MicroCredit: A Good Option to Reduce Poverty?

Written by: Jessica

A few weeks ago I attended a panel of students and faculty who shared papers discussing the Grameen Bank’s system of alleviating poverty using microcredit It is a system that has had amazing results, bringing many people out of poverty in rural villages of Bangladesh. From the time I first heard about this bank’s strategy, I was curious what methods they used and if it would be an effective strategy around the world or even in the US. The Grameen Bank (grameen means “rural village” in Bangala) was the result of a research project started in 1976 by Nobel Peace Prize winner, Professor Muhammad Yunus, head of the Rural Economics Program at a university in Bangladesh, who was studying the results of giving credit to the rural poor. The main objectives of the bank were to: extend banking options to poor men and women, eliminate exploitation of the poor by money lenders, create opportunities for self-employment for unemployed, and bring the disadvantaged into an organizational structure they can understand. After all, Yunus argues that everyone has a right to credit and to alleviate poverty with dignity.

In Christian circles, we often talk about being active among the poor, but do we regularly talk about alleviating poverty? The activities I participate in are usually only partially effective or like putting a band-aid on a gaping wound. For instance, feeding the homeless, giving out clothing, or even donating to local programs, represent a huge blessing and help to meet immediate needs.

However, as we talk about helping the poor, it would be wise to look at the process of microcredit lending to individuals, as opposed to a larger system of macrocredit lending to nations as an option in alleviating poverty long-term.

Millions of people have benefited from the introduction of Microcredit lending into third world countries. Two examples of how the Grameen Bank works are Rani & Razia. In 1998, Rani received a loan Tk. 25,000 ($362.00US) from a Women’s Credit Program in Bangladesh to set up a small business redesigning and manufacturing plastic hair clips, hair bands and earrings. She has been successful in this highly competitive business and has had to increase her employees. She repaid the loan and is even able to deposit money in a savings account each month. Her family has gained financial and social stability through a microcredit program.

Razia, another highly motivated, creative business woman, who has benefited from microcredit, has her own business creating fancy bangles for order. Purchasing plain bangles from the market, she employs up to 5 women at a time to design and decorate bangles her business booms particularly during marriage season and during peak holidays. Her total sales Rs9,000 ($148) minus her total expenditure Rs5,000 ($82) per month leaves her with a net profit of Rs4,000 ($66) per month.

Over the past 30 years, the Grameen Bank has sought to use microcredit lending as a way to alleviate poverty and empower individuals in their families and communities. How does microcredit work? Credit is given to groups of 5 or more people with no collateral or to help a family or an individual with an idea for a business venture to help them get out of poverty. Loans are repaid in weekly installments over a year and group accountability and principles are shared. In 2006 Grameen had over 6.91 million borrowers 97% of whom are women covering 89% of villages in Bangladesh. The bank also seems to be very thorough in educating borrowers on improving their quality of life and monitors borrowers lives and has ten indicators to show if borrowers have moved out of poverty. This model has been replicated all over the world namely Venezuela, India, and the US. I believe this is a model worthy of pursuing for alleviating poverty in many countries. Organizations like the Grameen Bank provide a holistic approach to alleviating poverty through methods that allows the individual to retain their dignity and rediscover hope.

I believe that the system that the Grameen Bank has developed supports Christian ideals because it seeks to assist those in poverty, by equipping them, extending mercy by not asking for collateral for a loan, encouraging their business ideas and enabling them to work hard, and educating them in how to take care of finances and invest wisely. Although you may not have tons of money, work for a bank, you can still find ways to apply these principles by possibly: 1) looking at organizations /charities your money goes to. Are they looking for ways to alleviate poverty as well as meet immediate needs?; 2) perhaps trying this in your own neighborhood by lending to someone who could start their own business and walking alongside of them; or 3) setting up educational programs to teach those in poverty how to manage finances and invest wisely. Above all, let us pray for God’s wisdom and help in all we do to serve the poor. May we be rich in mercy and kindness and generosity.