Tiny loans help 66 million of world’s poor hoist themselves out of poverty

Thursday, December 8, 2005

Three years ago, Maria Gamara, 35, and her husband, Gustavo, were barely making ends meet by selling clothing at a city market in Asuncion, Paraguay. They lived with their son and daughter in a tiny house within the market. They had no savings and no plans for the future.

“That’s all changed,” said Ms. Gamara, after a $200 (U.S.) so-called microloan from Montreal-based financial services company Desjardins Group and the Canadian International Development Agency let the couple build inventory.

Their earnings have quadrupled and they’re saving money for the first time. They plan to expand their two-bedroom house and now dream of sending their kids to university.

While loans of this size may seem a pittance, millions of people are hoisting themselves out of poverty by buying rickshaws, seeds, sewing materials and the like to start their own businesses.

And it’s exploding, a report released yesterday shows. Microcredit, which offers loans to people with neither collateral nor a credit history, has now been extended to more than 66 million of the world’s poor, nearly an eight-fold increase since 1997, when microcredit proponents met in Washington and pledged to reach 100 million impoverished people by the end of this year.

Sam Daley-Harris, the Washington-based author of the report on the state of the campaign, said the effort is a few years shy of reaching its goal, a rare piece of good news in discussions on global poverty. Global campaigners, who are to meet in November in Halifax, now aim to reach 175 million within a decade.

How successful can providing loans for the poor really be? Extremely, said Professor Muhammad Yunus, the grandfather of the microcredit world, who began by lending a few cents to a woman in Bangladesh making bamboo stools back in 1976.

He’s the founder of Grameen Bank in Bangladesh, which has given out $5.1-billion (U.S.) in loans to date. Of its borrowers, 96 per cent are destitute women with no collateral or business background. Yet more than 99 per cent of recipients pay back their loans. The bank is profitable and hasn’t received any donor money in a decade.

Grameen uses a peer-lending model, where members of a five-person group vouch for each other in lieu of collateral, which has proven so successful it’s been replicated in dozens of countries around the world, including Canada and the United States.

“Credit should be the No. 1 human right,” said Mr. Yunus in a phone interview from Dhaka. “If you can create this, all the other human rights — income generation, food, shelter, health — will come.”

Bangladesh, once dubbed an international “basket case” by Henry Kissinger, this year became one of the biggest climbers in rankings in the Human Development Report. Microfinance alone accounts for 40 per cent of the reduction of rural poverty in the country, a World Bank researcher recently found.

The benefits are apparent elsewhere, too. In the Philippines, every peso borrowed by clients has produced 3.03 pesos in income. Bolivian recipients, meanwhile, had more than five times the profit of comparison groups, and had more savings to boot.

The success is such that big banks such as Citigroup Inc., and ABN Amro Bank NV, are jumping on the microcredit bandwagon, too.

Yet Mr. Daley-Harris criticized major donor agencies, such as the World Bank, which publicly trumpet the successes of microcredit while actually spending less than 1 per cent a year on it.

“I want to see the millennium goals to reduce poverty fulfilled,” Mr. Daley-Harris said, “but I don’t think that’ll happen if microfinance is left as a footnote.”

Source: Globa & Mail (link opens in a new window)