| It's as easy as it is controversial to slap a fin into the hand of the guy sitting on the street corner. However, getting that same fiver to someone in Guatemala or Malawi is a complex and uncertain task. Countless organizations have cropped up to fill the void of intermediary, leaving donors to complete a research thesis in order to sort the good charities from the bad. Stories of huge percentages of donated funds being spent on advertising or vanishing in the bureaucratic machinery left would-be donors wondering if it's worth it.
Also, there is the issue of what the money is spent on when it finally arrives. Vast sums of development money have been dumped into the developing world, but the expected improvements have failed to materialize. According to New York University economist, William Easterly, $2.3 trillion US has been spent on international aid since the 1950's. His book, The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill And So Little Good, explains how development money has been misspent on bureaucracy and projects lacking measurable goals or accountability. Easterly recommends the use of "searchers" in developing areas to effectively locate development spending in specific circumstances rather than on generalized schemes.
One such searcher is Bangladeshi economist Muhammad Yunus who recently won the Nobel Peace Prize for his pioneering work with microcredit. While teaching economics at the Chittagong University in Bangladesh, Yunus became concerned with the inability of economic theory to explain or alleviate the famine taking place in cities and villages around the university. He made regular trips to the village nearest the university to study poverty first-hand.
Yunus concluded that the poor were unable to raise themselves out of poverty because they were unable to retain the returns of their own labour. Without owning property, the poor are forced to work under the terms of employers or moneylenders. In developing countries these terms generally provide labourers with just enough income for subsistence living, keeping them permanently in the service of their creditors. The poor have no access to capital because they have not inherited any, and they do not have any collateral to put up for a loan.
Yunus decided that a failure to take into account the ability of credit to generate wealth and social power was a fundamental flaw in the theory of development economics. He saw lending money to the poor as a vehicle for moving them into a position where they could take advantage of the returns of their own labour. Yunus also found a fundamental error in the banking system. They would not lend to those without property, collateral or dependable wages. Believing that the poor would see credit as their only chance out of poverty and would repay loans out of desperation not to lose this lifeline, Yunus began loaning money to poor villagers, eventually starting the Grameen Bank.
To date the Grameen bank has lent approximately $5.72 billion US to millions of people in Bangladesh, and the bank claims a repayment rate of more than 98 per cent. A rate higher than that seen by commercial banks that guarantee loans with collateral. Since the founding of Grameen, similar microcredit projects have been founded in countries throughout the developing world. Many projects have seen similar success.
Microcredit takes William Easterly's suggestion of allocating money in the developing world to its extreme and, perhaps, logical conclusion. Why not give the money directly to the poor? Presumably, they are in the best position to judge the sources of their own poverty and to use the money to generate wealth. This, of course, is terrifying to many working in development who feel that the poor in developing countries do not have the education or training to turn credit into wealth. However, while Grameen Bank has incorporated education and training into its lending scheme, in general, its borrowers know how to utilize loans to generate income and improve their living conditions.
In the 21st century, microcredit has upgraded to version 2.0. Harnessing the power of the Internet, Kiva.org has become the first person-to-person micro-credit organization. Other micro-credit organizations from around the world can post borrower profiles on the website, and lenders in the developed world can choose how much and to whom they donate. Kiva has quickly become one of the most trafficked microcredit websites and is now lending over $3 million US to thousands of borrowers in over 25 countries.
Micro lenders can track the impact their money is making overseas. Kiva lenders can receive periodic journals over the term of the loan to see how their money has contributed to generating income in the developing world, but more importantly, lenders can watch to see if their loans are being paid back. Watching the ability of borrowers to pay back their loans gives the lender, for the first time, a direct method of watching the impact of their money overseas. Unsatisfied lenders can withdraw their money once the loan is concluded but, to date, Kiva has seen a repayment rate in the 99 per cent range. |
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