A former street beggar borrows $100 and buys a cow, and she now earns enough to feed her children by selling milk door-to-door. A tenant farmer borrows $500 and buys the land he’s worked for decades; the money he used to pay in rent he now uses to build a house. A peasant borrows $20 to buy a taco stand, and with hard work and more loans, builds a tortilla factory.
Those kinds of stories have been repeated millions of times, says Alex Counts, and each is a successful example of microcredit. Counts will speak at the annual Microcredit Summit in Halifax this weekend.
Counts is president of Grameen Bank, an institution created by this year’s Nobel Peace Prize recipient, Muhammad Yunus, the inventor of microcredit. In a nutshell, Yunus created a system to extend very small loans to poor people ignored by commercial banks, helping them start small businesses to lift themselves out of poverty. Yunus, too, will be in Halifax to speak at the conference.
In 1997, says Counts, the Microcredit Summit campaign set out to extend loans to 100-million of the “poorest of the poor”—those living on less than a dollar a day—by 2005. That goal was just missed, he says (82 million of the poorest people were reached last year), but an additional 21-million “near poor”—those making between one and three dollars a day—have been reached, and there are now more than 3,100 non-profit organisations and for-profit banks offering microloans.
Counts expects the 100-million mark to be reached this year; one goal of the conference is to announce a new goal of reaching 175-million of the poorest of the poor by 2015.
Moreover, says Counts, the microcredit movement is helping to create tremendous social change. About 84 percent of the loans are made to women—in many parts of the world, the newfound economic independence of women is changing social relationships and the place of women in the household. At the same time, many microcredit organisations couple their financial efforts with educational and health care programs.
But some critics, including economic journalist Gina Neff and development expert Thomas Dichter, among others, say that the promise of microcredit is overstated. They note that the neo-Liberal establishment—the World Bank and right-wing think tanks, for example—have embraced microcredit, while more traditional development strategies like land redistribution and global debt forgiveness are ignored completely.
“There are lots of issues facing the world: hunger, AIDS, resource issues and lack of political will to solve them,” says Counts. “Microcredit isn’t a panacea, but it has an important role to play, helping millions of the poorest of the poor get to a better situation, where they can better deal with the other issues.”
Others suggest microcredit gets poor people “hooked on poverty,” caught up in never-ending cycles of debt and repayment.
Counts acknowledges that the microcredit movement needs better tools to measure both the burdens of debt and the success of loans, and much of the Halifax conference is devoted to improving those yardsticks. But, he says, debt isn’t necessarily a bad thing.
“Everyone has on-going liquidity needs,” he says. “The better question is: What’s happening to those borrowers? Is progress being made? Are they leaving poverty, are they sending their kids to school, do they have solid housing? Saying you’re hooked on debt is like saying you’re hooked on eating. The broad trend is that people are coming out of poverty.”
A more fundamental challenge for the movement involves a split between the non-profit and for-profit institutions that have entered the field. Yunnus and the traditional international aid organisations say corporations shouldn’t be profiting from helping the poor, and only the non-profit model can provide the associated health care and educational services so badly needed in much of the world.
But free-market advocates say the motive of profits will more quickly bring the substantial capital needed to address poverty of the world’s “poorest of the poor,” an estimated 1.2 billion people. In recent years, VISA, Citigroup and dozens of commercial banks in the developing world have embraced, and profited from, what they refer to as “microfinance.”
“I don’t think we’re going to solve anytime soon,” says Counts. “But it will frame the debate in Halifax.”
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