Creating A World Without Poverty-Micro-Lending and the Battle Against World Poverty

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(I wrote this as report for GeoInformatics course by LI Yan, Fall Semester 2007, Ritsumeikan Asia Pacific University, Japan)

Ms.Word .doc Version: Creating A World Without Poverty

Creating A World Without Poverty

Micro-Lending and the Battle Against World Poverty

Figure 1. Percentage_population_living_on_less_than_1_dollar_day

Proverty and Solidarity Lending

Proverty is a major issue facing much humankind of this age. More than before, economic and social gaps are widening particularly in urban areas. One of a major factor that blocks the poor still being poor is that they have no money to produce money. Being able to live out of the box of poverty is a basic human right. Recently one of many solutions stands out and captured attentions of many of those who are concerned with the welfare of the poor. It is a system of Solidarity Lending. An early pioneer of Solidarity Lending, Dr. Muhammad Yunus of Bangladesh through his microfinance organization, The Grameen Bank were jointly awarded the Nobel Peace Prize in 2006.

What is truly amazing about Solidarity Lending system is how it can alleviates poverty. Like what I mentioned earlier, what blocks many people to live life without poverty is the lack of capital to start up business. To borrow money from banks for business start-up would be very difficult as banks would require thorough complicated procedures and collaterals. Not everybody can afford that, imagine a poor man who has been living his life in rural areas, not only he is deprived of banking knowledge, he does also not have any substantial significant collateral that can be used to make loan deal with banks. Here comes the role of Solidarity Lending banks, lending money to the poor without any need for collateral.

How it Works

How it works is unique of its kind. It works in a system of solidarity lending in form of self help groups. Each borrower must belong to a five-member group however the group is not required to give any guarantee for a loan to its member. This is also beneficial to the Solidarity Lending banks, as there is a fixed cost associated with each loan delivered, bundling individual loans together and permits the group to manage individual relationships can realize substantial savings in administrative and management cost.

The repayment responsibility solely rest on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and none gets into repayment problem. However, group members are not responsible to pay on behalf of a defaulting member. (Mohammed Yunus). Dr.Muhammad Yunus of Bangladesh describes the dynamics of lending through solidarity groups this way:

… Group membership not only creates support and protection but also smoothes out the erratic behavior patterns of individual members, making each borrower more reliable in the process. Subtle and at times not-so-subtle peer pressure keeps each group member in line with the broader objectives of the credit program.…Because the group approves the loan request of each member, the group assumes moral responsibility for the loan. If any member of the group gets into trouble, the group usually comes forward to help.

Payback rates to the bank were also very high, as noted in Grameen’s Bank track record, 98 percent. Solidarity lending levers various types of social capital like peer pressure, mutual support and a healthy culture of repayment. These characteristics make solidarity lending more useful in rural villages than in urban centres where mobility is greater and social capital is weaker.

Grameen bank focus mainly at rural areas yet and it had been proven very successful at the rural areas of Bangladesh. Not only that rural communities can cooperate better in, but also we have to consider that in rural areas, there are very much opportunity and business fields that can be developed for the betterness of the local community. Even if we assume that a certain village is not in poverty line, we can agree that there would still be much to be done for the sake of better life of the people. Somebody would be better starting off electricity accessibility in the village, either it through the hard way of conventional electric line or by using SHS (Solar Home System), utilizing solar panel electricity which is eco-friendly and is more suitable for isolated village areas due to its portability. And from there we can list a lot more businesses that can be generated through the accessibility of electricity in the village. And of course, all of those efforts would require quite a sum of money, which is a big barrier for innovation and improvements.

Future Implications

Figure 2. As can be seen from figure above, people living in rural areas are still of much significance of the population

Modernization of a rural community is not a simple task that each government of each country can handle and take care of. If the process of modernization of rural communities are left up to the hands of government, it would take several more decades to see some significant results. In the contrast, what governments should let the people of rural communities themselves be in primary responsibility of the improvements and modernization of their own area, government would be good playing as supporting and facilitating role in it, particularly by fostering accessability of funds, in which Solidarity Lending system have proved very successful.In deeper analysis, it is not wrong to say that the Solidarity Lending system can be regarded as one of a tool key in promoting prosperity of the whole, both as individual and as a nation. Such system grows the economy of the nation by utilizing rural communities to also take bigger part in it. Production of service and goods can increase more which then provides more opportunity for export and trade, or at least for the nation’s own consumption itself, therefore also in by-effect reducing dependency on other nations, being more independent economically. As earnings increase, taxing would also increase as well as consumption therefore benefiting producers and manufacturers.

