Debate Stirs Over Tiny Loans for World's Poorest
By CELIA W. DUGGER (NYT) 1580 words
Published: April 29, 2004
GORMA, Bangladesh - Nearly every woman in this village seems to have
gotten tiny loans to invest in a miniature business.
None has made better use of the cash than Firoza Akhter, a shrewd, flinty
young mother who put her profits from four loans into cows, goats, land, a
sturdy house and private tutors for her daughter. ''I can make money out
of anything,'' she boasted in her wheezy voice, a gold, flower-shaped stud
glinting in her nose. Hers is a shining success story for microcredit.
But while she came from humble origins, she was not among the poorest of
the poor. Like many of the 50 million people who take part in microcredit
programs, she hovered at the upper fringe of poverty.
Today there is a growing push for the nonprofit groups and banks that run
such programs to reach deeper into the ranks of the poor, though there is
little rigorous evidence juding whether the very poor benefit from
microcredit, economists say.
Since 1988, the United States Congress has appropriated $2 billion for
such programs. In new rules to take effect next year, it has put teeth
into a requirement that half of American aid for these loans -- defined as
$1,000 or less in Europe and Eurasia, $400 or less in Latin America and
$300 or less in the rest of the world -- go to the very poor living on
less than $1 a day.
The new rules have stirred strong opposition from other donors and a range
of microfinance institutions, which contend that the industry may grow
faster and ultimately help more very poor people by aiming at a wider pool
that ranges from people who are struggling but not poor to those much
further down the economic ladder.
''This limbo dance to serve the poorest is a distraction from a much
broader issue of trying to reach a billion people who have no access to
credit or a safe place to save their money,'' said Elizabeth Littlefield,
a former managing director at J. P. Morgan who now heads the Consultative
Group to Assist the Poor, an association of donors.
Researchers for this country's largest microlender, the Bangladesh Rural
Action Committee, or BRAC, have found that people near the poverty line
are the main users of microfinance and are more likely to get more and
bigger loans and build successful microenterprises.
By contrast, BRAC has found that the very poor are more likely to drop out
of microcredit programs.
But the group's leaders say the microcredit industry needs to try new
approaches to help the poorest people. They have coupled small loans with
skills training and grants of food. And they are experimenting
with giving the poorest people cows and goats to raise, rather than loans
to buy the animals.
When the dynamic Ms. Akhter got her first loan, for $50, she said she
already had $250 saved from working as a cook and raising chickens, the
family trade. ''I thought I could increase my capital by taking the
loan,'' she said. She invested it in a calf she later sold for $100. Her
next $80 -- borrowed at 27 percent interest -- she loaned out at more than
triple that rate. Today her skillful investments have helped her become
relatively prosperous, despite having left her husband in disgust after he
took a fourth wife. ''She was always enterprising,'' said her father, who
gave her chicks to tend when she was just a girl.
Since the 1980's, wealthy nations and international organizations have
provided billions of dollars for microcredit programs. The idea that small
loans enable millions of poor people to pull themselves up by their
bootstraps has captivated liberals and conservatives alike.
But there are still no stringent evaluations of microcredit programs
generally viewed as credible by experts. ''Energetic, entrepreneurial
people do well with microcredit,'' said Jonathan Morduch, an associate
professor of public policy and economics at New York University. ''But
others who are less skilled and trained, how do they do? Can very poor
households get decent returns or not? That's the big question
At a time when the United Nations is pursuing the eradication of extreme
poverty as the world's top development goal, advocates of the new
congressional rules fear that the poorest people are too often neglected.
They have mobilized elected officials from the United States to Britain
and Japan to petition the World Bank, the largest provider of microfinance
funds, as well as the African, Asian and Inter-American development banks,
to adhere to the same emphasis on the very poor that was adopted by the
United States Congress.
''It's a myth that you can't reach the very poor,'' said Sam Daley-Harris,
a musician-turned-advocate who founded the Results Educational Fund, which
lobbied Congress for the new rules. He points to Share Microfin, an Indian
lender, as evidence that the very poor can be helped with microcredit.
