Microcredit: An Agent of Change

Saturday, August 11th, 2007

Posted on the Peak - April 2, 2007

By Meesa Chungfat

Talks of global warming and sustainability have received much overdue media attention, with Al Gore winning an Oscar, the EPIC exhibition on sustainable living in Vancouver, and many other endeavours happening in Canada and around the world. Sustainability is the common thread in all of these campaigns and initiatives and is the term that creeps up in the media from time to time.

Sustainability has many definitions that can be picked apart from many departments. But we won’t do that here, and instead look at it from a very basic level to avoid more headaches prior to exams. Sustainability can apply to our families and international institutions. It is the ability to live in a continuous cycle of social, financial, and ecological well-being. The concept is often associated primarily with environmentalism, but the social and financial aspects cannot be ignored and are inherently linked with environmentalism.

The major culprits to the social and environmental problems around the world are short-term, non-holistic business operations working in partnership with economic policies on various government levels in many countries. These operations systematically hinder people from meeting their basic needs, such as food and clean water. And fixing macro-level policies and systems towards the path of sustainability is certainly no easy feat.

In response to the societal cages of poverty macro-level policies have caused, many people have found creative and effective ways to deal with their circumstances rather than waiting for systems to change. One of those ways is through microcredit.

What is microcredit?

If the term sounds familiar, it’s probably because microcredit has received much attention since 2005, the International Year of Microcredit, and has grown rapidly around the world. Microcredit is an extension of small loans for people who do not have enough assets to qualify for traditional bank loans.

The system received more publicity in 2006 when Dr. Muhammad Yunus, an economist, professor, and banker from Bangladsh, won the Nobel Peace Prize for helping millions of people around the world through his application of the microcredit system through the Grameen Bank.

Think of someone you know who can really stretch their dollars. Compare that with a woman who has said, “Our small trades have prospered. I am now able to feed my kids properly and send them all to school.” This success story belongs to Nahishakiye Francoise, a Burundian woman who sells small fish as a part of her business.

The Grameen Bank

Yunus first got involved in fighting poverty during a 1974 famine in Bangladesh. It was those experiences where he discovered that small loans could make a tremendous difference in a person’s life. Yunus often acknowledges that “poverty has been created by the economic and social system that we have designed for the world.”

Yunus made a list of people who needed just a bit of money in the Jobra village to start their small businesses selling bamboo furniture in 1976. “When the list was complete, there were 42 names. The total amount of money they needed was $27. I was shocked,” he said. Over time, the women repaid Yunus for his loan.

Yunus began the Grameen Bank, which means “of village,” to make loans for poor Bangladeshis. The bank has developed forms of alternate credit over time and his model has proved to be so successful that it has been replicated around the world, including industrialised countries like the U.S.

Today, the Grameen Bank works in over 75,000 villages, has lent money out to seven million people around the world, 97 per cent of whom are women, and have disbursed $6.01 billion USD. The loan recovery rate is 98.5 per cent. What is remarkable about this high success rate is that the loans are given on a trust basis. Yunus’s philosophy is the opposite of that of big banks. He believes that if you are poor, you should have priority for a loan. “I did something that challenged the banking world. Conventional banks look for the rich; we look for the absolutely poor,” he said.

Lending money to financially deprived people on a trust basis goes against many of our initial instincts about people. Sometimes you can’t even trust your own friends to pay you back for lunch money. But Yunus’s endeavour to trust in people has paid off with a multiplying effect, as the loans can be recycled to help other people.

Microcredit and sustainability

So how exactly does microcredit relate to economic and social sustainability? The loans allow entrepreneurs to have a regular source of income that enables them to meet their needs and provide for their families. The difference between loans and charity is that the loans allow people to take control of their own destinies and bring themselves out of poverty. This not only empowers them but also preserves their dignity.

Kiva is a microlending organisation that has grown quickly during its several years of existence. Kiva enables anyone with an internet connection and a kind heart to loan money to a social entrepreneur of their choice around the world. Kiva posts profiles of entrepreneurs through their field partners and people can easily contribute to projects ranging from $25 to $1,000 USD using PayPal.

