Global poverty continues to be an unsolved malady that perplexes even the most knowledgeable economists. One of the few convincing approaches to combating global poverty was developed by the Nobel Peace Prize-winning economist, Muhammad Yunus. Yunus invented Microcredit, a brilliant system that allows the poor to take out loans for small projects without the need of collateral (a security for the repayment of a loan). The development of Microcredit is outlined in Yunus' Banker to the Poor.
In 1976, Yunus traveled to Bangladesh and realized people had difficulty producing and selling goods. Most of these people didn't have enough money for materials, so they depended on moneylenders and traders for financial assistance. However, moneylenders often imposed high interest rates (around 10 percent), adding additional costs to the already unaffordable materials. Traders would force borrowers to loan and sell back, leaving them with little or no revenue.
Yunus figured that since most borrowers would only need about 22 cents to buy materials, he could go to a major bank and demand that loans be given to the poor. The bank, however, insisted that in order to request a loan, a person would need to fill out a series of complicated forms that would require credit history and ensure collateral.
There were two problems with this approach: Poor borrowers usually did not develop a credit history, and 2.75 percent of the population in Bangladesh was illiterate, so there was high probability that a borrower would be unable to fill out the required forms. Yunus then decided to create a system that would simplify the process of obtaining a loan. He eventually founded the Grameen Bank, which continues to employ this system.
An impressive aspect of Yunus' Microcredit is its emphasis on supporting poor women. Yunus identified women as the "majority of the poor, the underemployed and the economically and socially disadvantaged." However, Yunus stressed that women "more readily and successfully improve the welfare of both children and men." He explains that when a "destitute mother…earns income, her dreams of success…center around her children."
A mother's economic success not only benefits herself individually, but also the members of her family. Yunus appears to conclude that since a woman's economic motivations are, for the most part, selfless, her contribution to society is substantial.
Since I love to turn everything into a women's rights issue, I'll have no difficulty supporting Yunus' point.
For an open market system to work effectively and to its upmost potential, the labor force must be fully employed. In other words, if the labor force consisted only of men, there would be no hope for social and economic progress. Why? Because the economy would only be employing a fraction of its resources, therefore decreasing its potential. Adding women to the equation increases the labor force, hence fomenting economic productivity.
Increased economic productivity and revenue would mean happier people. Happier people are more likely to improve social conditions. Improved social conditions (you know, like actually having food) would encourage an environment of intellectual curiosity and, therefore, people will want to become educated. Education guarantees progress and helps prevent social and political screw ups.
Yunus stresses the participation of women not as a women's rights issue, but as an economic condition that would undoubtedly increase the effectiveness of Microcredit and the economy as a whole. In his autobiography, Banker of the Poor, Yunus considers every citizen a valuable resource, regardless of socioeconomic status. Microcredit is not a system of charity; it attempts to eliminate social inequality in a structural manner that would require people to be productive.
Microcredit is highly effective because it allows borrowers to become acquainted with the open market. Once borrowers become accustomed to the small loans, they gradually accumulate revenue which allows them to pay back loans and afford basic necessities such as food, medicine, etc. Also, borrowers who are familiar with the market are less vulnerable to moneylenders and their unreasonable interest rates. Most importantly, this system promotes competition, which ultimately encourages long-term economic progress.
A final point should be made about the future of Microcredit. This system is a step in the right direction but it is not an absolute solution to the issue of global poverty. The overall intention of Microcredit is to increase awareness of open market policies and to eliminate economic dependence. The system promotes self-sufficiency, an ideal result to any proposed economic remedy.
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