The trouble with our poor is that they, like our middle class for the most part, are brought up in a culture of excess and instant gratification. The idea of saving and profiting a little at a time doesn't reach them. Plus their pessimism contributes to short-sightedness.
However traditional villages aren't exactly known for far-sightedness.
Both traditional villagers and American urban poor need a certain level of reeducation to accustom them to smart investments and small risks with small gain working up to larger gains later. The difference is that traditionals are not surrounded by contradictory noise and a superstitious culture of "making it rich" (illicit sales, winning the lotto) being the only way to escape poverty.
As a society before we can apply such principles we must first learn how to cut through the noise.

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"Man lives in the sunlit world of that which he believes to be reality. But unseen by most is an underworld, a place that is just as real... but not as brightly lit... A DARK SIDE!"
-opening from Tales From the Darkside

True. There's a concept in economics called Purchasing Power Parity. It's used when looking at income and GDP across countries and normalizes for exchange rates, which in turn normalizes for the fact that the cost of living in many countries is VERY low in U.S. dollars. In other words, a Chinese national making $4,000 can, on average, purchase the exact same stuff an American making $33,000 can. Things just cost less in China in dollars. Way less. Lunch in Vietnam costs 25-50 cents. So 50 cents is a lot more money there than it is here. Which is why simply saying someone makes $1,000 a year does not mean much in and of itself (unless they live here, of course). In Banglidesh, $50 is not exactly a "microloan". And a $10 profit from selling your chair at Pier One is not a bad profit.

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I wasn't born with enough middle fingers.

why he received the award for peace rather than economics was my first thought. he certainly is deserving of either.
i imagine the concept is if you want people to buy into the standards of their society then they need have some ownership, rather than being pawns of the system. the microloans provide access to ownership for many who would not otherwise have that prospect.
the microloan program - taken from the Bangladeshi model - has been used by the federal government for at least two decades, primarily in rural areas. one of the flaws of the system was that the applicants for microloans voted among themselves to decide who received the next advance. unfortunately, the most pursuasive, not necessarilty the best qualified, applicants received the bulk of the funds.
of course, to remedy that, the government established a bureaucracy to decree who was most deserving. as you might imagine, that tweak does not seem to have been the appropriate remedy. probably a change which will not warm the Libertarian heart.

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“Mayor Palin fails to have a firm grasp of something very simple: the truth.”

[Frontiersman editorial, 2/7/97]

Oh brother, “open mouth, insert foot” – that is the only advise I can offer this group. This guy is a shrill! A fake, a publicity hound, a snake oil salesman. His little bank and his stories of how rag-poor women in Bangladesh have climbed to riches and fame just does not withstand the test of truth under close examination.

I spend much of my time on an island in Indonesia which is home to a large number of extremely poor people. I come to this tropical island not as an aid worker, but rather for the near-perfect weather, the slow lifestyle, and the large number of accomplished people who come from all points of the globe who make this their second home. I have made a special effort to get to know the local people, their language, their customs, and how they survive on incomes of less than $2 per day. In these circumstances, it is only natural that I to keep up to date on the worldwide discussion of how to combat poverty.

The first time I read of the Bangladesh community bank was in Jeffry Sachs’ book, “The End of Poverty”. I have discovered that economists often tend to bend the evidence to fit their version of the truth. Anyone who has spent time listening to economists speak about the stock market or where the national economy is headed knows their batting record is not as good as they would have you believe.

When I read about Dr. Muhammed Yusun’s apparent miracle concept of microcredit, the whole concept went against everything I has seen and learned about poverty. Long ago I observed that poverty is perpetrated because no one knew how to make money – except by working for a salary. That is true in the United States as well. The only way most people know how to make money is by knocking on doors looking for a job. Very few people are capable of starting their own business and make a good income. One of the reasons for this is that someone else has already developed most common business ideas. It is very difficult to compete against an established business. It is also difficult to come with your own good idea for a new (or different) business.

The same thing holds true in third world countries – except there are much fewer salaried jobs and if you find a job, the salary is extremely low. So why not be an entrepreneur and start your own business? A little short on captial? No, short on ideas. You may have read that in microloans were used to produce bamboo products, hairdressers and grocery stores. Think about it and this just does not make sense. The market is already saturated with these kind of businesses. It’s like setting up a taco stand in Mexico to get out of poverty. The numbers don’t add up. A long time ago the market was saturated with poor people making bamboo trinkets, cutting hair, and having a small market out of their house. I have met one man who started a business making rocking horses from scrap lumber – excellent workmanship, detailed paint job, price US$2.00. That man has boosted his way out of poverty, but his employed workers certainly have not. And the rocking horse man did not need microcredit to get started.

Lets look at this idea of capital being the catalyst to get out of poverty. Grameen Bank charges from 25%-35% interest per annum. Hmmm, pretty high rate, but lets move on. Not unsurprisingly, in most areas of poverty many private individuals will also lend money at that rate (2-3% per month). Many businesses sell household goods on these same high credit terms. Hey, the lender doubles his money in 2 or 3 years at that kind of interest rate. Even if a borrower defaults after a year, the lender has his capital back again.

