New Group Will Make Loans to World’s Poor

A new international aid group said Sunday that it will lend $200 million in small amounts to the poorest inhabitants of developing countries.

“Micro-level credit schemes help people help themselves by starting small-scale income generation projects and businesses,” said James Wolfensohn, head of the World Bank.

The Consultative Group to Assist the Poorest, whose founding meeting was in Washington on June 27, says it aims to provide credit for the 1 billion poorest people on the globe. Most live in South Asia and sub-Saharan Africa, but many are in pockets of extreme poverty in Latin America and Eastern Europe.

“The demand is enormous--as many as 500 million micro-entrepreneurs want credit, but only a few of them can get it today,” said Ismail Serageldin, World Bank vice president and leader of the new group.

So far, the group has received a total of $200 million from the United States, France, Canada, the Netherlands, the European Commission, various United Nations agencies and the World Bank. At least $100 million more is expected to flow in as other countries and financial institutions join the effort.

The lending group says it intends to distribute the funds through non-governmental organizations and special “banks for the poor” in several countries. The latter offer a combination of loans, advice and group training to the very poor to help them begin small-scale businesses.

Many of these tiny enterprises have no collateral to offer and therefore have no access to credit from the formal banking sector. Instead, they must rely on special banks that provide loans ranging from $30 to $100.

But such banks--the pioneer being Grameen Bank of Bangladesh--are usually underfinanced and thus limited in their ability to meet demand. Grameen Bank extends loans averaging $100 to landless, illiterate villagers who otherwise could not get credit to build homes, buy cattle or start small businesses. The overwhelming majority of the recipients are women, whom Serageldin called the “poorest of the poor.”