So far, Kiva’s borrowers have had an astounding 100 per cent repayment rate. I asked Kiva’s Fiona Ramsey, community and operations manager, on what she thinks accounts for their astounding repayment rate. “The high repayment rate within microfinance is a clear demonstration that the poor are highly motivated, driven people who have the ability to be very successful if only given the necessary tools and opportunities,” she said.

Organisations have appealed for charity, but what is different with microcredit organisations like Kiva is that you will get your money back. Through Kiva, once borrowers get their money repaid, they can choose to re-loan their money or withdraw their funds from the program. “By focusing on loans rather than donations, we are multiplying the value created for each loan,” Ramsey said.

The Grameen Bank has inspired many other microcredit programs to form around the world. In addition to Kiva, World Vision implements a similar model of loans that range from $30 to $5,000 CND. Most of their borrowers are also women and the money repaid can be recycled and re-loaned to other entrepreneurs.

Empowering women

In addition to financial and social stability microcredit brings, it has improved the status of women and enhanced their confidence and assertiveness. They are able to become more visible in their respective communities. Women own their own assets, including land and housing.

Remember, 97 per cent of the Grameen Bank’s seven million borrowers have been women because they have proved to be reliable, as well as incredible, entrepreneurs. The women are much more likely to spend their income on the family and this has transformed their lives.

What is most inspiring is that women in many regions around the world have made the transition from being socialised in a system where they are of inferior status to elevating themselves to become more independent from their husbands and enhancing the well-being of their families, and on many occasions, their communities.

Where microcredit cannot be used

But microfinance cannot be seen as the bullet solution to everything and Kiva acknowledges this. Their website states, “Microfinance is but one strategy battling an immense problem. Microfinance is not a solution to poverty.” Economic and macro-level changes must change to enhance opportunities for people around the world in order to be financially, socially, and environmentally sustainable. The fact that there are microcredit programs in the U.S. says a lot about the barriers to social and economic well-being for their own citizens.

Microcredit certainly cannot be applied in every region around the world. It is not successful in areas with dispersed populations or areas that are prone to disease, such as those with a population with high rates of AIDS-infected individuals, which is an issue that deserves much-needed action. Also, too much dependence on a single economic activity or crop will pose a problem. Things can go awry when there is no backup plan.

‘Riding to Break the Cycle’

Yunus has not only inspired programs, but also young people who want to help the cause. Shawn Smith is the president of Agents of Change, an organisation of university grads and undergrads, including those from SFU, who set a goal to raise $1 million for a microcredit fund in partnership with Kiva.

Smith was inspired by Yunus and was immediately drawn to the sustainability and self-sufficiency of the microcredit system. “Nobody likes to depend on handouts. Our goal is to provide developing world entrepreneurs with the financial means and support to lift themselves out of poverty,” he said. Agents of Change formed in October 2006 and has already raised over $8,000 for its microcredit fund. Its major fundraiser, “Riding to Break the Cycle,” is a 3,000-kilometre bike ride set to kick off on May 3 from Vancouver to Tijuana, Mexico. There are just over 20 riders, two support vehicles and drivers, and several volunteers.

After the ride, Smith said they will begin a “Young Agents” program, which is “a school-based program aiming to encourage youth to become critical thinkers and socially engaged citizens.” They are in the process of filming a documentary to track their progress and successes along the way. Agents of Change is one of many organisations who are continuing to spread the enthusiasm and spirit of empowering entrepreneurs around the world to take control of their own destinies.

Act for change

Microcredit is but one tool to overcome the obstacles of economic and governmental systems that act as a barrier for people around the world to meet their basic needs. There is a lot of work that needs to be done on all levels and aspects of societies around the world that cannot be stressed enough.

The remarkable achievements of social entrepreneurs is an inspiration to us to participate in any way as a global citizen, “unless we create an environment that enables us to discover the limits of our potential, we will never know what we have inside of us,” Yunus said. There is no reason why you cannot act for any cause at any capacity. Unlike most people in the world, we do not have to wait to be given the tools to succeed. So use them and be an agent of change.

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