Banker to the Poor: Micro-Lending and the Battle Against World Poverty.

• Author: Buthe, Tim

Banker to the Poor: Micro-Lending and the Battle Against World Poverty

Muhammad Yunus, with Alan Jolis (New York: Public Affairs, 1999) 288 pps.

Start with two assumptions: 1) Entrepreneurial spirit is a wide-spread human trait and no less prevalent among the poor than among others. Or, as Muhammad Yunus puts it: "The poor are very creative. They know how to earn a living and how to change their lives. All they need is opportunity;" and 2) Putting an entrepreneurial idea into "practice" requires some amount of start-up capital--not necessarily much, but more than ever seems within reach if you are living on pennies a day.

If you believe these fairly uncontroversial assumptions, microcredit--which allows poor people to borrow small sums to start their own business enterprises, enabling them to retain the value added by their labor and to pay back their loans incrementally--seems like an attractive strategy for economic development, and one that can directly improve the standard of living of many of the developing world's poorest inhabitants. Indeed, micro-credit programs have in recent years begun to attract the attention of both private and governmental national and international aid agencies and organizations.

First, existing financial intermediaries are not suited to provide micro-credit: the amounts involved are often barely worth the loan paperwork for traditional banks. Second, many developing countries provide an inhospitable socio-political climate: beyond the lack of a tradition of incremental loan re-payment, one frequently finds--particularly in rural areas and among (systematically disproportionately poor) women--a bias against lending and borrowing, which is often deeply ingrained in the local culture and based on religious injunctions against usury and/ or the experience of exploitative practices of money lenders.

These problems can be overcome at the local level, but expanding beyond the initial locale has proven difficult for those who have attempted to institute micro-credit programs in developing countries. Thus, A. Holmberg's 1950s project, enabling Indio farm workers in Peru to gain independence from overlord land holders, which proved a strong incentive to overcome quickly their seemingly deeply engrained passivity and lethargy, remained limited to the project's farming communities. And the 1960s Mit-Ghamr banking project--brilliantly described and analyzed by its founder Ahmed El-Naggar in his study "Zinslose...