What on earth could the United States, the richest country in the world, learn about economics from one of the poorest nations, Bangladesh? Quite a lot, actually.
To begin with, not everyone in this rich country is benefiting from our good economy. Although incomes have increased for the wealthy, real wages for middle-income and low-income earners have actually dropped over the past 20 years.We are forcing single moms to get off welfare, but there are not enough good paying jobs to accommodate them. What can we do? One of the best answers comes from Bangladesh and its most innovative economist, Muhammad Yunus.
In 1976, Bangladeshis were having terrible economic times. Yunus was a university professor who was frustrated by the gap between economic theory and practical results for real people. He went out into a village near his university to observe the economics of the poor. He met a woman named Sophia Khatun. She made beautiful bamboo stools, but to his amazement she made only two cents per day. She lacked the capital to buy the bamboo and thus was dependent on a trader to provide the bamboo in exchange for the finished product at a price he fixed.
Yunus asked whether she could make more money if she had the capital to buy the bamboo. "Of course," she replied. He loaned her $6. Her income went immediately from 2 cents per day to $1.25 per day. She suddenly became middle-class. She and her family began to eat three meals a day instead of one. She was able to buy a second piece of clothing. She was able to buy a tin roof for her home and to send her daughter to school. A life of poverty transformed with just a $6 loan.
This experience also transformed Yunus. He established a poverty-lending bank called the Grameen Bank. The bank now has 2.3 million borrowers. Initial loans are about $25. The average loan is $170. Ninety-four percent of borrowers are women, and on-time repayment of loans with interest is 98 percent. It is not a charity. It's a bank which makes a small profit. One-third of his borrowers have been lifted out of poverty, and another third are nearly out of poverty.
This idea of small loans, microcredit, is beginning to catch on around the world. There are banks like Grameen in more than 50 other countries, including the United States.
In the United States there are now almost 400 small microenterprise programs addressing the needs of very small businesses, including making loans and/or providing business training or support to low-income people who want to start their own small business. Most of these programs are very small, but a few have produced several hundred tiny businesses. This self-sustaining idea needs to be expanded.
A recent study in five states over five years, the Self-employment Investment Demonstration Project, showed that self-employment attracts long-term welfare recipients, creates new jobs and long-lasting businesses, reduces welfare dependency, generates savings, and builds self-esteem, income and assets.
Can microcredit work in Utah? The Utah Microenterprise Loan Fund in Salt Lake City was started in 1991. It makes loans of up to $10,000 to people who cannot get credit elsewhere. The UMLF has made 132 loans and has had many great success stories. They have a 94 percent repayment rate.
One grateful recipient is Grace Wallace. She is a single mom with two teenage children. She hurt her back and was forced onto disability. She hated that, so she got some business training through a program called "Entrepreneurship for Single Parents." No bank was willing to give her a loan. But she got a loan from the UMLF. With it she bought a delivery van, a fax machine, a printer for fliers for advertising, and the inventory she needed to produce her "Sweetheart Designs." These are candy creations she makes in her home for all kinds of special occasions. Today, she is off food stamps and no longer lives in subsidized housing. Her self-esteem has skyrocketed.
The size of the loan is critical. Loans must be big enough to make a go of a small business but not too much as to create a burden and ensure failure.
Yunus believes credit is a human right. He believes it is the most important right because without it one is trapped in poverty, and poverty is the deprivation of all human rights.
How we deal with the very poor in this country helps define us as a society. Do we continue to blame them for not lifting themselves by their bootstraps? Or do we help provide the bootstraps? I believe every city and small town in this country needs to have a mechanism to make available small amounts of credit to people who want to work to improve their lives.