DEVELOPMENT: Microcredit a Dignified Way Out of Poverty

By Thalif Deen Reprint | | Print |

Thalif Deen

UNITED NATIONS, Aug 23 1996 (IPS) - Bangladesh, one of the world’s poorest nations, is convinced that an upcoming summit on microcredit could be a meaningful step in the long road toward poverty alleviation in Third World countries.

“The idea behind the summit is to dramatically expand the reach of microcredit to the world’s poorest families as a tool for creating a dignified route out of poverty,” says Ambassador Reaz Rahman of Bangladesh, who is seeking support for the meeting.

Scheduled to take place in Washington, D.C., Feb. 2-4, the Microcredit Summit is intended to be the “first step” of a decade-long campaign aimed at providing concessional loans to 100 million of the world’s poorest families — in particular, Third World women — as a means to generate self-employment.

“The time has come to recognise microcredit as a powerful tool in the struggle to end poverty and economic dependence,” according to a draft 38-page declaration to be adopted at the summit.

“The summit has chosen to focus on poor women because experience has shown that women are most likely to be left out of poverty eradication programmes,” Rahman told IPS.

One of the world’s best known microcredit programmes is currently administered by the Grameen Bank in Bangladesh. Grameen is one of the organisers of the summit, along with the World Bank, Citibank International USA, U.N. Development Programme (UNDP), Women’s World Banking and the Population Council.

With an annual per capita income of less than 250 dollars, Bangladesh is one of the world’s 48 least developed countries (LDC), described as the poorest of the poor.

“Poverty increasingly has a female face,” said Rahman because women traditionally earn only 10 percent of the world’s income and own less than 10 percent of the world’s property.

And of the more than one billion adults who have no access to basic education, more than 600 million are women.

Of the 1.3 billion living in absolute poverty today– surviving on less than a dollar a day– more than 900 million are women, according to the United Nations.

The Microcredit Summit, the groundwork for which will be laid at a two-day preparatory meeting in Washington next month — is but one part of a much larger effort to end poverty, both in developed and developing nations, according to Rahman.

Rahman said the burgeoning microcredit movement is being compared by some to such international efforts as the anti- slavery, women’s suffrage and anti-apartheid movements.

The summit draft declaration says the international community needs to provide about 20 billion dollars in grants, low-interest loans and commercial-rate funds to reach the 100 million of the poorest families by the year 2005.

This estimated need is based on providing 150 dollars in loans and 50 dollars for training and institutional development costs per person served in developing countries.

For developed countries, this assumes 500 dollars of loan funds and a similar amount for training and institutional costs per person served.

The amount of grants and concessional loans needed is about 10 billion dollars, with an additional 10 billion dollars from commercial credit markets and the savings of the poor themselves.

“One of the fundamental underlying features is that poor people are efficient. And if you can empower them, it can to some extent help relieve the problems of poverty,” Rahman noted.

Microcredit should be treated as one of several policies to fight poverty, as it cannot by itself alleviate poverty, he warned.

In its annual Human Development Report last year, the UNDP said that study after study on credit schemes for the poor confirm that the poor are creditworthy. “The poor are very reliable borrowers and hence a very good risk. Repayment rates of 90 percent are not rare,” the report said.

“The poor know best their opportunities for productive and remunerative work,” UNDP said. “What they really need are modest amounts of start-up capital for their micro-enterprises.”

The reason credit schemes for the poor work is that they significantly improve the incomes of the poor– typically by more than 20 percent, and at times even by more than 100 percent, according to UNDP.

The UNDP report also pointed out that the old adage that you can feed people for a day by giving them a fish or feed them for life by teaching them how to fish, needs a 20th-century postscript: What really matters is who owns the pond.