Credit’s Lifting Ability

Especially this time of year, many Americans bemoan the fact that they are drowning in debt, the victims of too much available credit. If only people in the developing world could be so lucky. One of the most formidable roadblocks to escaping poverty in much of the world is the lack of credit.

Even the smallest loans can make a huge difference in places where people struggle to get by on a few dollars a day. A loan of as little as $100 could help a woman start a business that would radically improve her family’s living standards. There are more than 50 million so-called microcredit (or microfinance, the broader term) clients around the world who have been given such loans, typically by enterprises that have stepped in where traditional banks haven’t dared to go. Until recently, that is.

Astonished by poor borrowers’ high repayment rates in many countries, even the likes of Citibank and Deutsche Bank are becoming involved. Many nations of South Asia so devastated by this week’s tsunami have been models for microfinance’s promise. Secretary of State Colin Powell recently promoted the notion that microfinance programs could stimulate development across the Middle East as well, and the United Nations has proclaimed 2005 the year of microcredit. Doing well by doing good -- and packaging it in capitalist-friendly terms -- has never seemed more attractive.

But trendiness shouldn’t be allowed to subvert this proven development strategy. The danger is that well-meaning donors and opportunistic governments will hijack market-based microfinance programs and turn them into charitable handout schemes, thereby destroying their credibility. Nancy Barry, president of the respected Women’s World Banking network, based in New York, wonders whether the U.N.’s designation for 2005 can make a difference. “Only if the powerbrokers get with the program and stay with it,” she concludes warily.

The world’s poor don’t need to be feted by the U.N.; they need access to credit far into the foreseeable future.