For people like Francisca Rojas of El Salvador, a little bit of money can go a long way. A little bit of money has to go a long way.
Rojas was orphaned at the age of nine and lived by herself in a ditch beside the road. A woman found her, took her home, and put her to work washing and ironing. Rojas ran away when she was 17 and had her first child when she was 18.
“I went to my first [microcredit bank] meeting and was afraid I could not [take and repay a loan],” she said. “But the bank promoter who was there believed I could do it, and I was so desperate that I tried it.”
With her first loan, Rojas bought spices, noodles, and little ceramic pieces on a tray which she sold at the market. After three loans of $50 each, she had saved $45. “I never saved before,” she said. “I used to earn $17.50 a week. Now I earn from $35 to $53 each week. I can spend almost twice as much for food, live in a much nicer home, buy medicines, and save money. I feel safer now. I sleep calmly at night because I am not so worried about how to pay back a money lender. I don’t have to prostrate myself to anyone. I have confidence. When you have been as poor as I have been, there is a lot of shame. Even when I was a child, people wouldn’t look at me. I guess they were afraid I would ask them for something. I never had any friends. Now each week I come to our bank meeting. They are glad to see me. Now I have friends. This is the most important thing,” she concluded.
Rojas is one of an estimated 8 million people around the world who have access to microcredit. Programs such as the one Francisca works with provide very small loans, training, and, importantly, peer support, to the poor to help them start or expand self-employment projects.
A worldwide Microcredit Summit convened in Washington DC recently with the goal of increasing the 8 million people currently receiving microcredit to “100 million of the world’s poorest families, especially the women of those families, by the year 2005.” It is an ambitious goal, especially given the humble beginnings of the microcredit movement a little more than 20 years ago.
Mohammed Yunus, a US-trained economist, returned to his native country of Bangladesh in 1972, one year after the nation became independent, to head the Economics Department of Chittagong University. But he soon discovered that the economic theories he taught at school meant little to the poor people he spoke with in the villages. He found one woman who earned two pennies a day making bamboo stools. But she had to borrow money for the materials from a trader who bought the final product at a price which barely covered the cost of the materials. It was essentially slave labor.
“I took a student of mine,” Yunus said, “and went around the village for several days to find out if there were other people like her who were borrowing from traders … In a week’s time, we came up with a list of 42 such people. The total amount needed by all 42 of them was only $30. I was terribly ashamed of myself for being part of a society which could not provide $30 to 42 able, hard-working, skilled persons to make a living for themselves.”
He took $30 out of his pocket and asked the student to distribute the money to the people who needed it, telling them it was a loan, and they had to pay him back. The people’s lives were improved, and they repaid their loans to Yunus. But he soon realized that, as a university professor, he couldn’t provide money for all the people who needed it. So he went to a bank. The bank manager literally laughed at him. “This little money is not even worth all the papers they have to fill in, and the bank is not going to do that,” the manager said. And besides, the poor had no collateral to back up the loans. Finally, after months of wrangling, Yunus persuaded the bank that he would be the guarantor of a $300 loan, which he proceeded to give to the poor people of the village in 1976.
The villagers paid Yunus back, and he was able to distribute more loans. Yunus eventually set up his own bank, the Grameen [Rural] Bank in 1983, to lend only to the poorest people in Bangladesh — landless, assetless people — mostly women. The average loan size is $75, and the repayment rate is 98 per cent. The Grameen Bank has lent to 2.1 million people so far.
With some variations, the Grameen Bank model has been replicated around the world, helping millions of people across the globe.
At the Summit, Yunus compared microcredit efforts today to the first airplane flight by the Wright Brothers at the beginning of the century. “Some find our plane unsafe, clumsy, not good enough,” he said. “But soon we will be flying our Boeings, our Concordes and launching booster rockets.”
Movers and shakers
The impressive roster of participants at the Microcredit Summit, and their enthusiasm for microcredit programs, was a tribute not only to Yunus, but also to the power of his idea that the poor can help themselves out of poverty if given half a chance.
Among the more than 2,000 participants from 100 countries were three presidents and two prime ministers; Queen Sofia of Spain; the President of the World Bank, and the presidents of major regional development banks; the heads of UN agencies; members of parliament; heads of commercial banks and private corporations; heads of major foundations and philanthropists from around the world; representatives of nongovernmental organizations; practitioners — those who implement microcredit programs across the globe; as well as borrowers like Francisca Rojas who have received the benefits of microcredit.
