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From "Looking at Poverty, Seeing Untapped Riches" [1], an article in the New York Times (October 26, 2000) by Tina Rosenberg:

Microcredit is the child of MuhammadYunus, a Bangladeshi economist, who began in 1976 by lending 62 cents apiece to a group of 42 artisans — thus freeing them to buy a day's materials in advance and sell the finished product to whoever they chose, at market rates. Mr. Yunus founded the Grameen Bank, which gives small loans mainly to women. The borrowers need only social collateral — they form groups of five and all are cut off if one defaults. Today more than eight million people in more than 58 countries get microcredit loans. A few years ago, a study of Grameen borrowers showed that one-third had escaped poverty.

[end of excerpt]

I've been interested in microcredit for some time as one of the better ways to break vicious cycles of poverty. In many countries a few dollars at the right time can save lives. Those who don't have conventional credit often cover emergencies (like a sick child who needs medicine) by borrowing informally at extreme interest rates. Microcredit can allow these people to borrow from reputable agencies at reasonable interest rates. The ability to build tiny businesses also allows some people to escape near-enslavement by their regular material suppliers. Microcredit is often especially important for women who often face cultural barriers to gaining conventional credit.

The idea of "social collateral" is particularly interesting, and may have some relation to SoftSecurity ideas. Some other microcredit lenders simply require some kind of identification to prevent people from repeatedly defaulting.

Some microcredit links:

Contributors: CliffordAdams

See MicroPayment for more "small scale finance" ideas.


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