Feature Story January 2008
Conscious Capitalism
Microfinancing
the World’s Poor
by Nicole Pugh
Capitalism, the free exchange of goods and services, is the economic framework in which we Americans run our lives. We buy goods and services for our well-being and that of our families. In turn, we sell items and services (through self-employment or an hourly or salaried job) in the marketplace. We set aside money for our retirement, contribute to health insurance plans and invest in companies in the public trading arena that are in line with our financial needs and ethical standards. Since the fall of the Soviet Union in 1991 and the opening up of China and other Asian countries to global trade in recent years, we have seen the economic system that we take for granted stretch to encompass the majority of the planet. Ideally, this system promotes self-reliance, freedom, creativity and the organic flow of material existence. In its purest form, it makes sense that capitalism would also be in line with the principles of democracy that are the philosophical framework of our government and, supposedly, its involvement in the affairs of other countries. The worldwide reality, however, is far from the ideal. Solutions exist, however. One of them is in the form of microfinancing for the world’s poor.
The Reality of Poverty
The World Bank defines poverty as the following: “Poverty is hunger. Poverty
is lack of shelter. Poverty is being sick and not being able to see a
doctor. Poverty is not having access to school and not knowing how to
read. Poverty is not having a job, is fear for the future, living one
day at a time. Poverty is losing a child to illness brought about by
unclean water. Poverty is powerlessness, lack of representation and freedom.”
When one marries the harshness of the aboce definition with the statistical facts that exist for global economic inequality, it is cause for alarm. According to Nobel Peace Prize-winning economist and microfinance leader Muhammad Yunnus of Bangladesh, “Ninety-four percent of the world income goes to forty percent of the people, while the other sixty percent must live on only six percent of the world income. Half of the world lives on two dollars a day or less, while almost a billion people live on less than one dollar a day.” If capitalism in its ideal is a system that can benefit everyone, what is going wrong? According to Yunnus, the reason is simple.
“Unfettered markets in their current form are not meant to solve
social problems and instead may actually exacerbate poverty, disease, pollution,
corruption, crime and inequality,” he says. “…Global trade is like a hundred-lane
highway criss-crossing the world. If it is a free-for-all highway, with
no stoplights, speed limits, size restrictions, or even lane markers, its
surface will be taken over by the giant trucks from the world’s most powerful
economies. Small vehicles…will be forced off the highway.”
Ensuring a Place on the Highway
Global trade regulations are, of course, one solution to this free-for-all.
In addition, the poor, most of whom are locked out of the banking and
commerce system because of lack of identification, collateral and education,
must be “ensured a place on the highway.” Microlending, the disbursement
of small loans to individuals in the lowest income brackets, is a practice
that is working toward that goal.
In the mid-1970s, two men on opposite sides of the world were beginning
to formulate similar ideas about how to help the poorest of the poor. In
Asia, Muhammad Yunnus responded to the extreme poverty caused by drought
and war in his home country of Bangladesh by opening one of the first microfinance
organizations in the world. His initial enterprise would eventually become
Grameen Bank and the Grameen family of companies, which include telecommunications
services, health insurance and healthcare systems, farm services and other
enterprises, all low-cost, low-interest and geared towards helping the
poor. Today, eighty percent of the poor in Bangladesh have been serviced
by microcredit and millions have been financed by Grameen Bank alone. Meanwhile,
during the same time period, an American Senior Executive for the Brystol-Myers
Corporation by the name of Al Whittakker traveled to Latin America with
his wife. He saw the economic disparity that existed there and wanted to
do something about it. He realized that, instead of donating money for
direct services, he could do something long-lasting by providing small
loans to poor entrepreneurs. Soon he met another businessman from Australia,
David Bussau, and the organization Opportunity International (OI), (with
an office in San Diego) was born in 1971. Today, Opportunity International
services 960,000 clients with 42 different programs in 28 countries around
the world. From these initial organizations grew an entire industry whose
goal it is to even the playing field between the rich and the poor in the
global marketplace. Microcredit organizations from all over the world gather
every five years for the Microcredit Global Summit and the United Nations
declared 2005 the International Year of Microcredit.
In its simplest form, microlending helps individuals expand or start small businesses such as farms, textile businesses, food production, crafts, even schools, by providing loans to individuals in developing countries. These low-interest loans can range from $2 to $1,000. The majority of microcredit loan recipients are woman and the repayment rate is well over ninety-five percent for most programs. Over the last thirty years, microlending organizations has gone on to provide more than just money. They have incorporated educational components into their structure that is actively moving individuals and communities out of poverty and making it possible for them to provide a better reality for their children. Increased education, financial and otherwise, and the stabilization of microcredit institutions within developing countries themselves, can slowly lift the economy of an entire country.
