A "Results Briefing and Action: Taking a Critical Step for Micro-Credit" in April 1996 noted that

• One-fifth of the world lives in poverty.
• Poverty kills more people every day than AIDS, cancer and heart disease combined.
• It is the lack of access to basic resources - like health care, education and credit - that keeps people poor.
• Micro-Credit - small loans for small businesses - is a powerful anti-poverty tool.
• FINCA borrowers (women who applied for and received micro-credit loans) increased their weekly income by 145 percent.
• 75 percent of Grameen borrowers have left poverty. (The Grameen Bank is micro-credit lender based in Bangladesh and now emulated in many countries. Later in this issue, we re-print two pieces on Grameen.)
• The Micro-Credit Summit in February 1997 will launch a plan of action to bring micro-credit to 100 million of the poorest families by 2005.
• That's half a billion poor people - with their lives transformed.

"Micro-Credit: Economic Empowerment of Women," by the Comet Media Foundation in Mumbai and published in 1997, outlines some of the problems with the way micro-credit gets granted. The cautions are no less valid now that we have a change in government:

• It is to be hoped that the major policy and programmes In India especially in the so-called priority sector will continue irrespective of the ruling party.
• The rationale of these programmes is that they give special consideration to women and economically backward sectors of society. So this priority sector needs to be given primary focus and other incentives like low-interest loans.

It all sounds quite laudable. But the incentives offered to those considered to be "credit-worthy" are much greater than those offered to those who have neither sureties nor guarantors. Here's what the report has to say about the kinds of financial assistance offered to those with and without economic and political clout:

• Since women and other weaker sectors come under the priority sector for banks, there are provisions for making credit available to them, and at low interest rates.
• There are interest subsidies given by the government to the beneficiaries. For instance, under the Differential Rate of Interest (DRI) Scheme, beneficiaries can get loans at an interest rate of 4% for loans of up to Rs. 6,500.
• Refinancing facilities are offered by governments banks such as NABARD to commercial banks to ease their liquidity position and to give them an incentive to give loans to the weaker sectors.
• Loan guarantees are given to banks that lend to weaker sections, to take care of their bad loans ...
• Loan disbursement and repayment are always carried out at the bank closest to the individual or self-help group. The length of loans given to individuals or groups depends on their needs - there is no restriction on the length of a loan that a commercial bank may give out to such a borrower.

"(Women without collateral) are sincere. They are honest. The money get it more likely to stay with the family and be put to permanent use. They will not use it for gambling or on alcohol like their men might." Bad debts in his Grameen Bank network are 1.5 percent, which he declares with pride, "is less than any bank in the world." Grameen Bank, now 21 years old, has 1,084 branches in 36,935 villages in the country (Bangladesh) and has disbursed $35 million among its members. Of its two million plus members, only 120,288 are male. The scheme has also spread to 56 other countries.

Visiting India to deliver the third D.T. Lakadawala Memorial Lecture, organised by the Institute of Social Sciences, Delhi, Mr. Yunus was unsparing in his criticism of the standard banking concept. "Poverty is not created by the poor but created by the institutions that practice financial apartheid by insisting on collateral," he said.

"I came to free Bangladesh with hope and pride. But I saw the beautiful plans and programmes going awry. Man-made calamities were being compounded by nature's furies. What is the use of teaching beautiful economic theories that have no meaning? So I disowned all the economics I had learnt and sought to help the needy. The first was a woman who made baskets from bamboo and earned only sixty paise for her entire day's work because she was tied to a shopkeeper who would give her bamboo worth five takas. People become slaves for just five takas, and here we talk of millions of dollars of plans and programmes. I found 42 women with identitical needs for small loans. I got the first batch 850 taka (US $30).

Q: Was that from your salary or savings?
"No, these women needed opportunity not charity. I stood guarantee for the amount from the bank, which did not think what I was doing made sense. It gave financing after lot of persuasion and paperwork. `Have you asked your husbands?' the bank officers would ask the borrowers. They dismissed us because we were challenging the core of banking philosophy, which keeps the poor out. When the banks did not change their policies, I decided to set up a bank. That was in 1983.

Q: What about the skill of money management and technical matters?
"A housewife, even an illiterate one, knows how to balance her family budget, provided she is allowed to. As for technology, you should see the way the Grameen phone network is doing. Village women operate mobile phones and run mobile phone booths ... We have proved that people need opportunity, not charity. They want a chance, not bleeding hearts. The human being is very creative. We have only worked to remove the barriers." Q: Your experience could be Bangladesh-specific and of that time. "Yes, Bangladesh, after independence, was ripe for it. Grameen provided the answer to the socio-economic conditions that prevailed then and now. For this to succeed today, you require a free market environment. Not the free-wheelers running the economy in the name of the people.

Q: How can your experiment help India?
"There already are Grameen projects in India, but a deep-rooted banking culture in India prevents the spread of this alternative.

... Instead of insisting on personal collateral, the Grameen Bank asks landless villagers to form into groups of 50 people of the same sex - Bangladesh being a Muslim country - and then to form into smaller groups of five. The ten groups of five each meet regularly with a bank worker for training, and with each other to discuss their business ideas. Each loan has to be approved by a smaller group of five, by the larger group and, finally, by the bank's officer in the field; Grameen does not believe in having huge city banks.

Two people in a small group can then apply for a loan. The average loan size is equivalent to £5,000 in Britain, given the annual incomes of landless peasants. Women borrowers use their loans for such things as buying a milch cow, paddy husking and cattle fattening, while men tend to invest in paddy and rice trading, cattle fattening and setting up grocery shops. After six weeks, if the first two have been regular in their payments, the next two members get their loan, and after another six weeks, the final member. The loans are not analyzed by the bank - they leave it up to the villagers to do the analysis. As they depend on each other's success in repaying them, the system works. The default rate is only 2.7% - a 97.3% on-time repayment record - and in recent years the bank has made a profit on its activities.

The bank is active in 15,000 villages, employing 8,000 workers, and lending to half a million people, and it is growing all the time. Grameen banking operations are being developed in India, and in South America, where people in 60 cities and towns in 12 countries are benefiting from loans organised by Action International. The South Shore Bank in Chicago is experimenting in rural Arkansas with Grameen principles, linked to other community economic development strategies. The analysts of the 23rd century may be able to write that for the poorer people of the earth the invention of social collateral and peer-group lending was the single most significant economic breakthrough of the 20th century.