Microcredit increasingly discredited
The success of the acclaimed microcredit is eroding fast. There is an increasing doubt about the effect of these small loans without collateral for the poorest. Stories of families sinking deeper into poverty due to exorbitant interest rates are no exception. A reason for 1We – One World Experience, the new style empowerment foundation, to make a U-turn and do it differently.
Six years ago 1We – One World Experience already started a new form of microcredit. If a family in Bangladesh for example qualifies for a 1We Slum Shop (a shop in the slums), then half of the investment value is a grant. The other half is a start-up loan in the form of a microcredit. Without interest.
‘Deeper into misery’
And that is where 1We makes a world of a difference. As 1We director Robbert Frank Hagens states: “The 1We microcredit completely changes the life of a family, in a positive form.” He further indicates: “Our goal is to get the children in the family -the new generation- to school as soon as possible, something which actually does happen. This is simply impossible if you charge very high interest rates, which happens with the regular microcredits. That only forces people deeper into misery.”
More and more critics wonder whether the poorest people are not infected by the Western ‘debt culture’, in which life based on debt seems ‘normal’. And as it turns out, certainly not without risk. The numerous examples in a country like Bangladesh are as plain as day: people who need a loan from a moneylender in order to be able to repay their bank loan. People who are forced to sell their meager personal possessions in order to meet their repayment obligations. People who are put under heavy pressure by the bank and do not see any other way out than to commit suicide.
Poverty in the museum
It seems like the negative stories are overshadowing the positive ones. Something whereby also microcredit guru Muhammad Yunus with his Grameen Bank is increasingly being criticized. His dream that in the not-too-distant future, poverty can only be seen in the museum, seems utopian.
Yet it is indeed possible to eradicate poverty worldwide, says Robbert Frank Hagens. “The way to empower people is to give them the correct education, concrete tools and a microcredit. But this has to be a ‘humane’ microcredit, at 0% interest rate – that really helps them forward and not deeper into poverty.”
Out of the morass
A striking example is the story of Abdur Razzak from Bamoil, a small village in the countryside of Bangladesh. “He and his family lost their hearth and home in order to be able to pay the medical costs of their very ill child. The 1We Rickshaw literally pulled them out of this morass. The structural income they now earn ensures that the children can go back to school and they managed to move to a better house. So it is possible!”
1We – One World Experience, the new style empowerment foundation, has several empowerment projects in Bangladesh combined with microcredits. Please visit: www.1we.com
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Its an interesting thought to have, but one thing that has not been addressed here is the question of scale. Where Grameen and other lenders are working at a national level, does 1we have proven track records on this scale? I can see that specific cases, and also, within the grameen and other programs, success stories are clearly highlighted, is 1we working on a level that can be comparatively analysed even with the likes of Grameen? Where Grameen has gone on to look at innovation of social businesses, is 1we really addressing the key dynamics of poverty alleviation? Providing loans at 0% works when it is a handful number of projects being funded, but when you scale up, how do you cover all the costs associated with such a program?