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LAS AMERICAS Let Them Eat Microcredits BY BEATRICE EDWARDS 1111 his may be hard to believe, but in the dreary masculine world of Third World eco nomic development, fash ions come and go with the frequency and hype of rising and dropping skirt lengths. We’ve seen import substitution, export promotion, rural integration, and privatization burst onto the scene, explode, backfire, and then fizzle. Usually not quite fast enough though. Inevitably, each craze lives on well past its usefulnessif in fact it ever had any until the next fad comes along. But after a number of lackluster seasons with few appealing new styles, this year we’re all celebrating the fabulous new Muhammad Yunus collection, featuring Grameen Bank, microcredit, and “development from below.” Yunus, the founder of Grameen, received the Nobel Peace Prize last month as the Father of Microcredit. Actually, our excitement for the Grameen Bank has been building for some time. This institution, based in Bangladesh, provides collateral-free microloans to poor people \(usually microbusinesses and lift themselves out of the macropoverty that currently engulfs them. Grameen helps “the poorest of the poor” and this year has 6.67 million borrowers and 2,247 branches, covering nearly 90 percent of the villages in Bangladesh. Grameen microcredit has become a true trend, with replicated banks in Uganda, Zimbabwe, and Bolivia, among other places. The bank has also attracted the endorsement of USAID, the World Bank, Monsanto, Johnson and Johnson, Citigroup, the Gates Foundation, and the Rockefellers. Holy cow! If you’re poor and you get a look at a lineup like that, you would be well advised to read the fine print. Here’s how it works: Grameen makes microloans, in amounts from $50 to $200, to groups of borrowers, typically five women. Two of the five women use these initial loans to improve their microbusinesses: microkiosks, microgardens, microrepair, micro-etc. Bank staff and other members of the group keep a sharp eye on the way they use the money. If they begin to repay the loan over the next six weeks, at an interest three women in the group then become eligible for loans. Peer pressure, in effect, becomes collateral. Grameen reports astounding repayment ratesupwards of 95 percent. Thus the polite applause from the approving rich people. Unfortunately for the promoters and the clients of Grameen, however, the bank has had little impact on poverty. With nearly universal coverage of the villages in Bangladesh, the country still has the highest poverty rate in South Asianearly 138 million poor. Fifteen percent of the population are seriously malnourished, and Bangladesh still lacks even rudimentary social services throughout most of the country. Of course, it isn’t realistic to expect that a single nongovernmental organization, or even a large commercial bank, could single-handedly address and diminish poverty on a national scale over a couple of decades, is it? But astonishingly, this is exactly what Grameen and boosters such as Kofi Annan and Paul Wolfowitz, the UN Secretary General and the World Bank President respectively, claim for it. The hype is amazingly grandiose: “Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means. Development from below also serves to advance democracy . and human rights,” states the Grameen Web site. “A small loan, a savings account, an affordable way to send a pay-cheque home, can make all the difference to a poor or low-income family. With access to microfinance, they can earn more, build up assets, and better protect themselves against unexpected setbacks and losses. They can move beyond day-to-day survival towards planning for the future. They can invest in better nutrition, housing, health, and education for their children. In short, they can break the vicious cycle of poverty.” Kofi adds, inaugurating the “UN Year of Microcredit.” Paul Wolfowitz chimes in, addressing the Father of Microcredit: “It was with great joy that I learned today that the Nobel Peace Prize has been awarded to you and the Grameen Bank. Your commitment to microcredit and poverty reduction in Bangladesh has had an enormous impact. Likewise, Grameen’s strong support for the role of women and poor people in the economy and society over the past 30 years is now global best practice.” However, the Grameen method is simply not all it’s cracked up to be. Microcredit, as others have pointed out, does not break “the vicious cycle of poverty.” Rather, it allows people to subsist in it a little better for a little longer. This, in itself, is of course a major achievement, but let’s be honest. Grameen does not actually address the needs of “the poorest of the poor.” The poorest people do not have microkiosks, bamboo businesses, or bicycle repair shops. They have the clothes on their backs and a handful of mealiemeal if they’re lucky. There are roughly a billion of them, according to the UN and the World Bank, and Grameen never gets near them. In addition, if you are a microbusiness owner, a $50 loan is never going to make you a macrobusiness owner. It isn’t even going to make you a normal 18 THE TEXAS OBSERVER NOVEMBER 17, 2006