Microcredit: The best policy for helping the poor

Oftentimes, there are arguments over the best way to solve the world’s poverty problem. Debt relief, giving “loans” to governments, or, most often, free aid packages that only temporarily solve the problem. The benefits of these efforts, however, are often only temporary, and are soon lost. One excellent way to help alleviate poverty, while still respecting human rights, is to promote and use microcrediting.

Microcrediting is the name for giving small loans to those who have the sufficient credit, and charging low rates, and allowing for flexible payment schedules. This idea has helped lift millions out of poverty throughout Southern Asia, and concentrated in Bangladesh. This help has been provided by Muhammad Yunus, the founder of Grameen Bank, the poster child for microcrediting.

On October 13, Yunus and the Grameen Bank received the Nobel Peace Prize for their work in pioneering the use of microcrediting, and for help lift millions out of poverty.

The story goes that in 1974, Yunus was chatting with a 21-year-old woman with three children, and asked her how much she earned. She responded by saying she had to borrow about 5 taka (approximately 9 cents) from a middleman for the bamboo for each stool she made. All but two cents of that money went back to the middleman. The following day, he and his students (he was a young economics professor) surveyed the village, and found that 43 of the villagers owed a total of 856 taka (which equals about $27). He then put the $27 out there, and said they could repay him when they could. His idea was to have them buy their own materials and cut out the middleman. This idea, and its success among these women, led to the founding of the Grameen Bank. Since then, his bank has lent $5.72 billion to more than six million Bangladeshis, with 90% of the borrowers being women.

Grameen Bank can be traced back to 1976. The name “Grameen,” in Bangla means “rural” or “village.” It is built on the conviction held by Yunus that poor people can be reliable borrowers, and even avid entrepreneurs. Not only that, but by requiring that the money borrowed be paid back, Yunus props up their human dignity. No longer is it a slap in the face by a rich, Western country that gives the poor free aid. It is a fellow citizen of their homeland, extending his hand to help improve this person’s life and family.

Yunus’ Peace Prize is well overdue, and its good to see someone like him receive it. The true way to ending violence around the world is the eradication of poverty. To eradicate poverty, microcrediting is a tremendous and effective way of helping the poor end their cycle of poverty.

More information on the Grameen Bank can be found on their website (http://www.grameen-info.org/), and an interview with Yunus by Charlie Rose can be found by searching Google Video. The interview is one hour long.