Microcredit Yields Special Returns

Foreign aid is a pretty hard sell these days.

Congress whittles away at it. The public thinks we spend much more than we do (we’re last among developed nations in percentage of our resources devoted to it). And, for most individuals, helping faraway foreigners is low on the list of ways to use their money.

Disasters change that: Americans give generously when pictures of desperate starvation reach them. But the pictures go - and then return. The giver, seeing the problem continue, may doubt the effectiveness of the gift.

Meanwhile, the gap between the haves and havenots grows.

The people who run something called “microcredit” programs believe they have an important piece of the answer - and that they can help us all, individually and in organizations and businesses, be more effective contributors.

In microcredit programs, contributors invest their money with organizations that lend it to the very poor to enable them to support themselves. The model for this kind of assistance is the Grameen Bank in Bangladesh. I first wrote about Grameen in the mid-1980s, as a pioneering concept enabling women to support themselves and their families - raising food, running stalls at markets, selling clothing they made - by lending them the funds they needed to get started.

Grameen grew into the largest of today’s microcredit programs. Its number of “poorest” clients - people in the bottom half of all those living below their nation’s poverty line - had by 1998 reached 2.4 million. A total of $2.5 billion has been distributed during Grameen’s 23 years of operation, with a cumulative repayment rate of 98 percent.

The model has been replicated around the world, under the leadership of people such as clergy or tribal chiefs or social service workers. Almost 1,000 programs have joined together in the Microcredit Summit Campaign, an organization based here.

These programs serve a fast-growing clientele. Taken together, the organizations served 12.6 million people in 1998 - a 50 percent increase from the 8.1 million in 1997. The money, in the form of loans, goes straight to the very poor - not disappearing into consulting fees or into roads in front of government buildings.

The level of poverty such programs seek to relieve is staggering. The World Bank has in recent years begun surveying the bottom fifth and the top fifth - by income - of the world’s population. Their 1998 figures show a disparity between these two groups of 135 to 1.

Humanitarianism alone bids us respond. But so does self-interest: The shrinking world opens more and more markets - but only if people can pay. And in this world of instant communications, where the poor can see how well the rich live, the huge disparity in incomes can only undermine hopes for peaceful coexistence.

One-and-a-half billion people in the world live on less than one dollar a day; 1 billion of them are women, and microcredit programs are particularly good at reaching them. Among 34 of the largest programs, aiding 7.5 million clients, 77 percent of the clients are women.

So the need is huge and microcredit programs have proved themselves as an effective part of the answer. They are supported now mostly by government organizations, such as the U.S. Agency for International Development, and by the savings of the clients themselves. To scale the programs up to meet far more of the needs, those who run microcredit programs are hoping to tap more individuals, organizations like service clubs and churches, and businesses.

Optimally, the donations resemble the programs: They go directly to where the need is (individual microcredit programs that put the money straight into the neediest hands). They are modest and manageable amounts of money - as most of the loans themselves are quite small. And they are not simply grants, but investments.

An example of how this can work comes from the Calvert Foundation in Bethesda, Md. Investors providing $1,000 or more receive returns between zero percent and 4 percent - clearly less than a money market account would provide. But then, they’re providing jobs, building homes and helping disadvantaged families.

You can find out more about how to invest in microcredit programs at www.calvertgroup.com. The Web site for the Washington microcredit organization, with other investment ideas, is at www.microcreditsummit.org.

Investing in microcredit programs is a different way of looking at philanthropy. It’s also a good way to avoid compassion fatigue. Next time a famine hits, you might have the feeling that - among the suffering faces you see - some do not appear because of loans your investment provided.