Nobel winner: Ensure microcredit money is well-spent

What a difference a peace prize makes.

A month after Muhammad Yunus was awarded the 2006 Nobel Peace Prize, the work of the so-called banker to the world's poor is in the global spotlight, giving a major boost to efforts to relieve poverty by making tiny loans to people who have no access to banks.

Seattle philanthropists have embraced the idea of microcredit, including the Bill & Melinda Gates Foundation, which recently decided to steer an undetermined amount of its own enormous resources into a new program for financial services for the developing world's poor.

Yunus said now the task is to ensure such money is well-spent.

"Suddenly it gives legitimacy; it gives wide visibility and keen interest because of the link between poverty and peace, and the link between microcredit and poverty," Yunus said Tuesday in his first address to U.S. media since receiving the award.

But all that goodwill could be squandered if microcredit isn't managed effectively to improve the lives of people living on less than $1 a day, he said.

"The question is how we make good use of this attention," Yunus said. "How do we make good use of Bill Gates' generosity that he wants to put a lot of money into microcredit?

"You can take his money and go away and do messy work. And he will be very frustrated, and it will frustrate the whole world that, look, you had the money, but you didn't do the right thing."

Money has been pouring into microfinance programs lately from individuals, foundations and corporate philanthropies such as Google.org.

Locally, organizations involved in microfinance now include the Gates Foundation, Unitus, Global Partnerships, Microfinance Corp., the Grameen Technology Center and World Vision.

Yunus, a Bangladeshi economist who pioneered microcredit three decades ago through the Grameen Bank, spoke by phone from Halifax, Nova Scotia, where he was attending an international meeting to assess progress on a nine-year campaign to reach 100 million of the world's poorest people with credit by the end of 2005. Organizers said they expect to reach that target this year, and they set a new goal of extending credit to 175 million people by 2015. Yunus and others urged national governments to support that goal by creating a legal environment for microfinance initiatives.

The gathering comes at a time when views on how to expand microcredit are divided.

Yunus advocates operating microcredit as a business rather than a charity, so it can sustain itself and expand beyond the power of donations alone.

But he calls the operation a "social business," making enough money to cover its costs and reinvesting profit back into the bank to finance more loans.

Some younger philanthropists, most notably eBay founder Pierre Omidyar, say microfinance can grow much faster if it's opened up to venture capital and commercialized as a profit-making business.

Yunus said that while there's room for many approaches, "I would just appeal to them, don't go all the way to maximize profit in a kind of literal sense, not to grab as much money as you can.

"We shouldn't be imitating moneylenders," he said. "We are making profit, but profit is in a restrained form."

Some microfinance institutions have been criticized for charging high interest rates to borrowers. Yunus said interest should be no higher than the cost of the loan plus 10 percent.

Technology can improve the way microcredit institutions are run and thereby help lower rates, Yunus said.

In Seattle, some programs combine the region's deep-rooted technology expertise with the social-service aspect of microcredit. The Grameen Technology Center, started with support from wireless entrepreneur Craig McCaw, created an open-source software platform for managing microfinance projects, and the Gates Foundation gave Unitus a $1.5 million grant over three years to look for ways to make microfinance work more efficiently.

Even at the Grameen Bank in Bangladesh, Yunus said, technology has made a difference.

The bank computerized its whole system, which improved its operations, he said, though he added: "It's very difficult to run a computer system in Bangladesh because of the uncertainty of electricity."

Kristi Heim: 206-464-2718 or kheim@seattletimes.com