Madagascar woman shows her weekly loan-repayment.

(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 significantly a family’s environment.

Micro-Loans Not Enough to Lift Women Out of Poverty, U.N. Finds

Low income is now recognized as only part of how poverty is defined. There are many other deprivations that condemn millions to a perennial life of bare subsistence, among them poor health, a lack of education, low social status or discrimination. Since 1990 these have been measured in the United Nations Development Programme’s annual Human Development Report.

“Micro-credit programs can raise living standards particularly for women and their households, but microfinance should not be the sole instrument for poverty reduction,” says the World Bank in the most recent of a series of studies by international organizations.

Four years ago, the United Nations was blunter in a report by Secretary General Kofi Annan to the General Assembly.

“A certain sense of proportion regarding micro-credit would seem to be in order,” the report said. It added that lending to the poor had to be accompanied by training, information and access to land, among other things. “In some of the lowest-income countries, lack of access to land is the most critical single cause of rural poverty,” the United Nations said.

Razia Begum manages the nursery she set up with loans from a United Nations microcredit program.

The World Bank’s new study was done in Bangladesh, where the most widely publicized micro-credit institution, the Grameen Bank, was founded in 1976. Bangladesh has other such programs. The Bangladesh Rural Advancement Committee is the largest non-government organization financing the poor, and there is also a government program run by the Bangladesh Rural Development Board.

Micro-credit is most widespread in Asia, with programs in India, Thailand, Malaysia, Vietnam, Cambodia and Indonesia. More than 47 million borrowers are Asians, compared with 4.5 million Africans.

Providing Clean Water, Reliable Day Care Is Crucial

The brightest star at the center of the micro-credit universe remains Muhammad Yunus, who created the Grameen Bank. The idea was not a new one. In India, the Self Employed Women’s Association, led by Ela Bhatt, was among the organizations already doing similar work. But from the start, the group saw that it had to do more than provide loans to poor women. It had to negotiate services as varied as a water supply or day care. The association stressed the formation of capital, however small.

“Asset ownership is the surest weapon to fight the vulnerability of poverty,” Bhatt says.

Abraham George, an American born in the Indian state of Kerala, has begun a program for women in India that also stresses capital formation. The George Foundation gives women a quarter-acre of land to farm and are pays them wages, withholding some money as savings that will allow them to buy half an acre within five years.

“Our experience is that poor illiterate women from low castes do not have a chance to do business,” he said in an exchange of e-mail messages. Micro-credit, he said, works only for women who have other support mechanisms. “It won’t work for the poor, socially deprived people we are helping.”

The high rate of interest that many women have to pay for small loans has been criticized widely. The Grameen Bank, for example, charges 20 percent on income-generating loans.

Rounaq Jahan, a Bangladeshi political scientist at Columbia University’s School of International and Public Affairs and the founder in 1973 Women for Women, one of the first feminist research centers in Bangladesh, said that some women take loans from several sources at high rates, and have a hard time staying afloat as they use new loans to pay off old debts. Pressure to repay loans on time can be a hardship. But, Jahan said, even the highest micro-credit rates are better than those demanded by traditional money lenders.

“The village money lender could charge 100 percent interest or more,” she said in an interview.

Younger Asian women have other concerns, Jahan said. They are questioning how much control women in villages actually have over the money they get. Once in the household, the money is often handled by the men. Since both men and women can borrow, she said, “Women generally take small-scale loans and do the small-scale activities. Some of the bigger loans go to men.”

Jahan said that a fundamental question is thus raised about micro-credit organizations: “Where is the proof that they are really empowering women?”

Barbara Crossette reported from Asia for The New York Times and is the author of several books on the region.

For more information:

The Self Employed Women’s Association:

The World Bank Group:

Grameen Bank–Bank for the Poor: