Responses to New York Times Editorial Regarding New US Law on Poverty Measurement Tools
What follows is a rich discussion, pro and con, on an April 29, 2004 article and May 5, 2004 editorial published in the New York Times. The discussion is focused on a new U.S. law that requires the development of cost-effective poverty measurement tools and their use by virtually all institutions receiving microenterprise funds from the U.S. Agency for International Development (USAID). The law is an effort to bring accountability to a Congressional mandate requiring that at least 50 percent of USAID microenterprise funds reach clients who start at below US$1 a day. This new law and letters sent by more than 700 parliamentarians to the heads of the World Bank, the regional development banks, and UNDP urging those institutions to follow the new U.S. law would have a great impact on the Microcredit Summit and especially its commitment to reaching the poorest, those who start below $1 a day.
The following is an unpublished opinion editorial by Grameen Bank Managing Director Muhammad Yunus and BRAC Chairman Fazle Abed in response to The New York Times editorial above. It has been published, however, in a slightly altered form, in several newspapers around the world.
Poverty Matters
We were very disappointed in the article 'Debate Stirs Over Tiny Loans for World's Poorest' that The New York Times ran on April 29 and the subsequent May 5 editorial.
Our perspective is formed by nearly three decades of innovation in this field. Our organizations, Grameen Bank and BRAC currently have a combined total of 7.6 million microcredit clients reaching more than 38 million family members. It is certainly our experience that the very poor benefit from microcredit.
Does microcredit work for everyone? No. Is it a panacea? No. Is it the most powerful tool we have identified to help the very poor those living below $1 a day rise above poverty with dignity? Absolutely!
Why is there any debate on whether donor priorities should be sharply on the poorest? Without incentives, the free market doesn't cater to the world's poorest people. Instead they are the first to be left behind.
The recent U.S. law to which you refer in your article and editorial simply specifies that half of US foreign assistance designated for microcredit actually reaches those people living on less than $1 a day. We don't understand why anybody would object to this. By all logic of foreign assistance and the Millennium Development Goals, it is the right thing to do.
We first faced this kind of controversy when we initiated microcredit to address a failure in banking. The poor were not able to access capital from traditional banks. So when banks lent to the rich, we lent to the poor. When banks lent to men, we lent to women. When banks made large loans, we made small ones. When banks required collateral, ours were collateral free. When banks required a lot of paperwork, ours were illiterate friendly. When banks required clients to go to them, we went to the clients. We did so successfully and still the bankers balked.
Now the controversy returns as we address a failure in development—a failure to reach the very poor. You cannot tell us there is no failure in development when more than 29,000 children die each day from largely preventable malnutrition and disease and more than 120 million children of primary school age are not in school. Just as the bankers couldn't see how you could bank with the very poor, too many development specialists have the same misconception.
World-class researchers have studied Grameen Bank and BRAC and the impact of our lending on the very poor. In addition to political and social empowerment of women, studies show a positive impact on health, sanitation, family planning, child mortality, drinking water quality, educational status of children, and housing.
The most in-depth study ever done on microfinance, spanning the 13 years from 1990 to 2003, is by Shahidur Khandker of The World Bank. Khandker studied BRAC, Grameen Bank, and RD-12, three microfinance institutions in Bangladesh. Khandker found that: 1) as much as 5 percent of program-participating households should be able to lift their families out of poverty every year by borrowing from a microcredit program, 2) microfinance helps reduce extreme poverty much more than moderate poverty, and 3) the welfare impact of microfinance is positive for all households, including non-participants. Microfinance programs have spillover effects that boost the local economy and increase overall village welfare.
We constantly seek to reach poorer and poorer clients and design experimental programs to test what can be done. BRAC took a government feeding program, supplemented it with vocational training in activities such as poultry and livestock rearing, and began providing participants with small loans as low as $17. More than one million people have already moved through this program, known as Income Generation for Vulnerable Group Development, and gone on to become clients of mainstream microcredit. Recently BRAC has started a new program for the ultra poor where we are starting with asset transfer (cows and goats) and after 18 months 10,000 clients have moved to microcredit.
This year Grameen Bank started a program that gives loans to beggars. They are taking loans to sell merchandise to the very same people from whom they used to beg. Just to get the initial experience Grameen Bank is restricting the number of beggars who can participate during the first year to no more than 25,000. Already there are more than 9,000 borrowers in this program and the average loan size is $10.
If the experts in New York and Washington lived in Bangladesh, as we have done for more than 50 years, and were confronted with the same stark realities and intimate knowledge that only experience provides, perhaps they too would see what is possible and needed in the lives of the very poor.
Muhammad Yunus, Founder and Managing Director, Grameen Bank
Fazle Abed, Founder and Chairman, BRAC
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