Because most poor people do not have the collateral that would be needed to secure a loan from a traditional bank, it is common for microlending institutions to rely on a team structure when working with clients. Opportunity International, for example, uses “Trust Groups” in most of the countries it serves. In this structure, groups of fifteen to forty people, mostly women, act as guarantors of each other’s loans. The support and resources of the group ensure that, when emergencies happen for one member, others in the group can assist in keeping up with their loan payments as well as the needs of that particular woman and her business.
“[‘Trust groups’] meet every
week,” explains Don Ingle, Vice President of Public Relations with Opportunity
International. “If there is one woman who can’t make her payment, the others
in the group will ask her why. She [may] say she got sick…or there was
some pretty traumatic thing that happened in her life, and it happens a
lot to the poor. So they will talk to each other. [Perhaps] she is in the
business of making clothes, and maybe she couldn’t get the raw material
[for her business]. Another woman in the group sells the raw material.
So she says ‘I will loan you the raw material this week and you pay me
back.’ They get back on track during the cycle…it is just tremendous. Everybody
is responsible.”
Women Lead the Way
In 1991, Vivian Adamh’s husband died, leaving her to support her infant child on her own. Faced with a lack of daycare in her town of Accra, Ghana, and in desperate need of work, Adamh decided to open up an infant daycare business out of her home. As her business grew, she opened a school. In 2001, she became an Opportunity International client. That loan enabled her to buy a deep freezer so that she could provide lunch to her students. Now she has over 300 children in her Providence Educational Complex, ranging from preschool to junior high. Her dream is to add a second floor for a girls’ vocational school as well as a computer lab to the existing school.
Whether it is a teacher such as Vivian Adamh, or a woman like Elsa Reyes of Honduras, whose OI loan helped her buy the raw materials for her bread making business, women across the globe are empowering themselves through their participation in the loan process.
“Women are our main focus,” says Ingle, “…I think we have 400 different [educational] modules [for the women to choose from]—on how to open a bank account or how to do a basic ledger or ideas for expanding your small business. We also have modules on things like HIV/AIDS awareness education because we found that, particularly in Africa, there is still such a stigma about saying that you are HIV positive.”
The transformation in women’s internal and external lives as they go through the loan process is significant, according to Ingle.
“When [the women]
are in their first loan cycle, [their] heads are down, they don’t know
how to shake your hand. They are completely humble because in many countries,
they have been worthless up until this point. By the second or third loan,
they look you in the eye. They shake your hand with a firm handshake—and
when you ask them what they need, they will invariably say, ‘I want a larger
loan and I want longer repayment terms.’ They know exactly what they need.”
Practically speaking, women are also the safest group to lend to and the
group who will best assure that the opportunities that they are provided
with are passed on to future generations.
“We have tremendous success with women clients. They really are the poorest people on the planet. For example seventy-five percent of illiterate adults on the planet are women. That is because, over the years, if there has only been money enough to send one child to school, it went to a boy. Or what we find in our schools is that they might have access to a public school but they might have to take two buses to get there. Also, they are responsible. When they get a loan, the first thing they do is put better food on the table. The second is to [pay for] school fees and uniforms. The third is [to] get the man [of the house] to put a tin roof on [their home] instead of a straw thatched hut.”
Many individuals criticize microlending programs because they may not able to reach the poorest of the poor, because in some cases it is difficult to ensure that individuals are spending their loan money on their business, and also because of the fact that many lending organizations are not able to sustain themselves without the assistance of large donations. Rashmi Dyal-Chand writes in the The Boston Globe that “even the most established microlending programs have yet to prove that microlending is more successful than welfare-style programs in lifting people permanently out of poverty.”
It is true that programs such as the ones that Opportunity International provide do not lift one hundred percent of their clients out of poverty. Given the many internal and external factors that contribute to a person’s economic situation, this would be an unrealistic goal to aim for in any case. However, they are able to help tens of thousands of individuals become successful and have a better quality of life. What’s more, the microlending process provides invaluable education not only for poor individuals in developing countries, but also for those that give to such organizations. Says Ingle:
“With an organization like Opportunity International, if you
give one hundred dollars, that [money] is loaned to people who pay their
loan back. Then your money is loaned out to help another person and their
family. The average person that we work with has five dependents—parents
or children that they are taking care of. Every other one of our loans
goes to a person who hires another employee. So one loan helps seven and
a half people work themselves out of poverty. And the money is used again
and again. Hypothetically, if you gave money to Opportunity International
twenty years ago, that same money will be out there still working.”
In terms of allowing our global economic system work for the good of all
people, microlending is part of a solution whose time has come.
Nicole Pugh is editor Vision Magazine.