Micro-credit to fight poverty

Bernardo Kliksberg explains how Nobel Peace Prize Winner, Muhammad Yunus, founded the Grameen Bank and created a system of micro-credit in Bangladesh designed to bring hundreds of thousands of people out of poverty. Yunus, a brilliant economist with a bright future as an academic and consultant, decided to leave his comfortable life behind him in favor of mobilizing cooperation among the poor of his country. In Kliksberg‘s opinion, the time has come to apply Yunus’ successful formula to fight poverty throughout Latin America.

Bernardo Kliksberg is one of the foremost world experts on the fight against poverty. From Washington he directs the Inter-American Initiative on Social Capital, Ethics, and Development sponsored by the IADB. He is a special advisor to the UN, UNESCO, UNICEF and other international organizations, as well as being the author of hundreds of technical articles, and numerous books published worldwide, the most recent being an international best seller, “More Ethics, More Development”. He has advised the administrations of over 30 countries, including a number of presidents, and numerous public civil society and business organizations.

MUHAMMAD YUNUS, NOBEL PEACE PRIZE WINNER OF 2006, could have chosen to follow the path of hundreds of other economists like him: to become an academic at a prominent university in the United States, or a well paid consultant.

When, in 1974, hundreds of thousands of people died of starvation in his native country of Bangladesh, Yunus had the following reflection: while people were dying of hunger in the streets, I was teaching elegant economic theories. And I began to hate myself and despise my own arrogance for pretending to have all of the answers.

THE GRAMEEN BANK
To learn, Yunus went to the neighboring town of his elitist University. There, a woman showed him the bamboo chairs that she was producing. She worked extremely hard and yet continued to live in total misery. Every chair that she made was sold back to her debt collectors, paying off only ten percent of her daily interest. At the end of the day, all she had left were two cents of the dollar that she had earned. Neither the private, nor the public bank wanted to lend money to the poor. They had no guarantees. And yet with 27 dollars, Yunus saw that he could help more than 42 people live a dignified life. He had discovered the idea of micro-credit.

I felt ashamed to belong to a society that was incapable of giving 27 dollars to help its poor, he explained. And so he founded the Grameen Bank, a radically different institution that had not been seen before.

COOPERATION, SOCIAL CAPITAL, AND RESPONSIBILITY
Grameen Bank is a bank for the poor. Its more than 6 million clients make up over 92 percent of the bank’s activities.

There is absolutely no bureaucracy. Those who work for the bank do not wait in their offices for the poor to come, but rather they go to where the poor are, live among them, and understand their necessities. Since there are no guarantees, there should also be no papers.

The absence of a bureaucracy greatly reduced the costs of the operation. Following two basic principles, the bank began to achieve success: one, women were to be privileged, because as mothers of families, women would know how to use the money best; and two, a loan could only be given out to a minimum of five people. Each loan was individual, but the entire group was held responsible if one person did not pay. This system mobilized cooperation, social capital, and responsibility.

Since its foundation, the Grameen Bank has handed out over 5.7 billion dollars in loans throughout Bangladesh (94 percent of which have gone to women).

After 20 years they have impacted the lives of 12 million people and over 100 countries have replicated the formula.

COUNSELS FOR LATIN AMERICA
What are the lessons that can be learned from Muhammad Yunus and applied to Latin America?

1) The economists and elite should leave their offices, speak with the poor, and work out solutions with them. They should be sensitive, and share the same indignation over the present system as Muhammad Yunus.
2) Yunus had a major warning for Latin America: many people have taken the idea of bringing micro-credit to the poor as a means to make money. The objective should be to help the poor, not to take advantage of them.
3) The role of women must be central.
4) All work should be done collectively. The quality of a society should not be based upon living standard of the rich, but of the poor.

And one additional lesson: when Yunus found out that he had won the Peace Prize, the Nobel Committee asked what message he wanted to transmit to the world. Yunus gave a simple response: the only thing that I want to communicate is that poverty is an artificial creation. It is not a part of human civilization and can be changed. The only thing that we have to do is redesign our institutions and policies in order to pull those people suffering from poverty out of the depths.

The time has come to apply Yunus’ formula to Latin America, and begin the fight against poverty.

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