There are wildly differing assessments of the impact of microcredit- small loans- on the women in Bangladesh who have received them. Many like Muhammad Yunus insist that microcredit is successfully alleviating poverty while some others see microcredit as not have much effect at all. Still others say that microcredit is actually harmful. What is the curious reader in the USA to believe?
I have been to Bangladesh 10 times and conducted extensive research for my recent book,Twenty-Seven Dollars and a Dream: How Muhammad Yunus Changed the World and What It Cost Him. From my observations and findings, I believe unequivocally that microcredit has improved the lives of the vast majority of women who use it.
In rural Bangladesh, most women are essentially confined to their husband’s family compound. Girls are married as early as 11 and usually by 16, Although women have many fewer children than just 30 years ago, there are still no medical professionals in attendance at the vast majority of births. It is the sisters, mothers and aunts who help with deliveries. Even in the home women are supposed to keep their eyes down and their voice soft. It is not considered proper for women to go to market or to be seen by any man outside their family. This leaves them utterly powerless both socially and economically.
When Muhammad Yunus began making small loans to women he transformed their lives. Many had never even touched money before their loan. With their small loans they bought seeds, chickens or a cow and started or grew small businesses. Often this access to a tiny bit of capital made it possible for women to earn enough more to provide their children -- of whom 40% are malnourished -- with three meals a day instead of two. It also gave them a bit of cash to pay for medicines if a family member got sick.
From an economic perspective, success stories abound. Most borrowers eventually took out additional loans and continued to do so year after year, building flourishing small businesses. One of the many successful women I met who had worked her way up to owning 1000 chickens. Another had built a new house.
Socially, small loans from Yunus’s Grameen Bank have also proven transformative. Borrowers are required to go to a weekly meeting where they meet with 30 to 40 other women. At these meetings, they not only make repayments on their loans but also make new friends, get support for their small businesses and learn how to speak up for themselves. They agree to abide by Grameen’s “Sixteen Decisions” that include making dramatic lifestyle changes such as building a latrine, growing more vegetables, keeping their families small and sending their children to school. While these are impossible goals for many women to accomplish completely, they provide a vision of a better life and a pathway.
Critics of microcredit claim too many women become overburdened by debts. Some report stories of women committing suicide because of their debt. Others say the Grameen Bank’s interest rate is way too high, ranging from 15 to 25% -- far higher than commercial banks. This is because Grameen Bank has centers in thousands of small villages and staffs weekly meetings. Of course, there have been some women who couldn’t pay back their loans. But from my research, many more have seen their lives improve.
It’s also important to distinguish between the different types of microcredit organizations. Some in Bangladesh like BRAC have models similar to Grameen and an underlying goal of alleviating poverty. But other, profit-oriented organizations do charge up to 200% interest. Yunus himself is outraged by those that make huge profits of the backs of the very poor and this kind of microcredit.
There are academics in the USA who insist that the Grameen Bank data announcing success stories is overstated and that their own randomized studies suggest that microcredit does not have much effect on the poverty level. It is true that Yunus has always had grandiose hopes for microcredit. Initially he believed that in a few years that poverty itself would only be seen in museums.
When all is said and done, well-intended microcredit remains one of the best tools available to combat poverty. It is now a worldwide movement with over 100 million poor people receiving small loans. Yunus and microcredit changed the world by opening up financial services to the poor – who until the advent of microcredit -- had been shunned by banks. The Microcredit Summit Campaign believes microcredit lifted 10 million Bangladeshis out of poverty between 1990 and 2008.
Perhaps nothing speaks more eloquently to the positive impact of microcredit than the honors Yunus received for his initiatives to alleviate poverty and empower millions of women with small loans: In 2006, he was awarded the Nobel Peace Prize of 2006. President Obama awarded him the 2009 Presidential Medal of Freedom and in 2013 he received the Congressional Gold Medal. Only seven people in the world have won this triple crown.
Katharine Esty, Ph.D., is a social psychologist and founder of Ibis Consulting Group, a leading international diversity and organizational development firm. A former consultant to the United Nations Development Program and UNICEF, Katharine has spent time in a number of developing nations, including Bangladesh, where she conducted a series of one-on-one interviews with Muhammad Yunus while writing her new book, Twenty-Seven Dollars and a Dream: How Muhammad Yunus Changed the World and What it Cost Him.