Give a Poor Woman a Fish? No. A Fishing Pole? No. A Loan? Yes
Give a Poor Woman a Fish? No. A Fishing Pole? No. A Loan? Yes
By: Sheila Tefft
Date: September 13, 1995
Source: Tefft, Sheila. "Give a Poor Woman a Fish? No. A Fishing Pole? No. A Loan? Yes." Christian Science Monitor. (September 13, 1995).
About the Author: Shelia Tefft earned a bachelor's degree in journalism from the University of Wisconsin and a master's degree in economic history from the London School of Economics and Political Science. She has written for the Chicago Tribune, the Atlantic, Business Week, the Washington Post and the Boston Globe, as well as other publications. Tefft currently directs the journalism program at Emory University.
In 1974, Muhammad Yunus was a young economics professor at Chittagong University in Bangladesh. He'd earned his Ph.D. in economics as a Fulbright Scholar at Vanderbilt University five years before and worked as an assistant professor at Middle Tennessee University. When he returned to Bangladesh, a poor nation on the Indian subcontinent, the country was in the midst of a famine.
Yunus was frustrated that the economics theories he taught had so little impact on the lives of his fellow citizens. As he sought to apply these principles to his stricken country, he found that several small businesses, such as artisans, fruit vendors, and rickshaw pullers, were tethered to local money lenders by high-interest loans. He discovered that $27 could release forty-two businesses from their debts. When local banks refused to assist his venture, Yunus bankrolled the effort himself, funding the area's first micro-credit loans. This allowed the business owners to break the cycle of debt and begin to profit from their businesses. Two years later, Yunus established the Grameen Bank to reach out small businesses; he has since provided loans to over five million clients.
Micro-credit can be as simple as a loan from friends or family or as official as one from agricultural, livestock, or fisheries banking programs. It is an alternative to conventional banks, which lend money to only those with adequate collateral. Because poverty, according to Yunus, is created by the institutions that surround the poor, he characterizes "Grameen Credit" as a social program based on the premise that the poor possess underutilized or unutilized skills.
Micro-credit requires no collateral. The participants do not enter into a legal contract and the family does not become responsible in the case of death or default. Instead, micro-credit is based on the goal of empowering the poor and the belief that charity creates dependence. Loans, generally less than $200, are provided to create self-employment for income-generating activities. The bank itself is considered a doorstep service; bankers go to the clients and provide additional services, such as education, savings accounts, insurance, and support—including business advice and counseling and, in some cases, help running the business if the owner is sick.
From its inception, the micro-credit program has sought women as clients. According to Yunus, they are more likely to repay loans on time, reinvest, and spend the profits to improve families' lives. As a result, approximately ninety-four percent of Grameen Bank's clients have been female. By targeting women in a traditionally male society, micro-credit has increased their leverage within family decision-making and also fostered self confidence. Of those clients, ninety-eight percent repay loans on time.
GIVE A POOR WOMAN A FISH? NO. A FISHING POLE? NO. A LOAN? YES.
A CAPITAL IDEA
ALICIA PAUCAR TAPIA knows the power of a $100 loan to buy a poor woman a sewing machine.
Three years ago, the veteran Nicaraguan aid worker overcame economic aftershocks of a civil war, government skepticism, and male resistance to [establish] a bank that grants small loans to aspiring women entrepreneurs in Managua's slums.
The program is part of a hot trend in economic development known as "micro-credit."
Micro-credit or small loans to the poor to help them earn on their own, is in vogue as cash-strapped governments cut poverty aid, socialism gives way to capitalism, and the growing ranks of jobless worldwide seek new ways to survive.
This month, the UN Fourth World Conference on Women in Beijing was abuzz with an idea that has proved to be one of few success stories in fighting poverty.
The idea of micro-credit represents a major shift in helping uplift the world's poor. Frustrated by the failure of large loans and projects to ease destitution, Western governments are trying to find ways to get funds directly to the poor, in hopes of bypassing bureaucrats.
"I had worked with many [nongovernmental organizations, or NGOs], always giving out small charity grants that never amounted to much. I was frustrated because I just felt like I never really helped people get out of poverty," recalls Ms. Paucar Tapia. "I realized that what people need is not charity. What they need is to feel part of the system."
That first bank has now grown into a network of a hundred, and plans are under way to expand to 380 banks nationwide. But halfway through a three-year, $1.5 million United States Agency for International Development (AID) grant, International Foundation for Community Assistance, a private aid group known as FINCA, worries that planned U.S. funding cuts could hurt the infant banking network as it nears self-sufficiency. The group is financially backed by the AID, Rotary Clubs, and some European governments.
"Eventually, we want to survive on our interest income. But now we still need seed capital," says Paucar Tapia, an economist who works with FINCA, which also hopes to eventually rise money from commercial banks. "What we are concerned about is sustaining the program when the donations end."
An alternative for the West
Even in developed countries like the United States, micro-credit is seen as a politically viable alternative to welfare and unemployment that has gained credence in recent years.
"As options for public and private employment have narrowed … everyone wants to have some say over their work," says Marie Wilson, a pioneer in micro-financing at Ms. Foundation for Women. "We know [the U.S.] is never going to be able to create enough jobs again."
