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lesson 13
Banking on the Poor
For many people, there seems to be no escape from poverty; in other words, they are poor, and they have no hope that this will ever change. In addition, they have the social problems of poverty. Imagine this situation: a poor woman has an idea for a small business to lift her and her family out of poverty. She needs a little money to begin this business. She goes to a bank to borrow the money, and the banker interviews her. At this bank, as at most banks, the borrower must meet three necessary conditions: character, capacity, and collateral. That is, if this woman wants to borrow money from the bank, she must show that she is honest (has a character), is able to run her business (has capacity), and owns a house, land, or something valuable (collateral)for the bank to take if she cannot pay back the money. So what happens to the woman? The bank won’t lend her the money because she doesn’t have any collateral.
One possible solution these days is microlending. This is a system of special banks and programs that are loaning money to people in “borrowing groups.” For example, an international organization called Good Faith lends small amounts of money to people who want to go into business. Each person must do two things to borrow money: take classes in business and join a borrowing group. This is a group of microentrepreneurs-i.e., people who own and run their own small business. Everyone in the group must approve the loan of every other group member, or Good Faith won’t lend the money. To receive a loan from Good Faith, people still must have character. They find capacity in the business classes. But collateral is not necessary any longer. Instead of collateral, there is peer pressure; i.e., group members make sure that each person pays back his or her loan. They want to keep their “good name” and continue doing business with good faith.
Good Faith has had many successes and only a few failures. In Pine Bluff, Arkansas, a small town in the United States, one person was able to open a hair salon, another a plant shop, and a car decorating business-all with loans from Good Faith. In a developing country such as Bangladesh, a person can begin a small business with only $10 to $15. Because of many small loans from Good Faith, there are now 1.6 million new entrepreneurs in Bangladesh. Of course, not all these loans were a success. At first, Good Faith lent half of the money to men and half to women. Unfortunately, most of the Bangladeshi men spent the money on themselves, not the business. Now good Faith does business mainly with women’s borrowing groups in that country.
In any country, women are the poorest of the poor. They produce more than half of the world’s food, but they own just one percent of the world’s land. They are 51 percent of the world’s population, but very, very little money goes to programs to help them. In the late 1980s, Anne Firth Murray took the initiative and began the Global Fund for Women. This fund now has more than $3 million. It has given money to over 400 women’s groups in 94 countries. Unlike Good Faith, which helps people begin businesses, the Global Fund for Women helps to solve social problems-e.g., violence and lack of education. For instance, the fund has helped a group of Palestinian and Jewish women who are working together to stop violence against women. It is giving money to a woman in village in southern India; she has started a literacy program to teach poor women to read.
Good Faith and the Global Fund for Women have lesson for banks around the world: it’s a“safe bet” to lend money to the poor. With careful planning, education, and cooperation, most people use the money well and they plow the money and knowledge back into their communities. There is hope that they can begin to break the cycle of poverty for themselves, their families, and society.