Friday, October 13, 2006

Bankers for poor win peace Nobel -

This is exciting news. Bangladeshi microcredit pioneer Muhammad Yunus has been awarded the Nobel Peace Prize for his work in the area of microcredit and microbanking. If you're not familiar with the concept, microcredit is a small loan that is provided to poor families in third world countries so that the recipient of the loan can start a small business and allow them the chance to bring themselves up from poverty.

The loans are used by the person to buy some chickens or a cow, or as the article points out a mobile phone. The idea of the latter is that the person becomes a small telephone company and charges people to make phone calls. The loans tend to be small and for a short period of time, such as a year.

What is amazing is that it is working, people are buying chickens, selling the eggs and then buying more chicken and then hiring people to collect and market the eggs. Eventually not only does the family benefit but friends and neighbours benefit from a fresh supply of food and the opportunity to work. Others have purchased sewing machines and material and become a clothes manufacturer. I recall watching a video in which this was shown, the woman made childrens clothing and sold it to others. She made a good living and was able to start quite a nice business.

One of the concepts of the loan is that the loans are usually given to women, the idea is to allow them financial freedom and to become independent. Probably another reason is that since the woman watches the children she will be more interested in the long term viability of the business and the family, the husband would take the money and buy beer.

By the way, the return on investment is amazing with almost all the loans repaid in time and in full.

It's a success story that will have a tremendous impact on poverty levels in the third and fourth world.

And Thomas Carlyle called economics the Dismal Science.

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