Tuesday, October 24, 2006

Micro-Loans for Poverty

The Nobel Peace Prize was awarded jointly to Grameen Bank of Bangladesh and its founder, Muhammad Yunus. They provide micro-loans for the poor to help them start tiny enterprises. Great news! This is not the politically correct way to aid the poor. The "right" way is to feel compassion and donate our time and money to them. But it works. The people they are helping are enterprising. A small loan for a specific purpose helps them get going. How can you be sure the borrower does what she promised with the money? They organize the borrowers into small groups where they hold each other accountable! Alvaro Vargas Llosa of Peru is very active in getting micro-loans used in Latin America and around the world. He writes in TCS Daily:
For half a century, wealthy nations -- and rock stars -- have focused on foreign aid as the way to spur development. Foreign aid started with President Harry Truman's "Point Four'' program at the end of the 1940s, partly to pre-empt the spread of communism. To judge by ever increasing budgets and last year's call at the United Nations for a doubling of aid by 2015, it continues to be the fundamental focus of efforts to bring about prosperity in poor countries. No attention is paid to the fact that in sub-Saharan Africa, the region to which most of the foreign aid has gone in the last quarter-century, per capita income has dropped by 11 percent. Numerous government programs involving handouts and training have also failed to do the trick in many countries. What the poor really want is an environment in which undertaking a profitable venture is not a nightmarish bureaucratic and legal process.

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