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Originally published October 17, 2006 at 12:00 AM | Page modified October 18, 2006 at 11:57 AM

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Editorial

The noble power of microlending

What better way to draw attention to the power of microlending to lift millions out of poverty than this year's award of the Nobel Peace...

What better way to draw attention to the power of microlending to lift millions out of poverty than this year's award of the Nobel Peace Prize to Bangladeshi economist Muhammad Yunus.

Yunus and his Grameen Bank of Bangladesh pioneered the practice of tiny loans — some as small as $20 — as a way to transform the destitute into entrepreneurs. Borrowers, mostly women, use the loans to launch businesses: for example, buying a cow in order to sell the milk, or a sewing machine to make and sell clothing. It is a concept that makes tremendous sense. Economic development is as key to peace in troubled spots of the world, as are diplomacy and international aid. That the Grameen Bank is a for-profit business and not the usual nonprofit operation garnering the attention of Nobel selectors highlights the vital role private enterprise can play in addressing poverty.

Yunus has famously told the story of the "aha" moment that led to microloans. A village woman told him she borrowed from a middleman to buy supplies to make bamboo baskets. After she sold her baskets and repaid the lender, she netted 2 cents per basket.

The woman's predicament was that of the poor worldwide. They remain poor not because they do not work — most work incredibly hard — but because they cannot amass the funds for a business or trade that would break the cycle of poverty. Traditional banks typically bypass these borrowers as risky and their loan requests as too small.

The Grameen Bank challenges these assumptions. Since its creation in 1983, the bank has lent $5.72 billion in microloans and turned a profit in all but three years. And the bank has a 99-percent repayment rate.

Congratulations are due Yunus and the bank, but for the prize to truly mean something, efforts in microlending must be redoubled.

The World Bank spends 1 percent of its budget on microcredit and ought to dramatically increase that amount. The United States Agency for International Development (USAID) has a $225 million budget for microloans but has fallen short on its legal mandate to ensure the bulk of loans go to the poorest of the poor, people subsisting on less than $1 a day.

Microlending takes center stage next month at the Global Microcredit Summit in Halifax, Nova Scotia. The august weight of the Nobel Prize ought to help garner world attention.

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