So if it isn’t the infusion of credit to poor people, what makes Grameen Bank so successful? You must read the fine print to find out. First, he lends to a group of 5 or more women, all of whom are liable for the loan. If one woman defaults the other 4 must pay the bank. The first women to get their money the two from the poorest families. When they have paid their money back, then the next two get the loan. Finally, the last women (who is also the richest) gets her money. Look at this carefully. The wealthier women are sponsoring the poorest women, in essence. The bank does not ask for collateral, no, they ask for three other people to underwrite the loan. If the poorest women do not pay, the wealthier ones are responsible for the debt.
Now let me explain a custom that is common among the poor that is not often seen in the US. Poor women get together and start a little coffee klatch to talk about kids, etc. Each week, all of the women must throw $.50 or $1.00 into the kitty. If there are 15 women, names are drawn out of a jar, and one of the women gets $15 to take home (which is big money). Over the course of 15 weeks, all of the 15 women get to take the money. It is not a lottery because every woman will get her money back over time. Rather, it is a method of forced savings. Every woman who joins the coffee klatch must have a sponsor and the sponsor must make up for a woman who cannot pay.

Does this sound familiar with Grameen Bank? Women in poor countries have been forming these little groups for hundreds of years – so it is a tradition to pay money into the kitty each month and have a friend rescue you if you can’t pay up. The only difference with Grameen Bank is the owner of the bank keeps the very substantial interest payment! The borrowers are NOT stockholders of the bank.

You may have thought it curious that 97% of the borrowers are women – no you know why. It is their custom to pay money into a fund where all women in the group will benefit. Men have no such traditions.

But Dr. Yunus was still not finished with his little scheme. Again if you read the fine print, you see that there is more to all this than just a loan. Borrowers must also agree with certain commitments about their lives with the bank and pledge to abide by the so-called "16 decisions". These 16 decisions or slogans include "We shall not take any dowry at our sons' weddings, neither shall we give any dowry at our daughters' weddings", "If we come to know of any breach of discipline in any center, we shall all go there and help restore discipline" and "We shall take part in all social activities collectively".

Obviously we can see the sorority psychology at work here. I suppose that this helps develop a work ethic and atmosphere of honesty. However, let me discuss the part about the dowry because it is significant.

In most Muslim countries, when a son or daughter gets married the traditions are different than in Western countries. After a woman commits to marry a man, the two families engage in long conversations about how the wedding will be conducted. This can include a party in the groom’s village, a party at the bride’s village, how many cows or water buffalo will be killed and cooked for the party, the kind of decorations, the number of bands at each party, etc. etc. This all finally boils down to how much money will be spent on the wedding. Usually, some extra money also flows from the boy’s family into the girl’s family. Finally, under Muslim traditions, the groom gives a substantial gift to the new bride, commonly known as “marriage gold”.

You may be thinking this is a lot of money to be paid for a marriage – especially people who are below the poverty level. Yes, just as many families in the US go deep into debt to pay for a son or daughter’s wedding, so do people in poor countries. This money exchanged to pay for the wedding, celebrations, and marriage gold is not easily translated into English, but dowry is the closest word that begins to describe the tradition.

You can see how a big marriage, which is very common, would tend to put families deep into debt – which would not be good for Grameen Bank. This aspect of Grameen Bank's policy has been criticized as overly paternalistic. Dr Yunus has also been criticized for the high interest rates he has charged, but replies simply that if anyone can finance a similar scheme charging less, he'd welcome it. I guess that kind of depends upon bank overhead, such as how many airplane flights the bank founder must charge off against his non-profit organization.

In summary, most economists think the idea of microcredit is great. The owner of the bank can make a very good salary while looking quite philanthropic (and rich if you can cook the books). The concept looks so wonderful to a politician who believes the bank is setting up little cottage industries. Anthropologists, however, point to intense pressure peer pressure on women clients to repay loans. Apparently a process of loan recycling is common where a woman must borrow again just to pay for the first loan. This increase in the level of debt in a household increases the tension and frustration among the husbands. The new debt also encourages new forms of control over wives such as restricting access to any family money.

Finally, when a bank uses the power of money to interfere with the fundamental ethos of a culture (such as wedding traditions), then you no longer have a program to lift people from poverty. Rather you have invented a devious program that looks like a way out of poverty, but instead, encourages materialism while breaking down traditions that hold a society together.

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Hobo
Charter member of 'Republicans Who Hate Bush" Club

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Hobo
Charter member of 'Republicans Who Hate Bush" Club

USA has won 6 Nobel Prizes this year.

I don't see what this guy/bank have to do with *Peace* to any great degree.....but someof the rewards in the past few years aventl made much sense. That African lady(forget here name(Kenya I think was the nation) got it a few years agio for growing trees........

They arent olympic medals, and I dont see us spreading any peace...


BTW great post Hobo...I usually dont read such long posts. In the beginning of it were you talking about your stays in Bali?

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America is a melting pot, the people at the bottom get burned while all the scum floats to the top.
- - - Charlie King

They are for things like ECONOMICS SCIENCE...you know things that better the fate of MANKIND as a whole.

AFAIK 8 Nobels awarded a year. The USA won 6 of those 8..Turkey got Literature and Bangladesh Peace.

IOW the USA did more this year to advance Mankind then any other naiton on this planet..

....and as usual people like you have to take a big stinking (*)(*)(*)(*) on it.