“The able bodied poor don’t want or need charity. . . . All they need is financial capital.”
This book was the most exciting example of free market approaches to eradicating poverty that I’ve read, and perhaps the most effective method currently being tried.
In 1976, while out in the field of rural Bangladesh, Muhammad Yunus, an economist at a prestigious Bengali university, was struck by the immense penury all around him. A lot of the poor he encountered wanted to get out of the cycle of poverty that they were stuck in through the usury of local “moneylenders”. He quickly deduced that the primary reason for this economic immobility was because the poor were denied access to credit. Banks would not deal with the poor who were illiterate and had no collateral or apparent skills. As a result, in order to get access to capital to finance their income generating activities, they were dependent on “moneylenders” whose interest rates would wipe out any profits in excess of basic sustenance.
Yunus took matters into his own hands and after doing a few preliminary studies, concluded that poor people don’t need collateral, as they have a very strong incentive to pay back their loans because further access to loans is their only hope to get out of poverty. He found that people are built to survive and develop really creative ways to generate income out of desperation – all they need is a chance to execute their ideas. What started out in 1976 as a $27, out-of-pocket lending experiment to 42 borrowers, evolved into Grameen bank, which now has millions of borrowers, with billions of dollars loaned, and a loan recovery rate of 98%.
Grameen bank has spawned many replicator projects that follow the microfinance model to the world’s poorest all over the world, as well as a slew of other poor-centered, self-sustainable, for-profit ventures – which include farming projects, cell phone and internet services, life insurance, retirement funds, health insurance, etc. This growth of “socially-conscious” entrepreneurs is getting huge numbers of people out of poverty, and Yunnus believes can rid the world of poverty (as defined by having food, clean water, a roof over your head, beds for all members of the family, and education for all the children) within a generation of two – pushing poverty into museums, where it belongs.
Yunus is very inspirational and writes a very detailed autobiography of the experiences that led him to pursue this goal, and the steps he had to take in order to achieve it… and outlines a vision of a poverty-free world. It also offers a great “worms-eye” view of poverty from the ground, instead of from the conceptual view from theory. Very practical.
Grameen repeatedly refused loans from the World Bank because that would compromise their leadership structure, as World Bank money comes with strings attached. The book is also very critical of government aid, as “Foreign aid becomes a kind of charity for the powerful while the poor get poorer,” where “Most rich nations use their foreign aid budgets mainly to employ their own people and to sell their own goods, with poverty reduction as an afterthought.“ It targets the small business sector, or otherwise not the lowest rungs of the latter – and quickly get corrupted and overtaken by wealthier opportunists. “Aid-funding projects create massive bureaucracies, which quickly become corrupt and inefficient, incurring huge losses. . . . Aid money still goes to expand government spending, often acting against the interests of the market economy.”