So far, we have only been seeing it in scope of rural communities, but as we broadens our view to bigger scope of urban communities, we can be amazed at how much benefit it would be for everybody if this Solidarity Lending system can work out well in such areas. By available accessability of business-start up funds, people would be more encouraged to own business rather than to work for somebody else , entrepreneurship would grow at higher rate which means innovative businesses and sectors would soon to be seen in the areas impacted, resulting in richer life of the general society. More convenience in a more narrow scope of a certain area even if we  are to assume that the community lacks the will of entrepreneurship. 

What is more important from the point above is how at least people having opportunity to own their own businesses not only reduce unemployment rate by employing themselves as the business owner, but also that the act of opening up businesses provides more job vacancies for many other people. Not only this result in similar economic advantage as analyzed before in case of rural communities (but at much more larger scale), but also it has much beneficial effects in the social point of view, therefore socioeconomic impacts as a whole. As unemployment rate decrease followed by increase in earnings, crime rate, particularly those crimes conducted by the poors would drop, benefiting the society as a whole. Continual increase in personal expenditure of the poor would allow access for better health and reduce illiteracy and increase education rate. Again, the benefits never always only goes to the poor, but impacts the society as a whole in positive ways.

So as we can see from simple analysis above, if we can improve the economy and well-beingness of people in the lowest part of the economy pyramid (the lowest but also the most in number as constituents of the pyramid), the whole pyramid itself would grow in size, therefore it is betterness for all.

References 

World Development Indicators (2007) (http://ddp-ext.worldbank.org) WorldBank. Retrieved on 2007, Nov

Wikipedia (2007). Poverty. (http://en.wikipedia.org/wiki/Poverty)

Wikipedia. Retrieved on 2007, NovWikipedia (2007). Solidarity Lending. (http://en.wikipedia.org/wiki/Solidarity_lending) Wikipedia. Retrieved on 2007, Nov

Wikipedia (2007). Grameen. (http://en.wikipedia.org/wiki/Grameen) Wikipedia. Retrieved on 2007, Nov  

Further Reading (Books)    

         

 

Extra: Get Involved!

(From: http://www.grameenfoundation.org )

Donate: Help launch very poor women as entrepreneurs through tiny loans that help them escape poverty: Donate Online Now Donate Online Now

More ways you can make a difference:
Honor someone special Honor someone special
Employee matching
Fund a poor child’s education
More ways to donate

Spread the word: Learn how you can use online tools such as our website or your own blog to tell others about the power of microfinance.

What do you find most inspirational about microfinance and our fight against world poverty? Perhaps you’re touched by the story of a microfinance client, or excited about one of our program initiatives, or interested in how technology can help the world’s poor. Whatever your interest, here are some ways to spread the word: ·    Send a free e-card ·    Organize a friendraiser ·    E-mail a page to a friend ·    Use del.icio.us ·    Feature us on your blog ·    Use our brochure

(More details at: http://www.grameenfoundation.org/get_involved/spread_the_word/ )

Stay informed: Subscribe to our free eNewsletter Subscribe to our free eNewsletter to stay abreast of the latest news and events, and read past eNewsletters. You can also listen to a message from Alex Counts, president of Grameen Foundation.

Organize a “Friend”raiser: Raise awareness and funds for Grameen Foundation by hosting a fun event. Learn more and obtain our toolkit, a guide on organizing a successful event.

Work with us: Grameen Foundation periodically has a variety of employment and consulting opportunities available at our Washington, DC office and around the world. We welcome qualified applicants committed to helping the world’s poorest people lift themselves out of poverty with dignity.

We offer several kinds of opportunities for you to work with the Grameen Foundation – a group of friendly, multi-cultural professionals.

