The Los Angeles Times

Helping the Poor to Help Themselves

The Los Angeles Times Poverty: Repay Third World debt into a fund from which small loans would be made.

By Muhammad Yunus

There are a growing number of micro-enterprise lending programs around the world that proved to be a powerful tool for helping people raise themselves out of poverty.

The Grameen Bank in Bangladesh, for example, has provided thousands of village entrepreneurs with the small amounts of capital they need to start self-employment ventures. The Grameen model is being replicated in dozens of other countries and is so successful it is praised by people from across the political spectrum.

Yet there is a huge obstacle confronting the hundreds of grass-roots “microcredit” organizations trying to help the poor become entrepreneurs: Where can they get sufficient startup capital? Traditional sources such as commercial banks want to lend to the wealthy, not to the poor, Governments of rich countries are undergoing fiscal retrenchment and are cutting their foreign aid budgets. microcredit organizations could rely on begging from sympathetic foundations and aid agencies, but the amounts would not approach what is needed to meet the widely accepted goal of reaching 100 million of the worlds poorest families with microcredit by the year 2005. There is a potential source of funding for microcredit, the tapping of which also could help solve another major problem. Dozens of Third World countries are burdened by foreign debt. Much of this debt was contracted by undemocratic governments and used for questionable purposes that did not benefit the majority of citizens, Interest payments on the foreign debt shift much needed hard currency from those countries to global financial institutions. Many poor countries cannot keep up with their interest payments, let alone ever hope to pay back the principal on their foreign debts.

What if we could address this flaw in the global economy while at the same time raising much-needed capital for micro-enterprise lending?

It could work something like this. Debtor government would pay local currency into a local microcredit fund. The fund would be run according to democratic principles; board members would be drawn from among microcredit practitioner organizations, women’s groups, academia and the philanthropic community. The involvement of government would be kept to an absolute minimum to ensure that this does not become another conduit for political patronage.

The board would lend the money deposited in the fund to organizations providing credit and essential services to people trying to escape poverty through self-employment.

The economic multiplier effect of this microlending would be great because the poor spend most of their money in local economy on basic things such as food, clothing and shelter. Putting a ceiling on the size of loans – several hundred dollers- would keep away those motivated mainly by greed.

For each sum of local currency deposited in a microcredit fund, that country’s government would have its foreign debt reduced by an equivalent amount of hard currency at a mutually agreed exchange rate. This would stop one of the most troublesome aspects of the debt crisis: the bleeding of hard currency from Third World countries.

Obviously, some People in positions of power will resist this plan because of its profoundly democratic goal of shifting economic resources downward instead of upward. Establishing such a plan will require a large, transnational campaign.

This idea is put forward not as a polished blueprint, but merely as a starting point for a much-needed debate on two crucial issues: how to solve the Third World debt crisis and how to provide sufficient funding for a proven method of poverty alleviation.

Muhammad Yunus is the founder and Managing Director of the Grameen Bank in Bangladesh.