Microcredit was once a very novel concept but a little experiment in the 1970s changed the way the world looks at tiny loans and a small bit of savings. Most people will agree that one man, economist Muhammad Yunus, and his experiment, the Grameen Bank, are largely responsible for developing microcredit to the point where it is today.
This month, Yunus and Grameen won the 2006 Nobel Peace Prize. Microcredit and peace? The Nobel Committee said that "lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means."
Started in 1976 in Bangladesh with $27, Grameen now helps more than six million poor families receive loans and insurance, save and conduct other banking services. The theory is that the poor are, in fact, responsible borrowers and that accessing banking services for starting or growing their livelihood businesses can contribute to an increase in the quality of their lives. It is not meant as a panacea but as a critical step to helping millions of poor people to help themselves, their families and their communities. It has become a model for microcredit organizations around the world, allowing millions more poor people to access financial services that would otherwise be beyond their grasp.
Most experts agree that access to financial services plays a role in alleviating poverty, but they also stress that microcredit must be seen in the larger context of issues that lead to, or contribute to, poverty. In post-tsunami Sri Lanka, millions of dollars have been allocated for a variety of microcredit schemes but there is concern that credit alone is being overemphasized and sometimes not enough attention is being paid to other critical areas for business success: repayment terms, marketing and design, infrastructure, skills training, and supportive policies. There are cases of borrowers using their credit for household spending rather than for restarting or expanding their livelihoods. Yet I know of situations where a tiny loan could help break the cycle of "borrowing" from dominant suppliers, retailers or middlemen and I've seen cases where small amounts of credit - just $50 or $100 - can start a ball rolling in the right direction for someone with the experience, drive or support to make their lives better.
Microcredit is not a magic bullet for poverty alleviation, but it's one of the critical first steps. Some well-founded criticisms of microcredit and some of the lacklustre outcomes in Sri Lanka speak more to the application of microcredit rather than to the value of the tool itself. Mr. Yunus deserves to be acknowledged for its development, and for bringing innovative ideas to the development field. His example has and will continue to inspire others to devote their time and energy to similar endeavours.
On a related note, Mr. Yunus will be in Canada next month to speak at the opening ceremony of the Global Microcredit Summit in Halifax, Nova Scotia (November 12-15). The fact that more than 2000 delegates from over 100 countries are expected to attend seems to be a testament to the success of the microcredit movement Mr. Yunus started. It sounds like a great line-up - too bad we won't be back in Canada to attend it.
Guest author: Chris McIntyre