Employment opportunities are ideal for professionals seeking a career in the dynamic field of microfinance.

Internships are short-term positions that provide a valuable opportunity to gain experience while learning about Grameen Foundation’s work.

Consulting opportunities are short-term contract projects with our partners around the world or short-term contracts for assignments at our US offices.

Volunteer opportunities are open to career professionals whose talents and interests align with the mission of the Grameen Foundation.  

One response to “Creating A World Without Poverty-Micro-Lending and the Battle Against World Poverty

  1. Burning question: Has micro credit done a lot?
    found a good article and book on micro credit and grameen
    bank: http://microcredit-book.blogspot.com/
    Contributors of this blog are Doug Henwood, Patrick Bond, Bosse Kramsjo, Badruddin Umar, Susan F. Feiner and Durcilla K. Barker, Farooque Chowdhury, Robert Pollin, Gina Neff , Anu Mohammad, Omar Tareq Chowdhury.

    Here of the excellent article of this book:

    The metamorphosis of micro-credit debtor
    Farooque Chowdhury

    Micro-credit, the well-propagated mantra in the fight against poverty, is now expanding crossing the national boundaries as capital has done for centuries. Countries in the centre and in the periphery in the present world system are near-spellbound by this mantra. The actors include kings, queens, statesmen, bankers, charity foundation initiators, economists, development workers and the poor. Only the last one is at the receiving end.
    The metamorphosis of the micro credit debtor exposes the acts the capital plays in the act of micro credit and makes all its pious pronouncements hollow. The metamorphosis takes not only to the debtor, but also to other members of the debtor-household.
    The debtor of the micro credit turns owner of the tools or raw materials necessary for producing commodity as the debtor returns home from market after purchasing these with the credit money. But with the joy of ownership a poor debtor enjoys through this metamorphosis there comes a new burden, the burden an industrial proletariat does not have to bear: the burden and responsibility of maintaining, repairing and replacing the tools, equipments or parts of these and the costs that accompany it as the debtor is going to produce and going to be a producer of commodities. It is an extra burden. Usually the job is done not only by the debtor, but also by the other members of the debtor—household. That means time, necessary or surplus labour, depending upon a situation. The proud ownership carries another intricate calculation. An industry owner provides premise, shade, light, water, storage facilities, transport, etc. for producing a commodity and before hiring a wage slave the owner has to spend money for these ranging from construction, power and water connections, supervision, etc. which are calculated before the surplus value is appropriated. But in case of the micro credit debtor turned independent owner of tools of production all these burdens fall upon the debtor. It is the responsibility of the debtor turned owner to repair/replace/heal and to spend money for these. That means the debtor has to arrange the constant capital, and sometimes, the variable capital. The creditor does not always provide the money required for these purposes or the debtor has to set aside a portion of the credit money for these purposes. If the debtor sets aside a portion then the person has to extend extra time to the portion of labour that produces surplus. Moreover, the debtor turned owner has to construct/raise a shed for carrying on the production activity and spend money and labour power belonging to the debtor and the debtor’s household. Actually, the debtor, most of the time, uses own premise, rent for which is paid by the owner of the production unit, the debtor. Maintenance and repair is paid by the debtor, now turned into an independent producer. An industrialist has to pay rent for the premise, utilities and other facilities while they are within the premises producing commodity. But in case of the micro-credit all these are the debtor’s responsibility. The metamorphosis of the debtor to owner of tools, etc., to independent producer thus does nothing but increase the surplus labour time and squeeze necessary labour time so that the repayment of the loan can be made as per schedule.
    The debtor turned producer has to plan, search and work out comparative advantage, and procure and transport required raw materials for the commodity to be produced. The debtor, now acting as procurement manager of the household-based production unit, procures and carries or transports the raw materials for the commodity to be produced. Sometimes it is the spouse or sibling who performs the task, unpaid and unaccounted labour power put into the process. Is the equation in favour of the fellow who went to the banker for the poor to realise the fundamental right the banker propagates? Reality is that the shortened necessary labour time and the lengthened surplus labour time, obviously provide the answer. What about the level of appropriation? It is, certainly, not at the level Marx ‘calculated’. It is super-appropriation, never imagined by the mine owners of Rome, the colonial plunderers, the plantation owners, the slave owners in pre-slavery America, the multi-nationals operating in the countries on the periphery, not even the plundering-lumpen capitalists in a number of underdeveloped countries, but only by the multi-national micro credit capital. So, Michael Lipton and John Toye said in ‘Does Aid Work in India?’ : Rates of return on credit projects are particularly high in India; and Joe Remenyi said in ‘Where Credit is Due: Income Generating Programmes for the Poor in Developing Countries’: Credit – based income generating projects may be the most profitable way in which society can invest…Diminishing return has not set in this field…;…banking on and with the poor is a very good thing to do…. The typical successful CIGP …required an investment well below $1,000 per sustained wage – paying position created (one – tenth of the ratio in the formal sector)…[W]hen one is living at the margin of survival earning around $1 a day, an increase in earning capacity of 50 cents a day represents a substantial improvement in cash flow. These statements tell the truth.
    The metamorphosis of the debtor moves further as the fellow turns wage labourer. The micro credit finds a new commodity as, borrowing from Engels, the ‘source of new value,’ source of surplus ‘income’ with which the debtor will repay and ‘this commodity is labour-power’. The labour power is stored up in the bodies of the micro credit debtors and other members of the debtor-household who extend respective labour power to extend the surplus labour time so that the repayment could be made on schedule. As an independent producer the debtor has to fix the pace of production and that determines the debtor turned wage labourer’s pace and length of working hour. Even, the debtor wage labourer has to borrow labour power of others in the household, who are actually paid only by bare subsistence. To make the statement complete it is not the debtor only, but other members in the debt ridden household, along with the debtor, also, turn wage labourer, at least, part time. Does it not appear more intense than the conveyor belt or the Taylor system innovated by the industrialists to increase surplus value? Thus, the entire household turns into a household of wage labourers, full time or part time. Actually, the pace of work is determined by the time schedule of the repayment. Within the scheduled time for repayment the independent producer turned wage labourer, along with the co-workers in the household have to produce and sell that quantity or that number of commodity that can bring in at least the amount of money needed to repay the instalment of the debt. If seasonal variations, changes in market, health problems, other unseen troubles, non-availability of raw materials or transport, in short, major and minor forces, i.e. ‘acts of god and acts of reality’, coordination with the marketing day and the instalment day are taken into account then the pace of production of a debtor turned independent producer turned wage labourer can be imagined. The person has to forget 8-hour working day, rest, amusement and attending to family chores. It is only to produce surplus enough for repayment. Does it sound like the sweating system? Does an industrialist having a supervisor or a foreman appear fool? While an industrialist has to devise a mechanism, a supervisory system and keep a physical appearance in the work place the micro credit capital does not require all these. Its mere regimentation, mere providing credit at the doorsteps of the poor and its higher level of ‘consideration’ or attention regarding collection of part of the credit from the debtor’s home so that the poor fellow does not turn a defaulter that determine the pace of production. This is the condition of the micro credit wage labourer, obviously a bit different from an industrial wage labourer. An industrialist ‘purchases the use of one week’s labour of [a] worker’ if the worker is paid on weekly basis, but the micro creditor purchases the labour of the debtor for an entire year, if, assumed that the loan will be repaid within a year, or for the entire period until the loan is repaid. With the payment for necessary labour time, a specific amount of money paid for subsistence of a worker and members of the worker’s family, an industrialist ‘ensures the continuance of labour-power even after his [the worker’s] death’, but the micro-creditor ensures the simultaneous use of labour – power of the household members of the debtor along with that of the debtor. The labour, through persistent struggles, has won, in relative terms, a number of measures to safeguard own body and soul and the capital has to compromise for its own sake. But the micro credit debtor turned wage worker toils without coverage of any such measure. The micro credit capital that finances micro-production units at household level is smart enough to escape, till today, the struggle of the debtor turned wage worker, by pass all rules, even norms attained so far, and stay safe. There is no working hour; no weekly holiday; no law, rule, regulation governing working time, working condition, safety measures, child labour, female working hour, etc.; no inspectorate looking at the working condition. This makes life miserable for the micro credit debtor turned wage worker and for the members of the household including the minors who help create surplus value without any legal coverage.
