Since the inception of the concept of banking and sophisticated finance, societies have benefited from the use of financial and ‘in-kind’ loans to create wealth from limited initial circumstances. This has fostered entrepreneurship and allowed business to develop and flourish, ultimately contributing to the relative financial prosperity enjoyed by developed countries today.
However it is only relatively recently that the concept of credit has received significant recognition as a way by which poverty can be alleviated and as offering accessible and sustainable assistance to the development of a country.
It is important to establish that this article concerns itself with ‘microcredit’, and not your traditional bank loan. ‘Microcredit’ is part of the broader focus of microfinance: the provision of financial services to the disadvantaged. ‘Microcredit’ refers to the extension of small loans by institutions to those in impoverished situations. This allows those who do not satisfy the criteria for traditional credit to access a loan.
The contemporary origins of microcredit today are linked to a number of organisations. Most notable, is the work of the Grameen Bank and its founder Muhammad Yunus to provide microcredit to communities in Bangladesh (www.grameen-info.org/). It is not surprising that Muhammad Yunus and the Grameen Bank were awarded the Nobel Peace Prize in 2006 for their initiative.
Going against conventional banking practices, Yunus’s concept is to extend microcredit to the very poor without requiring initial equity or collateral, or a previous credit history to qualify for a loan. In doing so, the means to start small businesses is provided, with the loan to be repaid under sustainable long-term conditions. Yunus’s vision is to create the capacity for millions of small pursuits that will culminate in, what he terms, the ‘biggest development wonder’.
Arguably, Yunus’s dream is well on the way to being recognised with October 2010 seeing 8.33 million borrowers, worldwide.
At the core of the concept of microcredit is what I will term a ‘respect’ for human dignity: Microcredit and microfinance initiatives extend a helping hand, providing the means for the very poor to break the cycle of poverty through their own innovation, rather than through reliance on aid projects. Extrapolating the development in countries where microcredit initiatives have been undertaken, it would not be controversial to extend the idea that lasting sustainable economic development could occur in impoverished developing countries. Investing in the individual is a powerful development tool.
Analysis of such initiatives as that of the Grameen Bank supports the importance of the empowerment of women in the developmental process as well. Of the 8.33 million borrowers in October 2010, 97% of those were women. Not only is utility found in investing in the individual evidently, but also in investing in women.
Economic studies have shown that 70 cents of each dollar invested in a woman is returned to the family, as compared to 40 cents when the dollar is invested in a man. This is not a slight on gender; it is simply the fact as it stands. As a result of this higher return, an inevitable greater returns towards development are made.
Another initiative, The Hunger Project in Africa, focuses distinctly on the empowerment of African women to amazing effect. By providing women in Africa who farm with adequate training and the infrastructure to receive credit loans and to save, a saved total of US$850,000 was reached in 2009 contributed to by 30,000 partners. Not only this, but 21 rural banks were both created and graduated to operate independently of the project, run by rural women in communities.
It is evident from this analysis that there is known significant and sustainable developmental progress to be made when microfinance initiatives, especially microcredit programs, are extended to the impoverished and introduced into developing countries. This article has not sought to analyse the importance of the conjunction of good government and economic prosperity to create development, but rather to focus on the success of microcredit programs in creating economic development through empowering the individual, and especially, women. I believe that microfinance, and microcredit in particular, are and will play an important role in reaching those goals established by the world to relieve poverty.