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Micro-Finance: A Way Out of Poverty

Jennifer Roback Morse

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The Norwegian Nobel Committee actually gave two awards for economics this year. The Committee gave the Peace Prize to an economist for achievements in practical economics. No, the Committee didn't exactly say that, but in honoring Muhammad Yunus and the Grameen Bank, the 2006 Nobel Peace Prize honors the power of the free market to reduce poverty. The Nobel Prize Committee agrees that access to credit leads to economic opportunity, which leads to higher incomes, which leads to a solid foundation for a lasting peace.

Here is what the Committee said in the citation for the Prize:

"The Norwegian Nobel Committee has decided to award the Nobel Peace Prize for 2006 divided into two equal parts, to Muhammad Yunus and Grameen Bank for their efforts to create economic and social development from below. Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights."

Yunus tells the story of how the idea that ultimately became Grameen Bank came to him. Back in the 1970s, Muhammad Yunus was an economics professor in Bangladesh. His daily walk from home to the university took him through some of the country's poorest villages where thousands of impoverished and malnourished people lived in hopeless conditions. "I felt very empty, teaching beautiful elegant economic theories in the classroom and walking through that cluster of villages where people were without food and about to die. I thought, my theories have no meaning to the lives of these people."

His conversations with these villagers convinced him that they needed credit, and that they were credit-worthy. Conventional banking wisdom holds that loans without collateral are too risky. But the Vanderbilt-trained economist knew these villages and their character, and was confident that they were a good risk. During the 1976 famine in Bangladesh, Yunus made a loan of $27 to a group of women who made bamboo furniture. His "gamble" paid off when they repaid that loan.

Since those early beginnings, Yunus and the Grameen Bank have financed literally millions of small projects. A $50 loan allows a woman to buy chickens so she can sell eggs. As the chickens multiply, she has more eggs to sell. Eventually she can sell the chicks as well. The New York Times reported on one woman in India who started with a $50 loan and a 20-chicken farm. She now has $2,000 in borrowing power, a huge sum for her community. Overall, 98 percent of loans are repaid.

Most of the micro loans are to women, who need to support families and care for them at the same time. Their small business success helps advance the status of women in the community. In Afghanistan, under the Taliban, a woman earned a modest income from a home-based tailoring business. She had the help of her family, including a brother who served as her male "front." Now with the new government and the help of small loans, she runs the New Pimar Construction Company, a venture of 250 women that generates $28,000 per year in revenue.

One of the more innovative micro-finance projects is the community phone. Village Phone operators take a micro-loan for as little as $230 (U.S.) to purchase the equipment necessary to set up a satellite phone in the village. The operator then makes the phone available for a small fee to anyone in the village. The operators make a living, and provide a valuable service to the entire community. MTN Uganda recently announced the provision of its 2,000th Village Phone operator. The program in Uganda is based on a similar program in Bangladesh, which has over 37,000 Village Phone Operators who earn incomes three times the national average.

These are stories of individual people meeting real human needs, using the power of credit and the market. They are meeting their own need for an income, and their neighbors' needs for eggs, chicken and telephone service. Eventually, some of them become employers and meet their neighbors' needs for employment.

"The poor you will always have with you," a great wise man once told us long ago. And indeed we do. But the micro-credit movement has helped many of the poor become less poor, and to lift themselves, their families, and their neighbors out of abject poverty.

In the words of the Nobel Committee, "Every single individual on earth has both the potential and the right to live a decent life. Across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development."

Amen to that.

Dr. Jennifer Roback Morse is a Senior Fellow in Economics at the Acton Institute for the Study of Religion and Liberty and the author of Smart Sex: Finding Life-long Love in a Hook-up World.

Read the entire article on the Acton Institute website (new window will open). Reprinted with permission.

Posted: 28-Oct-06



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