    Now, only a few numbers quoted from Microfinance Statistics (vol.17, Dec., 2004), a publication of the Credit and Development Forum. These will help comprehend, at least partially, the width and length of the micro credit net and the surplus value it appropriates in a single country. In Bangladesh, in 2004, the number of active members in the 721 micro financing organisations (MFO), reporting to the CDF, was 16,622,047 and in 2000, it was 11,021,663 in 585 MFOs. In 2004 the number cumulative borrowers from 721 MFOs was 16,244,242 in a country of 140 million. It was 7,409,773 from 585 MFOs in 2000. There are many other MFOs that have not reported to the CDF, many others are operating in different guises and many other programmes and projects operating not as MFOs but carrying on micro credit business. From how many souls do a group of industrialists in a poor country appropriate surplus value? Are those always more than the number just cited? There are answers, obviously, to this question. It is expected that a reader will search the answers.
    The metamorphosis of the micro-credit debtor continues further as the person moves to market with the commodity produced. The debtor then turns to an independent trader competing with peer debtors turned independent traders in the market place and at the same time they together fall prey to the vagaries of market governed by the mighty market forces. While carrying the commodity to the market, sometimes, some other members of the household, shares the load. This labour is unpaid in terms of wage. If counted or paid, the amount comes from the surplus value already generated. If it is unpaid then the amount thus saved stays within the surplus value to be paid to the creditor waiting for the next instalment of repayment. As an independent trader the debtor turned independent producer turned wage worker has to bear all the responsibilities of a trader. But an industrial labourer does not have to take all these responsibilities. The wage slave in a factory just completes respective job and gets compelled to be appropriated of the surplus labour time. Market, supply, demand, transportation of commodity to market, storage, taxes and tolls, speculation, price, etc. are not part of a factory worker’s business. But as an independent trader the micro credit debtor has to bear these extra burdens which are not the creditor’s concern at all. The creditor has tactfully, through the modus operandi, has put it upon the poor debtor’s weak shoulder. There are commodities in the market that are produced in larger, mechanised production units, with higher productivity, which means a cheaper commodity, and, commodities that enjoy facilities created by the WTO. This situation puts the debtor into an unfavourable, uneven playing field, cuts down the debtor’s competitive edge and presses down price of the commodity produced in the household by semi-skilled and unskilled workers and produced with artisan method and tools. There is the packaging, marketing and advertising factor. The person has to reconcile with the situation and that means further tightening of belt. The micro-credit thus pushes the debtor to such a situation with extra burdens while it demands regular repayment of the credit.
    The data on the sectors or sub-sectors that use micro credit in Bangladesh show the sources of surplus value appropriated and who ‘offered’ the surplus labour to generate the surplus value. In 2004, according to the data published in the above mentioned CDF publication, of the 379 MFOs reporting to the CDF, 27.94 percent of cumulative disbursement was in the agricultural sector that included crops, livestock and fisheries sub-sectors while only petty trading sub-sector covered 40.61 percent. The percentage of food processing and cottage industries was 6.28 and of transport it was 2.20. In the years 2003, 2002, 2001 and 2000 the petty trading dominated. From where does trading, whatever its size is, produce the profit? A portion of it is surplus value generated by others in other places. What about the transport, the rickshaw van or the boat, and the cow fattening? The same answer. It is also the surplus value generated by and in different segments of the broader society that is appropriated by micro credit capital that gets in through the debtor’s hand. Other sectors and sub-sectors also provide similar explanation found in political economy. The above mentioned CDF publication provides a few more startling facts: ‘utilisation of loan by sector or sub-sector (as percentage of cumulative disbursement)’ in ‘social sectors’ in 2004 was 1.70 (health:0.44, education: 0.06 and housing:1.20); in 2003 it was 1.58 (0.45 for health, 0.04 for education and 1.09 for housing); in 2002 it was 1.41 (0.39, 0.05 and 0.97); in 2001 it was 1.76 (0.42, 0.11 and 1.23); and in 2000 it was 1.69 (0.37, 0.02 and 1.3). The ‘social sector’ meant by the cited publication was health, education and housing which are actually required for ensuring the debtor’s and the debtor household’s survival, keeping the body and soul of the household based producers or of the trader or of the transport