microcredit / microfinance

The New Yorker has an article on Micro credit and finance. Connie Bruck’s article is Millions for Millions, This years Nobel Peace Prize winner and some high- tech entrepreneurs are competing to provide credit to the world’s poor.

She compares the difference between Micro credit, which is more what Muhammad Yunus of Grameen Bank prescribes. Micro finance, is what ebay founder, Pierre Omidyar believes in.

Yunus claims that more than 50% of borrowers have risen out of poverty within five years of staying in his program. To graduate from poverty he believes a family must have, a house with a tin roof; clean drinking water; a sanitary latrine; warm clothes for winter and mosquito netting for summer; about seventy five dollars in a savings account; and schooling for the children.

Omidyar subscribes to Micro finance, which helps the poor, but not the poorest. It is about equal access to capital, similar to the ebay model, where buyers and sellers have equal access to information and opportunity.

Micro finance is being transformed into fully commercial profit making sector, the conflict between micro credit and micro finance is between pure do gooders and profit minded do gooders. Maximation of profit is inappropriate when dealing with the poor, according to the micro credit theorists..

Pro Mujer, founded in Bolivia by Carmen Velasco and Lynne Patterson, is a Micro credit N.G.O. based on the Grameen Bank model. It’s client are very poor women. It provides credit for income producing activites but also offers clients training in health care, family planning, child development and self esteem.

The shift towards the profit model began in the 1990's, in Latin America, Accio`n international was formed. They believed that commercial enterprises could tap financial markets for funds needed for their growth.

Jonathan Morduck, an expert in the field of Micro finance, argues that credit alone is not a panacea. He emphasizes the success of groups that combine lending with other initiatives like education and heath care.

Citigroup, the largest banking network in the world launched a micro fiance business division in 2005. Robert Annibale, the divisions global director, talks not about reducing poverty but about financial inclusion. That means retail banking for the poor, which includes not only loans and savings accounts, but also insurance and remittances.

Jamii Bora, was started in 1999 by Ingrid Munro in Kenya. She works with the very poor in the slums of Nairobi, she added housing loans, heath insurance and life insurance to her services. She realized that one of the main causes that clients defaulted on loan repayments, was usually because a family member had been hospitalized. No insurance company would insure her clients so she started an affordable insurance program.

I am glad that the vision of Muhammad Yunus, won the Nobel prize and not Pierre Omidyar’s commercial approach towards credit for the poor.