February 24, 2005

Lending money to the poor - microcredit

One thing I have learned the past few years is that many people are poor because they lack the resources to pull themselves out of their poverty. In my work with Habitat for Humanity, I learned that some people simply don't earn enough to get a down-payment for a house, so they remain stuck paying landlords for lousy apartments or unsafe rental houses. By requiring no down payment and providing interest-free loans, Habitat for Humanity helps such families work their way out of poverty.

In many countries, the working poor are simply looking for enough money to purchase raw materials so they can produce and sell something. But, without money to purchase the raw materials, they basically turn to loan-sharks who charge high interest and otherwise manipulate them. In these countries, 'microcredit' - small loans from a couple dollars on up to $50 or $60, with a fair interest rate - helps raise people from poverty and become more independent. We don't hear much about microcredit in developed countries, but it is big business in the developing world.

The Wharton School of Business at the University of Pennsylvania just wrote an article about Muhammmad Yunus, one of the pioneers of microcredit and now managing director at Grameen Bank in Bangladesh. His bank loans around $500 million each year in microcredit, 96% of that to women. It's a good article to read and become familiar with the benefits that microcredit brings.

I don't know if Catholic churches or social agencies in developing countries provide microcredit. but it sure does seem to fit with the Church's social views. (Update from Tim - Catholic Relief Services does have a microcredit program.)