operator together, ensuring that production or trading could be carried on or transport could be operated so that surplus value generation or taking share of surplus value generated by some other is ensured, so that the repayment that includes surplus value is ensured. If a debtor does not have a house or a shed the production unit will be inoperative or will face problems in the production activities; the raw materials, the tools, the fuel, the cow or goat or poultry, the commodity produced could not be stored in; the producer and others in the household joining in the production activities could not survive. So, the housing sub-sector was emphasized most while lending out money in the CDF defined ‘social sectors’. Of course, the façade was benevolence by the micro creditor. Then came health with the same arguments. A judicious choice of the appropriator! Material interest tops the list over human consideration. The extent of concern for health of debtor and debtor household is directly related and tied to the extent of concern of continuation of production, etc. activities. It was followed by education. The level of production and the level of transaction determine the extent of education required and the level of emphasis put into education. None can override this rule. The micro-creditor, also, faithfully follows this one and the life of debtor goes through this metamorphosis.
    Thus, the circuit of metamorphosis of micro-credit debtor moves on and ultimately it completes a full path: a poor, an appropriated person turns debtor, the debtor turns owner of tools of production., the owner turns household based independent producer, the independent producer turns wage worker, the worker turns independent trader, the trader stays entrapped into debt with worsened condition and bigger debt turning one to debt slave. In its circuit the micro credit debtor only produces surplus value or takes a portion of surplus value produced by some other debtor or some other person or persons in the society producing surplus value and transfers a portion of it to micro credit capital. The circuit is both, a closed and an open, signifying the contradiction. The closed circuit keeps the debtor in perpetual and worsening poverty; sometimes, borrowing from the micro-credit literature, graduating a percentage of the borrowers, but pushing down or entrapping others in increased number; and often, throwing back the graduated debtor to the den of poverty again; and in these cases, the mainstream economics finds the rationale in ‘shocks’, ‘setbacks’, etc., natural and social, as their terminology defines. But whatever happens in the lives of a certain percentage of the debtor that does not change the basic structure of the circuit in the broader social matrix, in the process of appropriation of surplus value. Ignoring the macro scenario and putting forth the micro, a few individual cases, putting forth the exceptions instead of the general rule does nothing but vulgarises the arguments itself pushed forward by the mainstream. The open circuit intensifies and accelerates the pauperisation process and thus creating pressure on the system that creates poverty, makes a person poor, and appropriates surplus value. The vulgar economics with ‘hollow eye and wrinkled brow’ (Shakespeare, Merchant of Venice) extending support to micro credit capital may construct a façade by resorting, again, to vulgar arguments. It may argue that a certain percent of micro credit debtors have improved their living condition with the aid of the panacea as a few days ago they used to mean the micro credit. But this does not nullify the fact of appropriation of surplus value from others in the broader society. Rather, it puts the evidence that surplus value has been appropriated from some other persons. There are many economists in the bandwagon of micro credit who cite cases of increased consumption by the micro credit debtors. But it should not be missed that consumptions are of two types: productive and individual; while the first one is to create products the other is turned into means of subsistence. So, data of debtors’ increased consumption, claims regularly made by the mainstream economics, carry no meaning other than better and ensured supply of surplus labour power which is expropriated. The fact should not be missed that the entire system rests on the appropriation of surplus value and micro credit is a part and, now is an institution of the system. It is sustained by the system and it helps sustain the system.
    The socialisation of micro-credit, with its profit profile, allures other capitals in banks and financing companies to join in. The capital engaged in micro-credit ties, quoting from Shakespeare, the ‘poor man’s cottages [to] princes palaces,’ organises and regulates debtors including members of the debtor-households, keeps them entrapped in the micro credit web, appropriates surplus labour power of them and others in the broader society. Moreover, it now regulates, based on its global power, the analytical process of a section of economists who overlook the process of appropriation of surplus value upon which the micro credit thrives, and try to ignore definitions of political economy and propagate vulgar ideas.

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