January 23, 2008

Microlending: The Ticket to Staying Home

By Brenda Walker

Muhammed Yunus is a man who had a powerful idea—that market principles and banking could be refashioned to assist the world's poorest to improve their own lives. He believed that with simple guidance, unlettered people could gradually raise their own living standards by receiving small loans to invest in humble entrepreneurial activities.

Though not usually presented as such, Mr. Yunus' microlending strategy for alleviating third world poverty is a welcome alternative to the do-gooder project of relocating masses of dissatisfied poor from the third world to the first.

Not that anyone among the immigration enthusiast community has ever suggested specifically that the five billion persons who live in nations poorer than Mexico should all be welcomed willy-nilly. But there has never been a recognition of the social, economic or environmental limits on the number of people that America can comfortably contain either. Instead, elites have consistently shown a willingness to admit radically high numbers of immigrants through the legal process, e.g. the proposed 100-200 million over 20 years via the 2006 Senate bill.

At any rate, there are many desperately poor people on earth who would like improved living standards, and who can blame them?

And yet, most of these people would prefer to stay in their home countries. They would rather avoid the hassle of immigration, particularly the stressful social adjustments to a completely different culture that can tear families apart. Why not encourage more of them to believe they can live better at home? A program based around microlending has ironed out the rough spots over years of field testing.

And evidence indicates Yunus' innovative prescription to escape grinding poverty works, according to David Bornstein, author of The Price of a Dream: The Story of the Grameen Bank:

"It has been hugely effective. It has helped millions of people move from one level of poverty to a far less oppressive level of poverty, which means eating one or two meals a day to eating three meals a day. It means having a tin roof over their heads, over the kids' heads so the house is not wet all the time. It means being able to go to school and have access to medicine. It has transformed the lives of many people." [CNN Interview, March 29, 2001]

The visionary economist behind microloans spoke in San Francisco January 17 before a sold-out room of about 500 people, including me. Mr. Yunus obviously remains a hot ticket more than a year after being awarded the Nobel Peace Prize in 2006 for his creation of the Grameen ("village") Bank as the backbone of the microlending program. He is a compelling figure dedicated to doing good in the world, while being a realistic problem solver along the way. He believes that poverty can be eliminated through the creative use of market principles.

The speech was part of a tour for his new book  Creating a World Without Poverty. He reported that six million families have gotten Grameen loans and mostly through women; 94 percent of borrowers are women.

The only time Yunus was at all negative was when he criticized banks that call their dealings microloans, but are really common loan sharks using the word for their own advantage—see Business Week's The Ugly Side of Microlending. [by Keith Epstein and Geri Smith, December 13, 2007,]The article concerns poor Mexicans borrowing to buy televisions and other consumer goods at very high interest rates.

On the contrary, true microlending in the Yunus definition means money assigned toward business creation. With a Grameen loan, a poor Bangladeshi woman could purchase a sewing machine or some egg-laying chickens to generate income.

And more than just cash being dispensed, there is a group support structure for borrowers. Members of a village loan association are required to meet regularly, and no one in the group can get an additional loan until everyone has paid back the previous one, so there is a powerful incentive for solidarity and support. The loan system is structured to be a part of the community and to prevent failure, with small repayments scheduled often, in some cases daily. Strategies like these help everyone to keep current. Regular contact means no one is left alone to get behind in payments because problems are handled early, before they become difficult. The camaraderie and communication encourage the women that they can indeed accomplish this new endeavor.

Now this may sound overly collectivist and controlled to some. But many of Grameen's borrowers are illiterate women in places like Bangladesh who have never handled money before. They need the right kind of guidance in order to succeed. With success come more people who want to work in their home countries to better their lives.

And that hopefully means fewer immigrants arriving on our shores.

Microlending is a program that should appeal to conservatives: it is a bank that makes loans used to form businesses and that are then repaid; it's not charity. Government involvement is not necessary because community banks quickly become self-supporting.

Muhammed Yunus' home office is in Bangladesh, and a lot of microlending goes on there. But the basic plan works well across cultures, and has reached as far as Mexico.

NOGALES, Sonora—Desperate for rent money, Yadira Marquez recently tried to push her husband north of the border illegally in search of higher-paying work.

But instead of bidding farewell to the father of her three children, Marquez came across a program that extends small loans to entrepreneurs too poor to qualify for a regular bank loan. The $200 that she borrowed from EnComún en la Frontera two months ago allowed her to invest in silver jewelry, which she sells door-to-door. Her husband, Armando Figueroa, kept his $80-a-week job at a local maquila—one of the city's many U.S.-owned factories.

"This loan by no means has solved all our financial problems," said Marquez, 33. "But with my earnings I'm able to supplement my husband's salary and pay for all of our children's school-related expenses." [Micro-lending effort in Mexico helps poor families stay home, By Lourdes Medrano, Arizona Daily Star, June 17, 2007]

A difficulty in making pro-restriction arguments is the mistaken idea that we patriots are unduly selfish in wanting to maintain our country in a recognizable form by limiting immigration. If it were better understood how even the world's poorest can improve their lives at home—and would be better off than if they came here—we might make some headway among those stuck on the false virtue of a borderless world.

In the article Diversity Is... Familicide surveying a number of disturbing murders of children by immigrant parents, I mused about how many of those crimes could be at least partially ascribed to the stresses of immigration and adjusting to a new society. There's no way of knowing for sure. But a more genuine kindness than liberal immigration would be to increase programs like microlending to help people stay home.

During Mr. Yunus' talk, the moderator read my question during Q&A: "In a world where five billion people live in countries that are poorer than Mexico, isn't microlending a better strategy for alleviating poverty that massive immigration?" He answered that yes of course, any family is more fortunate if they can remain in their familiar society and among their own people.

It was just the response I expected from such a thoughtful humanitarian.

(At the time of this writing, the speech is not yet available online, but will likely appear soon on the Commonwealth Club's podcast page.)