rest of the world — go to the very poor living on less
than $1 a day.
April 29, 2004
Debate Stirs Over Tiny Loans for
World's Poorest
By CELIA W. DUGGER
BRAC has found
that the very
poor are more
likely to drop out
of microcredit
programs.
ORMA, 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
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 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.
Amit Bhargava/Corbis, for
The New York Times
Women in Bangladesh
preparing to make
payments on small
loans they received
under a program to
help poor people start
businesses.
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
Today her skillful investments have helped her become silk, but the life it supports is hard.
relatively prosperous, despite having left her husband
Before microlenders arrived, the poor had little choice
in disgust after he took a fourth wife. "She was always
but to become deeply indebted to moneylenders who
enterprising," said her father, who gave her chicks to
charged exorbitant interest rates of 120 percent or
tend when she was just a girl.
more a year. Microfinance institutions in Bangladesh
generally charge from 20 to 50 percent.
Since the 1980's, wealthy nations and international
organizations have provided billions of dollars for
Mrs. Sarkar last year became one of BRAC's 3.5
microcredit programs. The idea that small loans enable
million borrowers. She used the $50 to buy her
millions of poor people to pull themselves up by their
husband a rickshaw, which will save him 35 cents on
bootstraps has captivated liberals and conservatives
the daily rickshaw rental fee once the loan is paid off.
alike.
But even with the extra earnings, the Sarkars, both
illiterate, will be desperately poor.
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 policywise."
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
Johara Khatun took a loan from a non-governmental organization to invest
in a teashop that she runs along with her husband. Some lenders in
Bangladesh, the heartland of the microcredit movement, are experimenting
with new ways to reach the poorest of the poor.
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.
Pushpa Rani, left, took a loan from the
Bangladesh Rural Action Committee, or BRAC, to
invest in her son's tailor shop.
"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."
"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.
For years, BRAC has offered some poor women free
wheat and training along with micro loans.
"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
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.