Microcredit: a tool for peace
Microcredit has become an increasingly powerful tool to free the worlds poorest people, particularly women, from the prison of poverty and the power of loan sharks.
By making loans available to the worlds 1,2 billion poor people, the “barefoot bankers” enable them to rebuild their homes, pay school fees or set up that tiny business that will liberate them from destitution.
For the one sixth of humanity denied the services of conventional banks, microcredit is an alternative to using unscrupulous moneylenders.
For women, it can open the door to precious independence.
In the Nobel Committees view, microcredit is about more than providing money, which is why Bangladeshs Muhammad Yunus and his pioneering Grameen Bank were on Friday awarded the Nobel prize not for economics but for peace.
“Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means,” it said.
In other words, giving people hope and the means to master their own lives can help reduce conflicts such as that currently raging in the Niger Delta, which is home to a multi-billion-dollar international oil industry but whose inhabitants live on average on less than one dollar a day.
– Because microfinance can so powerfully transform the lives of poor people it does lead to a more stable society at the base of the pyramid, explained Elizabeth Littlefield, chief executive of the Consultative Group to Assist the Poor (CGAP) thinktank.
– Microfinance tends to lead to the empowerment of women, who in turn … then play a more active role in their communities. They run for local office, they stand up for the needs of their families. That can lead to a more democratic society, she explained.
Maitreesh Ghatuk, professor at the London School of Economics, agreed.
– If you help empower women, or give them some economic opportunities, this has a positive impact on fertility behaviour as well as education. In that way it is like investing in the future, he said.
Two key advantages of microcredit are its ability to assist the remotest areas and its spin-off potential.
With a micro-loan, a destitute rural woman could buy hens to feed her family meat and eggs, and then sell the chicks for a goat to provide milk and manure for a kitchen garden.
With a second loan she might obtain a tractor engine and earn enough money from renting it out to acquire both land and a precious social identity.
Three decades after Yunus launched Grameen, microcredit has mushroomed. The World Bank estimates there are now more than 7.000 microfinancing institutions (MFIs), serving 16 million poor people in both the developing and the industrialised world.
There are several explanations for the success of the Grameen “village” formula.
George Akerlof, one of three US economists to win the 2001 Nobel Prize for Economics, said remote rural borrowers in 1960s India struggled to obtain loans because distant city banks lacked information about their creditworthiness and so demanded “excessively high” interest.
By moving into the villages, the microcredit banker on a bicycle got to know locals and could offer services more on their terms. Once borrowers realised the value of this service, they took care to repay to keep it going.
Microcredit, says the CGAP, bucked conventional wisdom about financing the poor.
It showed poor people, especially women, had repayment rates that were “better than the formal financial sectors of most developing countries”.
And it showed the poor “were willing and able to pay interest rates that allowed microfinance institutions to cover their costs … achieve long-term sustainability and reach large numbers of clients”.
The European Bank for Reconstruction and Development has made a massive 1,7 million microfinance loans in the former Soviet bloc and seen an incredible 99-percent repayment success.
Microcredit has its critics though.
Some, like Microsoft founder Bill Gates, say poor countries should first focus on large-scale health and education infrastructure that would benefit many more people.
Others say microcredit interest rates are excessive -as high as those of commercial banks.
But the CGAP argues: “An MFI must charge interest rates high enough to cover the cost of its loans. Otherwise (it) will lose money. Its activities will shrink instead of growing.”
Littlefield and Ghatuk agreed microcredit was not a panacea (universalmiddel) for all the worlds ills but nevertheless hailed its considerable achievements.
– Microcredit is one of the silent revolutions in terms of instrumental development policy over the last few decades, Ghatuk said.
– In Bangladesh even the most conservative estimates suggest that its repayment rate has been incredibly high, about 90 percent. Compared to any comparable government programme that lends to poor people, this is a stupendous (formidabel) achievement, he concluded.
Kilde: The Push Journal
