Wednesday, October 18, 2006

Microcredit - Simple, Small and Smart

If you haven't read up about the Nobel Peace Prize being issued to Muhammad Yunus for his work on microcredit, then you are really missing out.

The idea is simple - lend a tiny amount of money to someone in extreme poverty and have them start or grow their own business:

Loans as low as $9 have helped beggars start small businesses and poor women buy cellular phones and basket-weaving materials.
--Molly Moore

And the best part - these loans really work. The Wikipedia entry on microcredit mentions a project by ACCION International that switched from big infrastructure projects to a microcredit like program and had remarkable results:

Within four years, the experiment had shown its success in having provided 885 loans with a repayment rate of over 90%. The loans also helped to create or stabilize 1,386 new jobs. This success in making a lasting impact in peoples lives, as contrasted with the previous projects they had done seemingly steered ACCION firmly in the direction of being a microfinance organization.

It's really inspirational stuff. Of course, the idea isn't new - in the year 1200 Maimonides was advising people that the highest form of charity was in fact giving loans, entering in a partnernship or giving employment to the poor, so they can support themselves. This is advice that we still study and try to practice to this day.

But still, the devil is in the details and it appears as though Yunus has found a way to not only prove that microcredit can work, but also demonstrate that it can scale.

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