit groups operate democratically, fostering experience and skills.
- Insecurity: hopelessness and abject poverty are breeding grounds for extremism. Microcredit offers realistic alternatives and promise of a future.
- Millions of HIV Orphans:millions of children who are on their own find livelihoods and hope in microcredit.
Microcredit Can Impact Poverty, Women’s Empowerment, Environment, Children, Education, Literacy, HIV/AIDS, Health, Security, Population,
Almost All Areas of Development!