Monday, March 08, 2004

Microcredit for all

We like to say that the Simputer was designed to meet the requirements of villages with no electricity, no phones, and no money. The first two problems have technological solutions. Simputer batteries can be recharged from local renewable power, such as solar, and they replace phones using wireless connections and Voice over IP.

The problem of money does not have a solution in technology alone. We can't create a device that makes money out of nothing. (Well, OK, color copiers come close, but governments object strenuously.) So we need an acceptable economic and financial solution that quite conveniently is ready to hand--microcredit.

The Grameen Bank in Bangladesh was the first microbank, but the practice has spread to many countries in a great diversity of forms. The Grameen Bank is largely owned by its customers, like a credit union in the U.S., but there are purely commercial microbanks, microbanks run by NGOs, and microbanks run by governments. Sri Lanka has more than 2,000 village banks, funded by members of more than 5,000 communities. Regular commercial banks in India have expanded into microcredit. The Microcredit Summit database lists more than 3,000 Practitioners of microcredit, that is, those that administer lending programs or conduct training for lenders and borrowers. In addition, there is a multitude of NGOs, commercial banks, other commercial companies, UN agencies, and other kinds of partner organization listed.

The World bank has analyzed Grameen Bank programs, and concluded that about 5% of Grameen customers move out of poverty each year, with a greater impact on those in extreme rather than moderate poverty. The Grameen Bank itself has figures showing that 42% of borrowers overall have moved out of poverty over a period of years. Microcredit is particularly beneficial in dealing with natural disasters.

In 1997, the microcredit movemen set a goal of extending microcredit programs worldwide to 100 million families by 2005. More than 50 million families were reached in 2001. This goal means reaching more than 50% of the poorest families in the developing countries. Clearly, then, we need a target of 200 million and a target date to go with it, for the next phase after this. The Millennium Development Goal target date of 2015 might seem like a reasonable starting point for this discussion, but I don't like it.

Actually, just doubling coverage isn't enough. Estimates are that less than a quarter of the poor in Asia have access to microcredit, and less than a tenth in the other developing regions. We need to reach not just the most desperate 200 million families, but somewhere between 500 million and a billion families, and we need to do it in short order. I consider it inexcusable that this process is taking so long.

What do we need in order to achieve the real goal, of microcredit availability to everybody in poverty, or from another angle, credit available to all? Obviously we need money, but that isn't the obstacle. The problems, according to Grameen Bank founder Muhammad Yunus, lie in regulations and in people's attitudes. Many countries to not give proper legal status to microbanks. In particular, many are not allowed to take deposits from the public, but only from customers. The most troublesome attitude is the notion that the poor are not creditworthy, even though this has been amply disproved by the repayment rate on Grameen Bank loans and by repayment rates for many other microcredit organizations. Similarly, it is widely believed that microcredit loans do not help people to escape poverty, again contrary to the facts.

Then there is the problem of communication and access. That's where Simputers come in (and also for the bookkeeping, of course.) Villagers have to be able to hear that microcredit exists, is available to them, and can help them, and then they need to be able to apply. Face-to-face contact in the villages is somewhat effective for making these initial contacts, but it will be much more effective to enable villagers to access information on the Web, by e-mail, or by voice phone calls, and then to contact the microbank in the same ways. Not that computers can replace face-to-face contact. Their function should be complementary.

And besides that, there are opportunities for the poor, and even the poorest, to use the Internet to make more money, whether by access to market information, by enabling cooperatives to form, or by putting up a Web site for local products and services.

If all of this is correct, then microcredit can be expanded faster than previously planned, and have greater impact than in the past. I'm looking forward to finding out.

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