In his new book Creating a World Without Poverty: Social Business and the Future of Capital, Muhammad Yunus says "Multilateral institutions like the World Bank name the elimination of poverty as their overarching goal.
But they focus exclusively on pursuing this goal through large-scale economic growth. This means that, as long as gross domestic product (GDP) is increasing in a country or a region, the World Bank feels that it is achieving its mission.
This growth may be excruciatingly slow; it may be occurring without any benefits to the poor; it may even be occurring at the expense of the poor—but none of this persuades the World Bank to change its policies."
Microcredit programs around the world have helped millions of families living on less than a dollar a day to care for themselves and their children. An estimated 100 million of the world's poorest people received microloans in 2007—a mind-numbing statistic of the very best kind and a remarkable achievement. When the campaign was launched in 1997, there were only 7 million very poor borrowers worldwide.
The world's most famous example of microfinance, the Grameen Bank and its founder, Yunus, won the 2006 Nobel Peace Prize. The Bangladeshi bank now employs 16,000 people and has more than seven million clients, most of them women.
Eighteen years ago, Yunus was asked, "What is the first thing a woman does with the proceeds from her microloan?" You'd expect him to say that she feeds her family better, or puts her children in school, but you'd be wrong.
"The first thing she usually does," Yunus replied, "is bring her children home." He went on to explain that during that time in Bangladesh, families were often unable to feed their children. So they would send them out to work for other families, even when they were as young as five or six years old, for barely a handful of rice. Consequently, the first thing a woman often did with her loan proceeds was bring her child home.
Microcredit funds a huge variety of small self-employed businesses by people who wouldn't normally have access to credit. Regular interest is usually charged, and repayment rates are 95% or better. In short, microcredit provides hope and opportunity for the world's poorest, who are often left out of the world economy.
Currently, only about four percent of the worldwide demand for microfinance is being met. There is an immense microfinance "funding gap" of at least $250 billion, according to a recent Deutsche Bank study. We can help bridge that gap through investments in microcredit.
This finding, that in fact there is a need for more funding, needs broader dissemination as even major new foundations, such as those recently created by the founders of Google, have been led to believe there is a glut of investment money chasing microcredit. It is true that most of the needed funds will come from commercial sources, not governments.
However, commercial banks and investment funds have been slow to create opportunities for investors to support microfinance.
We can do our part, to provide part of the private investment needed. Some organizations, such as Kiva.org and the church-based group Oikocredit, offer alternative ways for concerned individuals to invest funds to support microcredit. Web-based Kiva is reportedly the fastest growing non-profit in history and has funded more than 26,000 loans around the world, with a 99.8 per cent repayment rate. The Kiva website allows investors to lend to specific entrepreneurs in $25 increments and monitor their progress along the way. In Canada, for example, only Citizens Bank allows investors to direct registered savings plans to microcredit.
But private investment, if investment vehicles were more broadly accessible, is only part of the picture. With a specific mandate to help the poorest people in the world and funded by contributions from the world's industrialized countries, the World Bank is in a different category than regular banks and investment funds. It should be providing much more support for microcredit than it is.
In 2007, the World Bank Group provided $34 billion to help developing countries. Yet less than $200 million, half of 1 percent, was earmarked for microcredit. And much of that isn't targeted to help the poorest, but goes to help the not-so-poor.
Here is what the Bank should do to ensure its support for microcredit is increased and improved by specifically addressing the following:
- 1. Increase World Bank spending for microfinance;
- 2. Ensure that half of World Bank spending on microfinance reaches the very poor, those living below a dollar a day;
- 3. Require the use of cost-effective poverty measurement tools to ensure compliance;
- 4. Report annually on results.
Similar requests were made to past presidents of the Bank Jim Wolfensohn and Paul Wolfowitz, by more than 1,300 parliamentarians from around the world. They seem to have fallen on deaf ears. It's time that Robert Zoellick the new president finally honour these requests from the governments that provide the funds by which it operates.
In a year when U.S. presidential elections cry out for accountability and change, we should expect no less of the World Bank. A billion of the world's poorest entrepreneurs and their families would heartily agree.
Randy Rudolph is a volunteer with Results Canada, a grassroots citizens group advocating for basic human needs for the worlds' poorest.
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