|
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads |  |
JULY 21, 2003
Commentary: A Way to Help Africa Help Itself As President George W. Bush completes his July 7-12 swing through impoverished African nations, he is encountering a continent whose economic and social problems are so immense it's hard to tell where to begin. Even in the two areas where the Bush Administration is putting its emphasis -- fighting the HIV/AIDS epidemic and quelling civil war in Liberia -- critics complain the U.S. is doing far too little to make a real difference. But another Bush action that has received little fanfare holds great promise for making a dent in African poverty. On June 19, Bush signed a law authorizing $375 million in fiscal 2003 and 2004 for institutions that dispense tiny loans of $50 and up to poor people who want to start businesses. Many of these "microloans" are targeted for Africa. The sum is a $65 million increase over existing levels for those two years, and the bill directs the U.S. Agency for International Development (USAID) to ensure that most of the money reaches the world's poorest. That may sound like chump change, considering that 166 million people in Africa are desperately poor. But from Bolivia to Indonesia to Uganda, microlending programs are proving that small sums can dramatically lift living standards. In the past five years, the number of such banks has tripled to 2,200 and now reach 52 million people around the world, by one estimate. Says Katherine McKee, director of micro-enterprise development at USAID: "In every part of the world, in widely varying circumstances, people have found ways to make microcredit work." If the added U.S. funds are spent wisely and are used to get other nations to cough up, that impact could eventually be enormous. The aim of microcredit is to foster sustainable economic activity at the grassroots. Typically, a microcredit bank lends about $100 for four months. To help ensure that the interest-bearing loans are repaid, the microcredits provide business and bookkeeping expertise. Upon repayment, the fledgling entrepreneurs get fresh loans. In Bangladesh, where microcredit was pioneered in the 1970s, hundreds of thousands of enterprises started with microloans have helped generate 5%-a-year economic growth for the past decade. Such successes have prompted similar programs in Africa. In Uganda, a country Bush visited, 245,000 families have borrowed from village banks run by international and local agencies. The money has been used to start everything from rabbit farms to grocery stores. Microlenders "are reaching more people than Uganda's entire commercial banking sector," says Lawrence Yanovitch, policy director for the Foundation for International Community Assistance (FINCA), which runs a global network of microcredit banks, including one in Uganda. This isn't to say that all money thrown at microcredit pays off. In fact, only a handful of the thousands of startups are big enough and sufficiently well-managed to stand on their own -- without constant infusions of charity. Dispensing and tracking tiny loans consumes lots of time and labor. As a result, despite high rates of repayment, few microcredit banks make money. The ultimate goal is to make these banks financially sustainable so they can reach many more people. Already, some microcredits have become sufficiently experienced and efficient to make a profit while still catering to the poor. Some are even raising capital on the open market. A bank started by FINCA in Uganda has 36,000 clients borrowing an average of $137 -- and boasts an 11% return on equity. It now is seeking a commercial banking license and aims to sell equity to private banks. So far, the Bush Administration hasn't spelled out its strategy for implementing its microcredit programs, much less where it will spend the money. But with many successful models across the developing world, the U.S. has an almost surefire way to make a real difference.  By Pete Engardio Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Policy |
Printer-Friendly Version