[Book Excerpt] Microcredit: A billion bootstraps

from Rediff

Microenterprises are small-scale versions of the same types of businesses found in developed countries. Twenty hens and a coop constructed from scrap material become a poultry enterprise. A produce store may be a rickety wooden cart piled with mangos picked that morning by the driver or purchased from a local farmer. Hives, bees, and a collection of mismatched used jars are a honey factory.

A 40-year-old truck is used to transport both goods for sale and paying passengers. A pedal-powered sewing machine is the local equivalent of a clothing factory. An outdoor clay oven is the village bakery. With a microloan providing working capital, these businesses can support families and boost the grassroots economy for the whole community.

Being creative and turning every available resource into a business is vital to improving the lives of those in poverty. In the Caribbean, a young man used a microloan to buy a used TV and VCR. He has turned his two-room tenement apartment into a movie theater. He rents a new video every day, charges neighbors the equivalent of 15 cents to watch the movie, and sells snacks from his four-shelf grocery store.

In Asian villages with no electricity, "phone ladies" buy cell phones with microloans and make their livelihoods by serving as their villages' pay telephones. A man in India with a laundry business was not making enough money to survive. Washing his customers' clothes in a nearby stream was not the problem; giving them a fresh-pressed appearance afterward was. A microloan of $50 was all he needed to acquire an iron and an electrical outlet, bringing his business to the next level.

Poor people often do not need outsiders to tell them about business opportunities. They are keenly aware of opportunities to start or grow a Microenterprises. Usually they just need a little working capital. As I got involved in microcredit, two factors became blatantly obvious. First, I was so used to living in a society awash with capital that I had a hard time conceiving of a world where absolutely no borrowed funds were available. Second, mot poor people in developing countries are intelligent and hard-working. They know that if they do not work, their families do not eat.

One of the fist stories I head about microcredit revealed the way families and societies can blossom on a lasting basis when offered the opportunity. Years ago in a shantytown in Managua, Nicaragua, before the opening of a community microcredit bank, all the homes were made of scrap wood, plastic sheeting, and cardboard, and the local schoolteacher lamented that too many youngsters wee working or begging instead of attending school. At an orientation meeting to introduce the concept of a microcredit bank, few residents took an active interest in the proposal. The people of this community had given up all hope of changing their situation.

In that same neighborhood, two years after the program opened, cement block houses stood among the shanties, and the community's teacher was excited because more children were attending school. The borrowers wee proud of their businesses and home improvements. One weekly meeting was lively, as the members celebrated their successful lobbing of government officials to have electricity brought to their area. Some borrowers volunteered to dig holes for the utility poles, and others offered to provide refreshments. They concluded their time together with a discussion of how electricity would improve tier businesses. One woman planned to use her next loan to buy a refrigerator so she could sell milk and mea in addition to break and soap. A carpenter predicted that he could more than double his production with a power aw.

Instead of resigning themselves to remaining poor and being fearful of sliding deeper into poverty, these successful borrowers made the decision to improve their lives. Before they experienced the power of credit, the people of this Managua shantytown would not have dared to approach a government official for the electrical service they needed and wee entitled to receive. The villagers would not have dug holes for utility poles, because they would not have believed poles would arrive. Nor would they have planned refreshments for the volunteer diggers, because they would not have had enough food.

Over a two-year span, the people in that microcredit program in Nicaragua made the mental move it no the middle class. They still did not have running water, and most of their floors remained nothing but packed dirt. When they had transportation, it was usually a donkey. But the progress is unmistakable. In the past, the next generation had no reason to expect they could improve on their parents' lot in life. Now most o the children receive an elementary education, which is a solid middle-class achievement by local standards.

Success is changed lives

In The World Is Flat, Thomas L Friedman observes that when people have hope, they are in the middle class. "They have a pathway out of poverty or lower-income status toward a higher standard of living a better future for their kids. You can be middle class in your head whether you make $2 a day or $200, if you believe in social mobility -- that your kids have a chance to live better than you do -- and that hard work and playing by the rules of your society will get you where you want to go."

While receiving a yam as a hospitality gift may seem incidental to us, in the context to the poverty of the developing world it represents an enormous generosity that is humbling to experience. For people who have long lived without enough to eat, the opportunity to show their gratitude with such a small gift represents considerable progress. Some of the most crucial benefits of microcredit are far more than financial and cannot be measured on a balance sheet.

The true benefits are dignity and self-esteem, along with respect for family and community. Microcredit enables people to become givers, not takers. Microcredit should not be seen as charity but rather as the opportunity poor people need to build a decent life. Through microcredit, donors can shed the old hand-out mentality and become true partners in progress with the people of the developing world.

Excerpted from: A Billion Bootstraps by Phil Smith & Eric Thurman.

Copyright 2007 by Phil Smith & Eric Thurman. Price: Rs 495. Reprinted by permission of Tata McGraw Hill Publishing Company Limited. All rights reserved.

Phil Smith is an active philanthropist who writes and speaks under the banner Practicing Significance. Smith is the former CEO of Prize Energy Corp and Tide West Oil Company. Eric Thurman is the former CEO of Opportunity International, Hope International, and Geneva Global Inc.