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Microcredit

Before opening my food stand, I used to work as a maid in other people’s houses. I had to work from dawn to late night almost for a pittance. We used to live in temporary housing made of straw. Those terrible days are now behind me. Now, I have replaced my old house with a tin shed and my two children are attending primary school.

— Jamila, microcredit borrower, Bangladesh Rural
Advancement Committee (World Bank, January 2000)

In our world, over 1 billion people in our world live on less than $1 a day. Poverty keeps more than 100 million children from attending school. Poverty is responsible for the deaths of nearly 30,000 children every day from mostly preventable diseases and malnutrition. People who live in extreme poverty often live in conditions of poor health and nutrition, with little or no education and no access to gainful employment. The stress of poverty breeds hopelessness and social instability.

Microcredit — the practice of providing very poor people, especially women, with access to credit can allow them to transform their own and their families’ lives, providing better nutrition, education, housing and health for themselves and their children. In impoverished parts of the world, a tiny loan — $150 or less — provided at competitive interest rates for starting or expanding a self-employment venture can allow people to support themselves, breaking the cycle of poverty.

A microcredit borrower might buy the materials to open a small store selling basic cooking and household supplies, or she might buy a pot and bulk ingredients for selling simple baked goods or snack foods on the street. Some borrowers take out further loans to expand their businesses — buying a second cow to sell even more milk in their village, or building a simple hut with a tin roof to house their store.

Successful microcredit programs not only improve the financial health of the individual, but improve the economic health of a community from the bottom up. They also improve the overall living conditions of a community. Women, who receive the majority of these loans, reinvest their profits in their families.

Studies show that microcredit works. In a 1998 study, the World Bank found that extreme poverty fell 70 percent within 5 years among borrowers of the Grameen Bank’s microcredit program in Bangladesh. Access to tools and credit needed to succeed allows the poor to reap the benefits of their own skills and hard work. Most poor people do not have access to banks or other formal financial services and are forced to borrow from money-lenders, or “middlemen,” who charge exorbitant interest rates.

Since its inception in Bangladesh in the early 1980s, microcredit has become one of the most respected and popular development programs. The need for microcredit, and the ability of very poor people to use it effectively, seems to know no bounds. Microcredit is popular among donor agencies and those undertaking development work both because of its impressive success rate, and because it is financially sustainable (since loans are repaid with interest). Microcredit programs have branched out to reach new borrowers, rural and urban, on nearly every continent and in the United States. Along with expansion has come innovation, such as providing basic health education along with credit.

Although microloans can be useful to people who are less poor, it is critical that, as the industry expands, it remains focused on helping the very poor break the cycle of poverty.

In February 1997, the Microcredit Summit launched a global movement to reach 100 million of the world’s poorest families, especially the women of those families, with credit for self-employment and other financial and business services, by the year 2005. The Summit brought nearly 3,000 participants from 137 countries to Washington to do so. Reaching the Summit’s goal (assuming an average of five people per family) would mean reaching 500 million people very poor people with microcredit — nearly half of those living on less than $1 per day. As of early 2002, there were about 30 million microcredit borrowers around the world, and 19 million of them were among the world’s poorest people when they took out their first loan. RESULTS strongly supports the realization of the 1997 Microcredit Summit goal.

Microcredit is an important tool in our campaign to end hunger and the worst aspects of poverty. RESULTS Educational Fund is committed to expanding access to microcredit for the world’s poor. We will continue to educate the public, our legislators, and microcredit lenders and encourage them to commit to extending access to credit to the world’s poorest people.

RESULTS is a member of the Microenterprise Coalition, an advocacy group comprised largely of U.S. organizations that operate microenterprise programs around the world.