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A Capital Idea

The causes of poverty have long vexed scholar and practitioner alike. Whether the result of political indifference and incompetence or the brutality of famine and war or just the seven deadly sins in action, sustainable solutions have eluded all from village chieftain to the General Assembly of the United Nations. The central challenge of poverty is that it is context specific but falls across multiple boundaries such as regions and cultures. What is a deficiency of necessary means may be quite different depending upon expectations and customs. This makes it difficult to coordinate activities that redress personal, communal and situational barriers to prosperity. There is little evidence that a single silver bullet or shotgun approach can resolve such a significant yet intractable issue. A viable approach would need to synchronize a comprehensive pool of resources and expertise while localizing their distribution to meet specific needs. Before the advent of the World Wide Web and the global economy this would have been an impossibility. After its inception it became an inevitability.
In the mid 1970s, economics professor and future Nobel Laureate Muhammad Yunus noticed that the women in the village near the university where he taught in Bangladesh were borrowing cash from local moneylenders at usury rates to buy materials for the inexpensive bamboo furniture that they made. Because banks would not consider these viable businesses and considered the transaction costs to loan such small amounts infeasible, these women were trapped in a cycle of poverty and remained part of the permanent underclass. Yunus began to loan is own money to many of these woman at an interest rate comparable to the legitimate financial institutions in the region. What he found was that access to capital transformed many of these destitute women into entrepreneurs and greatly improved their economic conditions. Yumus initiated a research project to explore the potential of a banking system to provide access to credit for the working poor.
By the early 1980s, with the aid of government and private support, Yunus and others established the Grameen Bank which is Bengali for “village.” This community based financial organization made very small loans to individuals with no collateral or credit history that could demonstrate that a small investment would greatly improve the viability of their “business.” Grameen gave microloans to a wide array of the self-employed including furniture makers, farmers, fishermen and food processors. Most of the initial loans were less than twenty US dollars. As these borrowers became reliable credit risks conventional banks began to see them as a tremendous pool of potential customers. Over time, many commercial and government institutions copied the Grameen model and used it as a development system for future growth.
The New Millennium brought billions of people worldwide into the Net and made it easier to connect lenders and borrowers. This enabled people in industrialized countries to go beyond traditional charitable giving to making targeted investments in developing locations, industries and social groups. They could see their money at work. Soon standards and systems of accountability were established for both world and local markets. An entirely new field of economics called microfinance emerged from the Grameen experience. Not only did these loans help pave a road out of poverty but often proved to be worthy investments.
What started as a small experiment changed some fundamental assumptions about poverty and the untapped potential of the working poor. By repositioning banks from a risk avoidance to a growth orientated approach Yunus and others created a hybrid solution with benefits for individuals, communities and beyond. Perhaps there is now a new variation of the old expression – God helps those who help themselves…and help others along the way.
Jeff DeGraff
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