A small loan delights this Haitian woman, but is there a catch?
Where Credit Is Due
Young activists and middle-aged bureaucrats take up an unlikely new fad: tiny business loans for the poor
TEARS STREAMED DOWN JENNIFAR Robey's cheeks as she listened. When the speech ended, the 28-yearold poverty activist jumped to her feet and joined hundreds in a standing ovation. "It was like listening to John Kennedy talk about going to the moon," she gushed. But this was not, obviously, the late U.S. president speaking; it was a little-known fellow named john Hatch, the founder of FINCA-a group that has started 2,700 "village banks" worldwide. And he was talking not about moon shots or civil rights but about the importance of "microcredit" - small loans for poor people. To Robey, the budding movement to make credit available to 100 million families by 2005 is no less inspirational than a march on Selma, Alabama, might have been in the 60s. "Microcredit is so exciting," she said as she stood packed into a Washington, D.C., hotel last week. "It's really very cool."
With a zeal once reserved for the environmental or civil-rights movement, young activists and middle-aged bureaucrats alike are throwing themselves into an unlikely new fashion in foreign aid. Aimed primarily at women, uninsured microcredit loans of often no more than $100 are meant to help the world's poor jump-start small businesses. It's an idea the Clintons discovered back in Arkansas-one of the poorest of the U.S. states-and have helped take mainstream. Hilary Clinton cochaired the first-ever "microcredit summit" last week-a kind of Davos for the downtrodden. Women's rights leader Bella Abzug (what summit would be complete without her?) called on some 2,500 "believers" in attendance to "never give up." At the closing ceremony, World Bank president James Wolfensohn-fresh off a jet from meeting the government and business elite in Davos itself-draped his arms around his fellow luminaries and joined in a weepy chorus of "We Shall Overcome." "If sometimes we sound like evangelicals," says Nancy Barry, head of Women's World Banking, "it's because we are trying to change the world." But some who've heard those words before worry that microcredit is a great idea in danger of becoming a misused fad.
It's no surprise that microcredit has found so many ready followers. It's cheap. At a time when foreign aid is frowned upon and charity is a bad word, microcredit helps people help themselves. And by all accounts, the borrowers repay the loans at a rate of more than 90 percent. The microcredit projects-which often organize borrowers into small clubs -use peer pressure to collect the loans and double as support groups. Proponents say the loans have even helped curb domestic violence, since the women in the groups come down hard on abusive husbands (they have more at stake than sisterhood: money).
Not everyone, however, has complete faith in the movement. The few vocal critics jokingly called themselves "agnostics." "Credit." They point out, is just another word for "debt." What good is a loan to weave baskets if there is no market in which to sell them or no road on which to transport them? They fear that loans could push lies deeper into poverty if social conditions aren't right. Although high repyment rates are held up like a banner, Tom Dichter, a consultant who evaluates microcredit programs, says the data are still vague. While working in western Kenya Dichter realized that some women were going to their relatives to borrow money or selling off their livestock to pay back the loans.
Some leaders of the movement have warned against hailing microcredit as a panacea. Fawzi Al-Sultan, the president of the International Fund for Agricultural Development, points out that community based microcredit doesn't work as well in dispersed African villages. And microcredit crusaders have met resistance in Islamic countries. The loan programs also need subsidizing for a good five to 10 years, and activists worry that competition for donors will hurt other antipoverty causes. "People are going to jump on this bandwagon. It sounds too easy," Dichter says, especiallv after the three-day summit he calls "part revival, part sales meeting."
The agnostics, though, are getting drowned out by the evangelists. At the summit, CNN couldn't get enough of the hero of microcredit: Muhammad Yunus, whose Grameen Bank in Bangladesh started the movement (INTERVIEW). Yunus has been a favorite not only of the Clintons, who befriended him a decade ago, but of the Washington press corps. The bank's two-week study seminars in Bangladesh have quadrupled, but still can't meet demand. Jennifer Robev has made two pilgrimages to Grameen and did her college thesis on the bank. She sees credit as a basic human right. "They are even paying market rates!" Robey insists. Who'd have thought that interest rates would turn on a new generation of activists'?