Poverty in retreat?

By Shan Ali The success of Grameen Bank in poverty alleviation and slowing the rate of population growth in Bangladesh has led many to believe in the promise offered by the Bank — that poverty can be eliminated from the earth at little or no real cost to the world community simply by offering the poor access to institutional credit and institutional saving. The world has all the required resources to eliminate hunger and poverty — food, water and technology. And there is no shortage of capital to mobilise these resources — the industrialised countries provide more than US$60 billion in aid for the poor each year. The donor public in the West contributes another US$25 billion. In international forums Grameen Bank is arguing strongly to set the date of 2025 by which the world, by and large, will be free from poverty, and certainly from hunger. Grameen Bank started its life in the village of Jobra in Bangladesh by lending 50 taka (about $3) to Sophia Khatoon. Sophia worked seven days a week making bamboo stools which she had to sell to the money-lender who provided credit to buy raw materials. She received a price that barely covered her costs. She paid 10% interest a day. With the loan from Grameen, it took Sophia Khatoon only a few months to establish her own business, increase her income five-fold and repay the loan with bank-rate interest. From this modest beginning the bank now employs 14,000 staff and works in more than 35,000 of Bangladesh's 68,000 villages. It provides US$500,000,000 a year in nearly 4 million small business loans to customers like Sophia. Its social development and education program reaches more than 12 million people. The Grameen Bank practices financial credit as a human right. During its growth, the principles of the bank have been jealously guarded. They include that the bank will lend money, without requiring collateral, only to the poorest of the poor among rural landless people; the borrower rather than the bank will decide what type of business the loan will be used for; and the bank will help the borrower to succeed in the venture. Another of the bank's principles is that it remain women-focused. Today, 94% of its customers are women. Since its formation as a bank in 1983, Grameen has made nearly 16 million small loans. Borrowers from the Grameen Bank pay market rate interest on their loan but the bank enjoys an unparalleled customer loyalty with on-time loan repayments exceeding 98% and defaults at less than 0.5% The bank is concerned with the poor deepening their basis of security. The consecutive disbursal of loans to the landless poor on an individual basis cannot, in itself, ensure this. The size of the loans and the return on the investment are, in relative terms, too small for much wealth to accumulate. The family still finds itself at the mercy of unpredictable events like illness or floods which could plunge it once again into abject poverty. To help cope with the spectrum of needs confronting the landless and to offer them security, Grameen Bank has created a variety of group savings schemes. It encourages its borrowers to save at the rate of one taka (3 cents) a week. Today, the combined savings of these borrowers exceed US$94 million. The bank is fully owned by its borrowers who buy one share at $3 each. The share-holders run the bank through a board of directors that they elect from their midst. Bank research indicates it takes six to 10 successive loans for an individual to move from destitution to above the poverty line. In the process, the borrower builds secure self-employment, often employing the whole family; achieves an adequate family health and nutrition level; and builds a modest asset base. There are now 168 Grameen Bank "replications" in 44 countries. The bank aims to scale up many of these replications to the same level as in Bangladesh, and start 300 new replications by the year 2000. By 2005 the bank plans to have extended credit to more than a third of the 1.3 billion people who live in grinding poverty around the world. The bank's experience is that with a small amount of start-up capital poor people are capable of lifting themselves out of poverty. In the process they create a whole new economy which is richer for everyone. In the words of Professor Muhammad Yunus, the bank's founder and managing director, "Poverty is a consequence of the institutional arrangements created by the powerful. It is not the consequence of the failing ability of the poor to cope for themselves." For more information fax: (02) 457 8805, email: shan@ind.tansu.com.au or write to 7 Burke Place, Mount Colah NSW 2079.