In the village of Gorma, the experience of Bina and Kanu Sarkar, a gaunt
couple with anxious eyes, illustrates the complexities of escaping
poverty, even where microcredit is available.
Here, the paddy fields are alive with barefoot men delicately planting
tender rice seedlings and oxen lazing in the sun. The landscape is a
gentle, quilted patchwork of scratchy brown burlap and soft green silk,
but the life it supports is hard.
Before microlenders arrived, the poor had little choice but to become
deeply indebted to moneylenders who charged exorbitant interest rates of
120 percent or more a year. Microfinance institutions in Bangladesh
generally charge from 20 to 50 percent.
Mrs. Sarkar last year became one of BRAC's 3.5 million borrowers. She used
the $50 to buy her husband a rickshaw, which will save him 35 cents on the
daily rickshaw rental fee once the loan is paid off. But even with the
extra earnings, the Sarkars, both illiterate, will be desperately poor.
They and their sons, Badal, 12, and Akash, 6, struggle to get by on the $1
a day that Mr. Sarkar earns pedaling his rickshaw. Now even that meager
livelihood is threatened by an ulcer that doubles him over in agony. ''The
choice is whether to see a doctor or buy food,'' he said, laying out the
pitiless arithmetic of poverty. ''The government doctors don't check us
properly because we don't pay them money. Even if they prescribe
medicines, we can't afford them.''
If his strength continues to seep away, the rickshaw will be no use to
him, he explained. The evening before, after miles of hard pedaling, he
was forced to forfeit a fare when his stomach pain grew unbearable. He had
to ask his passengers to get down.
As he related the story, Akash clambered into the rickshaw and pedaled out
of the dirt courtyard. His father leapt up to chase the boy in a panic,
fearing a crash would destroy the one asset he needed to feed his family.
''If I can't work for even a day, my wife and children go unfed,'' he
said, clutching his belly.
Some lenders here in Bangladesh, the heartland of the microcredit
movement, are experimenting with new ways to reach the poorest of the
poor. For years, BRAC has offered some poor women free wheat and training
along with micro loans.
But now it has entirely dropped the use of loans in one pilot program for
''ultrapoor'' women. BRAC gives them goats or cows to raise, coupled with
training and health care, rather than burdening them with debts they
None of the poverty-stricken women who sat under a palm tree in Mochahata
village on a recent morning had ever dared to apply for a microloan. One
woman's pierced nose hole was empty because she had already been forced to
sell her gold stud for money. Another's 9-year-old son pedaled a rickshaw
for 50 cents a day to keep the family fed.
But they eagerly joined BRAC's new program -- and were pleased to see
their fast-breeding goats multiply. They were still so poor that their
bodies seemed little more than collections of bones beneath worn saris,
but their new assets offered hope.
''I had nothing, nobody,'' said Mina, who worked as a maid for payment in
rice after her husband abandoned her. ''I was scared to become a member of
BRAC. I was too poor to repay a loan. But now that I'm getting goats free,
Correction: May 1, 2004, Saturday Because of an editing error, an article
on Thursday about the debate over whether microcredit loan programs should
focus more on people at the upper fringes of poverty or on the poorest
misidentified an organization that lobbied Congress to make sure the loans
benefit the world's poorest. Its name is Results. (The Results Educational
Fund is the group's research and educational arm and is not allowed to
Photos: Fioza Akhter with her daughter, Nurunnahar, 11, at their house in
Gorma, Bangladesh. Ms. Akhter has used the money from microloans to buy
cows and goats and pay for a tutor for her daughter.; Bini Rani Sarkar,
right, with husband Kanu Chandra Sarkar and their son, Akash, 6. She used
a microloan to purchase the rickshaw her husband drives. Experts question
whether the loans should go to the poorest. (Photographs by Amit
Bhargava/Corbis, for The New York Times)(pg. A8); Women in Bangladesh
preparing to make payments on small loans they received under a program to
help poor people start businesses. (Photo by Amit Bhargava/Corbis, for The
New York Times)(pg. A1)
Map of Bangladesh highlighting Gorma: Small loans in villages like Gorma
help people escape poverty. (pg. A8)