Debate Stirs Over Tiny Loans for World's Poorest

      By CELIA W. DUGGER (NYT) 1580 words
      Published: April 29, 2004

      Correction Appended

      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
      cannot repay.
      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,
      I'm interested.''

      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
      lobby Congress.)

      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)