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  Sunday, November 1 2:46pm PST

Saatchi & Saatchi
The Creditworthy Poor
Micro-loans to the poor prove financially and socially successful, says expert

Over 10 million of the world's poor are now a little better off through a micro-finance program that gives small, short-term loans to people who failed to receive support from mainstream.

Institutions that specialize in so-called micro-loans are now in dozens of developing countries across the globe, including Africa, Latin America and Africa, giving poor people access to much-needed funds to begin their own enterprises.

The concept had its main movement about 20 years ago after Professor Muhammad Yunus from Bangladesh became frustrated at the fact a small amount of money could lift people out of poverty, but none of the country's banks were prepared to take the risk. Professor Yunus decided to set up his own bank to lend money to rural people - in particular to women - without the need for collateral and thus, the Grameen Bank was born (grameen translates as "rural").

The United Nations Educational, Scientific and Cultural Organization (UNESCO) is one of the world's charitable organizations that supports and promotes the program.

Its consultant on micro-finance, Sayeeda Rahman, said in an interview at the State of the World Forum in San Francisco yesterday (Oct 28) that the scheme was working very well, despite many of its clients having put up no collateral before receiving loans.

"The repayment rate of the credit for a good institution is over 95 percent, or even 100 percent, which normal banks don't have, and this proves that poor people are credit-worthy and are good clients…. There are institutions that have failed, but if they make the effort to learn about the people and their needs, they are very successful," Ms Sayeeda said.

"They [poor people] don't have any other option. Poor people are excluded from the social services we get, and there aren't enough jobs, so they have to work for themselves. And being self-employed, they need to buy materials, and you need money for that. So if you pay back your loan you get more loans. The need is so big they respect all the conditions."

Most of the loans go out to women. In Bangladesh, 95 percent of Grameen's loans are to women, while some other institutions only loan to women, and others loan to men and women equally. "Women have more difficulty than men in accessing resources, but most of the institutions realize that when you give a loan to a woman, there is an improvement in the whole family, because women reinvest in the family, where men spend money outside," Ms. Rahman said.

While making finance available won't immediately help the poor's standards of education, social services, or clean water, Ms. Rahman said it was one less thing to worry about. And there was tangible evidence of the benefits of micro-credit.

"In Bangladesh, the Grameen Bank also has house loans available for those who have proved themselves a good client. So you have a good house as well as a business, and there is improvement in your life. There's also the question of dignity, that they are no longer dependent on charity to survive. They can go to a bank, they can borrow the money, they can have their business and live. For women it changes a lot. In Bangladesh, women always used to look down - with a little bit of money they look up."

And it is only a little bit of money. Ms. Rahman said the average loan in Bangladesh was about $U.S.90, but it could be as low as $U.S.10.

"With that money you can start your own small business. You can buy animals, you can buy poultry, or start a vegetable garden… Because when you have nothing in your life, $10 is a lot of money."

Interest on that money was very high - usually over 20 percent - because with millions of small loans, it was expensive to administer. Ms. Rahman hoped that as the program progressed, the banks would become more efficient and lower those rates. She also hoped that more financial institution would enter the field and create competition.

She said the program could also be further improved by offering insurance to poor people so they could insure their property against natural disasters, or their health against the many diseases rife in developing countries.

Most developing countries are running a micro-finance program on some scale, while about fifty countries have replicated the Grameen Bank system. That means well over 10 million people worldwide (about six million in Bangladesh alone) have now received a financial helping-hand through the micro-credit program. But there's a campaign underway to have that figure upped to 100 million by the year 2005. "Ten million is nothing when you think there's one 1,300,000,000 poor in the world," Ms. Rahman said.

That's an ambitious project, but it's far from deterring the people who are fighting to make the dream a reality.

"Professor Yunus says he wants to see poverty wiped out by the year 2025. He wants to have abject poverty as a museum piece in the next century, so people have to go to a museum to see the conditions in which people used to live," Ms. Rahman said.


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