Credit for the Poor: Poverty as Distant History

Article excerpt

In our data-driven analysis of economic development and poverty, it is often difficult to remember that poverty was not created by the poor, but is rather a result of the socioeconomic system we have designed for the world. The poor are the victims of the very institutions that we have built and feel so proud of, and their continuous plight stems from our inability to think beyond the dominant theoretical frameworks of macroeconomics. Reliance on flawed concepts explains why the interactions between institutions and people have resulted in policies that produce poverty, rather than alleviate it, for so many human beings. The fault of poverty therefore lies with the top of society, with policymakers and academics. It does not reflect any lack of capability, desire, or effort on the part of the impoverished.

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In my mind, it is possible to envision a world without extreme poverty, where imaginations of poverty will be of the distant past. But in order to reach this goal--to reduce and ultimately eliminate poverty--we must go back to the drawing board. It is unthinkable that the concepts, institutions, and analytical frameworks that have created and perpetuated poverty will be able to end it. Instead, we must intelligently reconstruct the economic framework and redesign these institutions along principles that better serve the poor. In doing so, we can affirm their basic human right to dignity and work with them to serve their needs in a sustainable way.

I became involved in the effort against poverty not as a policymaker or as a researcher, but as an individual concerned by the destitution around me. Grameen Bank, a personal project I started over 30 years ago, serves as a testament to the power of alternatives to the conventional banking techniques espoused by our current economic system. By setting a precedent for the efficacy of microcredit and the reliability of the poor, Grameen Bank has inspired many similar banks around the world engaged in eliminating poverty. Most important is that these banks are designed with the poor in mind. While conventional banks exclude the poor with impossible loan conditions, inaccessibility, and bureaucracy, Grameen and others have eliminated many of these difficulties. Sending bank officials to villages gives the poor convenient access to credit, while collateral-free loans make it possible for the poor to lift themselves out of poverty. Paperwork and forms have been simplified to accommodate the illiteracy of bank beneficiaries. Similarly, a new solution calls for removing the pressures of legal reprisal that plague borrowers by abolishing the legally-binding quality of loans, thereby removing potential doubts and fears about obtaining credit.

In order to design systems that are more accessible to the poor, the institutions fighting poverty must understand the limitations faced by the poor and seek to work around them. We must create a new system that expands the horizons of our economic understanding to best serve these communities by redefining traditional notions of credit, reaffirming self-employment, and creating social businesses.

The Shortcut of Self-Employment

The most important step to ending poverty is the creation of employment and income opportunities for the poor. While insufficient infrastructure and often inefficient markets in the lesser-developed world make it difficult for populations to find jobs, the unemployed can still create their own work and a sustainable living wage for themselves. Orthodox economics recognizes wage-employment, but it has been deficient in commenting on self-employment. This omission is a grave mistake. Promoting self-employment is the quickest and easiest way to create jobs for the jobless and to help the poor break a recurring cycle of debt and deeper poverty.

Credit is essential for the creation of instant self-employment, since it provides the investment that leads to small businesses and income for the impoverished. …