By Barbara Crossette
Sunday, March 2, 2003
Micro-credit programs have long been praised as stepping stones out of poverty. But new international studies shed doubt on whether small loans can really make a difference against the enormous problem of poverty. Also see Our Story which follows.
(WOMENSENEWS)--A quarter century ago, when poverty was most commonly defined strictly by low income, a bold idea took off in Asia. It was called micro-credit. The premise was simple: Provide very small loans as seed money to the poor, especially women, and they will find a way to work their way out of poverty, or at least make life a little better by investing in their own skills.
By 1997, when a large international group ofnongovernmental organizations held their first micro-credit "summit" in Washington, this new-style banking system was being hailed as a miracle tool for poverty reduction worldwide. Everywhere, the poor were using loans as small as $25 or $30 to create income: raising chickens to sell eggs, opening small retail businesses, buying sewing machines. Moreover, loans were being repaid on time at rates that would astonish mainline bankers.
Last year, when a meeting was held in New York to assess five years of progress, the figures were impressive. From 13.5 million clients of micro-lending institutions in 1997, the number of borrowers had jumped to 54.9 million, more than half of them, mostly women, drawn from the poorest of the poor. Around the world, about 1.2 billion people exist on less than $1 a day.
But while development experts applaud the growth of micro-credit, they also warn that the approach has some serious limitations. Micro-credit interest rates are high, usually at least 20 percent, or higher now that commercial banks are getting into the business. Loans may be adequate to produce some income, but not to change significan