The presence of the world’s movers and shakers, from every part of the political spectrum, appeared to mean more than simply efforts at photo opportunities with the gathered media. US First Lady Hillary Rodham Clinton, a co-chair of the summit, who, along with the US Secretary of the Treasury, spoke at the conference, said that she and the President, Bill Clinton, first met Mohammed Yunus in 1986, and have been deeply committed to microcredit since then.
Hillary Clinton showed photos of her visits to microcredit programs in Bangladesh, Chile, India, Nicaragua, and the US itself. The First Lady talked about a woman she met in Chile who had received a loan for a new sewing machine. “She said that when she got that new sewing machine she felt like a caged bird set free. And that is a good way to describe how many of the people I have met seem to feel when given the opportunity.”
Mrs. Clinton went on to describe the opportunity presented at this moment in history: “As we move toward this 21st century, we have an opportunity that has seldom come, if ever, in the history of humankind. We have a world that can, with technology, democracy, and free enterprise extend the benefits of prosperity and peace to countless millions whose lives can be lifted up.”
The US Government’s international development agency, USAID, has targeted $120 million in both 1996 and 1997 for microenterprise projects worldwide.
Japan, the largest single provider of international assistance among nations, was represented at the Summit by former Prime Minister Tsutomu Hata and two members of the Japanese parliament. Hata and his colleagues, part of their parliament’s League for Poverty Eradication, expressed their determination to support and “promote grass roots assistance, especially the microcredit movement” in their communications with the Japanese Government, private financial institutions, economic organizations and the public at large. They urged the government to shift $1,000 million of Japan’s $10,000 million annual overseas development budget to grassroots assistance, with $100 million of that devoted to microcredit programs.
Birth of a new movement
UN Secretary-General Kofi Annan, in a statement read by the United Nations Development Programme (UNDP) administrator Gus Speth, called the summit “a landmark event in our ongoing fight to eradicate poverty.”
“When the poorest, especially women, receive credit, they become economic actors with power, power to improve not only their own lives, but in a widening circle of impact, the lives of their families, their communities, their nations, and the community of nations…. Microfinance, though not a panacea, has proven to be a remarkable instrument to lift the poor out of their plight.
“I therefore fully endorse the goal of this summit to reach 100 million of the world’s poorest households by the year 2005 … In our common struggle, you can count on the UN to be with you throughout this effort.”
UNESCO President Federico Mayor said that we must be bold in our efforts to fight poverty. “We must learn to share,” he said. “We must dare to share.”
John Hatch, founder of FINCA, a nonprofit group that has pioneered microlending in Latin America, said that the summit gave birth to “one of the largest humanitarian endeavors ever attempted by the human family … We have launched a movement too powerful to fail, a movement led not by governments, but by their citizens. Its power is fueled by the most potent energy of all — a mother’s love for her children.”
World Bank President James Wolfensohn said his institution, the largest international lending agency in the world, was an enthusiastic supporter of the summit’s efforts. “We commit ourselves at this summit to be your partner. We will help in whatever way we can. If we don’t get it right, tell us how we can get it right. Let us work together as partners in trying to reach that 100 million goal, and in trying to leave the world a more peaceful and safer place for our children.”
The bottom line
Summit organizers estimate that it will cost $21,600 million in grants, low interest loans and commercial loans over the next nine years to reach the goal of providing microfinancing to 100 million families by the year 2005. Yunus in his remarks reminded the audience that the summit was not a fund-raising event, but there were financial commitments announced. Among them was Microstart, a new pilot program from UNDP, which pledged $40 million to help microenterprise efforts in 25 countries.
Conference participants signed a declaration of support for the summit’s goal, and worked on action plans detailing how each would work individually and institutionally to attain that goal. Most of the institutional action plans are due for completion by 1998. The “boldest and most inspired” of those plans will be published by summit organizers as they are finalized. In 1999, the summit secretariat will produce an evaluation of the progress being made toward achieving the summit’s goal.
The meaning of that goal, as expressed by Makgomo Mangena, a micro-entrepreneur from South Africa, is clear: “As for me,” she said, “I will be happy if my children and I live long. I am determined that each of them will have a better future.”