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Europe: Beware Banks Bearing Micro-Loans for Poor

Monday, November 14, 2011

A few weeks back Susan Feiner spoke at a conference in Valladolid, Spain, to counter this week's micro-credit summit there. Austerity programs like those proposed for Europe, she says, are women's real nemesis, not the lack of tiny, high-priced loans.

(WOMENSENEWS)--How do bankers provide relief?

Through loans of course.

Lending to weak, vulnerable, and very poor women is the rallying cry for those who argue that micro-credit empowers women.

And that's why the Global Micro-Credit Summit begins today in Valladolid, Spain. During the next four days micro-lenders from all over the world will join some of the world's largest banks in a shout out for debt: "Loans will set you free."

Or will they?

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A quick refresher: Micro-credit became famous in the aftermath of the Bangladesh famine of the 1970s when Mohammed Yunis started lending tiny sums to women in hard-to-reach rural regions.

Because these women had no physical collateral for the loans, he organized them into "loan circles," so all the women in a group were responsible for each other's debts.

This arrangement accounts for the extraordinarily high pay-back rates on micro-loans: If one member of a loan circle falls ill, or suffers any other circumstance that interferes with her ability to repay, other members must step in to make her payments or risk being denied loans in the future.

Enthusiasm for micro-credit swept through the international development community like a brush fire.

Widespread Rejoicing

Here, many rejoiced, was a way to encourage work and unleash the long-stifled entrepreneurial spirits of the world's poorest people. Millions of women around the world added work at handicraft production, sewing, consumer-electronics assembly, street vending or livestock care to their already-full schedule of fetching potable water, finding fire wood, tending crops and preparing food.

More work? Yes.

Poverty reduction? No.

Between 1981 and 2005 the only sustained decrease in poverty occurred in China, the World Bank told us in a 2008 report. And China does not stand out as a micro-loan magnet.

In the rest of South Asia, the poverty rate (the share of the population living on $1.25 per day or less) did decline. But because of population growth the same absolute number of people (about 600 million) lived in poverty in 2005 as in 1981. In Sub-Saharan Africa the poverty rate did not budge and the total number of the poor nearly doubled. In Latin America, the Middle East and North Africa the poverty rate fell, the World Bank report found, "but not enough to reduce the total number of poor."

In the rush to celebrate micro-credit, meanwhile, few asked why so many were so poor.

Had they been the least bit curious they would have discovered a host of deep institutional changes contributing to rise of mass poverty among rural women. Not least among these were the demands imposed on poor nations by the leaders of The World Bank and the International Monetary Fund.

Basically, the world's poorest nations had become mired in debt.

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I actually warned about this eventuality soon after the microloans went beyond their original inventor. It was so obvious that this became a panacea for banks not poor women, that I do not know how the oversight people did not stop it or demand changes in loan rates and pay-back methods almost as soon as the practice began.