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    Letter No.55
    17 February, 1997


-- from Grameen to Washington

an essential summary
edited by The Jobs Letter

"The time has come to recognise Microcredit as a powerful tool in the struggle to end poverty and economic dependence.
"The time has come to launch a global movement to reach 100 million of the world's poorest families, especially the women of those families, with credit for self-employment by 2005."

--From the Microcredit Summit

  • A WORLD SUMMIT on the concept of 'Microcredit' ended last week in Washington with widespread calls for expansion of this program that lends money to poor people so they can start small businesses and improve their lives.

    The Microcredit strategy was hailed -- from Republican governors on the political right to Hispanic womens activists on the left -- as a revolution in social policy, and a way to help the poor help themselves.

    Microcredit started in Bangladesh with the establishment of the Grameen Bank 20 years ago, and now operates throughout much of the rest of Asia and in Africa and Latin America.

    The loan strategy is also increasingly seen as offering hope to poor people in the inner cities and rural areas in developed countries of Europe and America.

    The microcredit loans are often just a few hundred dollars or less, and many of the entrepreneurs who receive them are women from the poorest of regions.

    They use the credit for small-scale self-employment projects like starting market food stalls, opening small businesses, buying livestock, and expanding bakeries and catering businesses.

  • Bangladeshi Prime Minister Sheikh Hasina, says that Microcredit loans should reach 100 million of the world's families by 2005. The estimated cost is $21.6 billion. Sheikh Hasina says the campaign to expand the program will be "a critical next step in the effort to reduce and eradicate overall poverty from the face of the Earth.''

    Among those backing the effort for expanding the scheme, are American First Lady Hillary Clinton, Queen Sophia of Spain, three presidents, two prime ministers and international financial organisations such as the U.S. Agency for International Development, the U.N. Development Program and the World Bank.

  • Speaking at the conference, Republican congressman Benjamin Gilman, chairman of the House International Relations Committee, said he hoped to convince the US Senate to support bipartisan legislation that will include Microcredit programs as part of foreign-aid spending. Gilman: "We are united by the belief that Microcredit as a means to help eradicate poverty is an idea whose time has finally come after a lot of talk over the years ...''

  • Also speaking at the conference, First Lady Hillary Clinton said that although it is called 'micro'credit, the programme is a 'macro' idea.

    For the Clintons, who have declared that the era of big government is over, it seems natural to be embracing an anti-poverty idea which is based on economic self-sufficiency but which will cost little. Their support will definitely see welfare policymakers transforming Microcredit from an obscure but successful international development strategy into a highly touted tool for aiding the American underclass.

  • It was Professor Mohammad Yunus, a Bangladeshi economist from Chittagong university, who in 1974 lent the equivalent of $30 to 42 basket weavers to help them purchase bamboo. The interest rate was higher than the banks, but lower than the money-lenders. Yunus: "I saw how the Bangladeshi people suffered and how the money they earned went straight into the pockets of money lenders and I realised there must be something terribly wrong with the economics that I was teaching ..."

    Against the advice of banks and government, Yunus carried on giving out 'micro' loans, and in 1983 formed the Grameen Bank, meaning 'village' bank. It now has 1.8 million poor borrowers in 22,000 out of 68,000 villages in Bangladesh and lends $30 million every month.

  • Other institutions quickly followed worldwide, including the Bangladesh Rural Advancement Committee (Brac), Bank Rakyat Indonesia Unit Desa, Accion in Latin America, and K-Rep in Kenya. Thousands of smaller micro-finance institutions (MFIs) are run by non-governmental organisations (NGOs), often as a part of a broader aid programme.

  • Oureye Fall, of Keur Madaro village in Senegal, is a typical borrower. A $38 loan from the NGO, Maison Familiales Rurales, means Oureye can buy mangoes without having to pay extortionate interest rates to her landowner. At the end of last season, she repaid her loan with interest, made $85 profit, and bought a mattress and new clothes for her children. Fall: "For the first time I was able to afford this luxury..."

  • The World Bank now estimates that MFIs reach some 16 million people in developing countries and have a total portfolio of $2.5 billion, with massive growth potential. Loan repayment rates are extraordinarily successful -- frequently reaching 98 per cent. The poor have proved they are indeed bankable, despite having no collateral.

  • Sue Wheat of The Guardian Weekly says that the success of the scheme is often put down to the "solidarity group" of five or six borrowers, which meets regularly. As default by any one member must be carried by the group, peer support and pressure keep repayments high. Savings are also crucial, both for domestic expenditures -- such as funerals and food shortages -- and to provide a capital base for the loan fund.

  • Most MFIs focus on women, and with women accounting for more than 900 million of the world's 1.3 billion absolute poor (defined as living on less than $1 a day), and being excluded from conventional banking services more than men, the need for female-focused poverty alleviation schemes is unarguable.

    As MFIs also often provide literacy, health care and business training, as well as an opportunity for women to meet together, being part of a group can be extremely liberating. Becoming financially independent also increases women's self-confidence and status in the household and community.

  • The Guardian Weekly : "In many ways, micro-finance is a donor's dream. As women have proved to be better repayers than men, "empowerment" and financial efficiency go hand-in-hand. Combine this with the 1990s free-market, individualistic philosophy, and it is obvious why this week's World Microcredit Summit in Washington has become so politically attractive ..."

    Sources -- Fox News 4 February, 1997 "Leaders call for more lending, members of Congress join in "; MSNBC News 11 February 1997 "First lady Hillary Rodham Clinton attends the Microcredit Summit in Washington on Monday" by Michael Moran; The Guardian Weekly Volume 156 Issue 6 February 9, 1997 "Banking on a better future" by Sue Wheat.

  • see also from Jobs Letter No.5
    Mohammed Yunus: "Credit should be a human right ... "

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