The micro-credit method of helping poor women help themselves was pioneered almost two decades ago by Muhammad Yunus, a politically savvy economics professor from Bangladesh. Mr. Yunus was honored at the Beijing conference and even shared a podium with Hillary Rodham Clinton, an enthusiastic supporter. In a program that has since been used as a model worldwide, Yunus's Grameen Bank has shown that targeting women with small loans used to buy a cow, open a food stall, or launch a fishing boat is the best way to help a poor family.
While studies in Asia and Eastern Europe show that men tend to squander loans on drinking and gambling, women boast repayment rates of almost 100 percent when borrowing at market rates lower than extortionist interest charged by local moneylenders. Given enough financial support and time to develop, most Bangladeshi village banks have become self-sustaining in five years, advocates say.
"All we can do from our side is make credit available," says Yunus. "We say, 'We cannot change the world for you. But if you want to change the world, here is the money to help you do it.'"
"We have demonstrated that low-income women are the best credit risk in the world," says Nancy Barry, president of Women's World Banking in New York, a small loan specialist with affiliates in more than forty countries.
Although micro-credit currently reaches less than two percent of the world's 550 million poor, Ms. Barry, a former World Bank official, hopes to encompass 100 million poor women, half of the world's total, within the next ten years.
To do that, she says, governments would need to commit ten percent of total development aid to micro-lending organizations for seed capital, up from two percent currently. The money would be repaid as village banks loan enough to develop economies of scale and are eventually able to raise funds from commercial banks. "The beauty of this is that it pays for itself," she says.
But, expanding what are still small programs into a massive global initiative faces obstacles. Experts caution that micro-financing cannot be the panacea that some advocates hope for. While institutions like AID and the World Bank have jumped on the bandwagon, funding shortages will prevent aid-fatigued governments from making a huge commitment.
Since 1988, AID funding for small-scale lending has jumped to $140 million from $50 million. Currently, two-thirds of borrowers are women, up from thirty-five percent seven years ago. But micro-financing still represents only a small portion of the agency's seven-billion-dollar budget and could lose momentum next year as AID faces possible budget cuts of up to forty percent.
Women's activists are also at odds over the idea. Critics argue that credit programs cannot supplant more traditional aid for housing and education. The focus on small enterprise downplays the huge financial needs still facing women, they say.
At the women's conference, delegates from Africa and other developing countries have pushed for more funds to implement the "Plan of Action" now being drawn up at the conclave. But they have met resistance from Western donors who say the money just isn't available.
Micro-credit programs are "on a steep learning curve and will get significantly bigger over the next few years," says Beth Rhyne, head of Micro-enterprise Development at AID. "But it won't be the panacea for economic development."
As NGOs focusing on micro-credit have cropped up and grown, they have often encountered skepticism from governments and international institutions, advocates say. For example, in some countries like Bolivia, private groups are not allowed to collect deposits, a key step in building larger micro-financing programs that can stand on their own without subsidies.
This summer, the World Bank, which traditionally lends to governments, launched at $200 million micro-financing initiative through private organizations and special banks for the poor. The program was applauded as long-overdue recognition of this global lending force and the private organizations that are shaping it.
But bank critics contend there is still resistance within the staid institution, which is more comfortable dealing with governments than with grass-roots groups. In a recent report, the International Center for Research on Women in Washington, has criticized the World Bank for a reluctance to abandon its traditional emphasis on policy, rather than projects. The bank also has stuck to the belief that "women are not productive, that the things that women do do not contribute directly to economic growth, and that's wrong," says Mayra Buvinic, president of the research institute.
More talk than action
Despite World Bank rhetoric, there is little funding for micro-credit and a limited emphasis on women. "In fact, they should be paying more attention at a time when the [budget] pie is shrinking because this is an efficient way to deal with poverty," Ms. Buvinic adds.
"It is very difficult to get the World Bank to provide resources because the bank works through governments, and most governments are not good at providing credit," says Lawrence Yanovich of FINCA.
Minh Chau Nguyen, the World Bank's manager of gender analysis and policy, rejects the criticism as a red herring and says the bank is moving cautiously because of a shortage of micro-lenders that can handle expanded programs.
In trying to develop more viable private micro-credit organizations, the bank is pushing them to tighten up financial accounting, improve its financial management, and separate banking from social-welfare projects. Despite the bank's measured approach, she says "it comes out loud and clear that these intermediaries are the prime force in poverty reduction in the near term."
Since its creation in 1976, the Grameen Bank has served over five million clients and has loaned over two billion dollars. Of these clients, ninety-four percent have been women, ninety-eight percent of whom have repaid their micro-credit loans on time. The bank operates 1,092 branches throughout Bangladesh, including 36,000 rural villages.
The theory of micro-credits, once called "banking for the poor," has developed into other forms of lending. Micro-finance institutions (MFIs) are frontline organizations that deliver services such as loans, education, savings accounts, insurance, and support. MFIs provide funds through direct loans, grants, and loan guarantees funded largely through governmental grants, international institutions like the World Bank, individual donations, philanthropists, and foundations. Like micro-credit, they do not require collateral so that they can attract nontraditional clients, such as women. MFIs deliver services to their clients, many of whom are rural poor. Loans, which are generally less than $200, are repaid within six months to a year and are recycled to provide additional loans.
Critics of microfinance cite the high interest rate on these loans, ranging from fifteen to thirty-five percent. However, microfinance proponents suggest that the alternative is for businesses to reach out to exploitative local money lenders who charge 120 to 130 percent. In addition, although the repayment of loans is high, critics question the program's overall success, as only half of the participants succeed in staying out of poverty.
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