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Micro-Credit in Bangladesh Serves as Model for Other Countries - 2004-02-20

Hundreds of economists, aid workers and government officials met in Bangladesh February 16-19, 2004, to discuss ways small loans can be extended to the world's poorest people to help fight poverty. The micro-credit system has transformed the lives of millions of families in Bangladesh, the country that pioneered the concept of small loans.

It was in the teeming slums of Bangladesh and the wrenching poverty of its villages that an economist realized how very small loans could transform the lives of people.

Mohammad Yunus, the pioneer of micro-credit, says in the villages next to the university where he taught, he saw that most poor people could never earn money "because they never had the first dollar."

"If you have a dollar you can catch a dollar," he explained. "Unfortunately, more than half the population in the world have no access to financial institutions, so they never have the starting point; they never have the first dollar."

So, nearly three decades ago, Mr. Yunus set out to do what no conventional bank had ever done - extend tiny loans of up to $100, without collateral, to be repaid in small weekly installments.

The loans went to poor people for income-generating activities, such as buying a cow and selling its milk, setting up a tiny village shop, or running a public telephone in a remote village.

Mr. Yunus did not wait for people to come to the bank. His organization, the Grameen Bank, reached out to village homes to extend the loans. Over the years, the experiment has become a success, helping millions of people improve their lives.

Grameen Bank has lent nearly $250 million to more three million borrowers. Ninety-nine percent of the loans are repaid on time. Most of the borrowers are women because, Mr. Yunus says, women have the most success in starting their own businesses, and are more efficient in managing resources.

"Then we started noticing that money that went to the women brought so much more benefit to the family," he noted. "Children are better fed; houses are improved; they worked for a longer vision to change their lives and concentrate on overcoming poverty."

Today, several aid organizations in Bangladesh make small loans to as many as 13 million poor people.

The concept of micro-finance is not only helping overcome poverty; it is bringing about a fundamental social shift in one of the world's poorest countries by making women self-sufficient, and improving their position in the family.

Salehuddin Ahmed heads a Bangladeshi micro-credit funding organization, the Pali Karma Sahayak Foundation. He said micro-credit is transforming the lives of women across the country.

"They have now become self-sufficient; they can generate their own income; and more important, they have redeemed their self-esteem," he explained.

The micro-credit system in Bangladesh is considered a model for other countries. Micro-credit banks have been established in 40 developing countries across Asia and Latin America, and small loans have been extended to 65 million people worldwide.

International institutions, such as the World Bank, support the effort, saying it can significantly help end poverty.

International efforts are under way to broaden the reach of small loans to at least 100 million of the world's poorest people by 2005, which the United Nations has declared the "International Year of Micro-credit."

To achieve this, economists at a recent conference in Bangladesh called on countries to establish separate micro-credit institutions, run by private organizations. They are calling on governments to establish legal frameworks and independent regulatory bodies to supervise such banks.