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Human Creativity and Commitment

I discussed Unitus and an interview with its Chairman, Mike Murray by Robert Scoble in a post yesterday. While the interview with Mike was enlightening for many, based on some comments it also raised several questions about micro-credit. What I think the interview communicates best, and why I mentioned it, is the leadership and innovation that Unitus is providing in addressing this important cause.

Unitus, as Mike suggests, is applying proven business principles such as “Innovation, best practices, good IT thinking, good management thinking” to the non-profit space. These are principles that Mike and others developed as executives at Microsoft, Apple, etc. They know from which they speak.

He calls Unitus a micro-credit accelerator because they are taking the principles of microfinance that have been around for several decades and are as he says “stepping on the gas pedal.” Their goals are ambitious but based on some excellent and proven data.

“Why lend these people money at 20%? Why not just give them $100?” 

Micro-credit is all about economic self-reliance and empowering an individual to lift herself out of poverty. This principle of sustainable self-reliance, more than any amount of money, changes people. It applies the laws of capitalism and free-market economics to the problem of third-world poverty where some form of socialism has been the norm. In the case of micro-credit, debt acts as a strict taskmaster that extracts fiscal discipline of this new entrepreneur. The lenders can’t be there to monitor the borrower like in traditional credit markets that we are familiar with in the U.S. 

“Isn’t an interest rate of 20% to 30% excessive?  Why doesn’t micro-credit charge interest rates at lower rates like those we see in traditional banks?” 

Simply put, since none of us are living in a third world country subsisting on $2 per day, there is no point in trying to think about this problem in “traditional terms.”  Nevertheless, let me try and explain.  First of all, how many traditional banks would lend $100 to someone with no assets, no education and no income? Answer - none. Secondly, these rates are generally in line with credit card rates within these countries.  And thirdly, and most significant, the cost of micro-credit loan service is substantially higher than a traditional bank. 

For example, a "loan officer" has to travel to the village once a week to collect and distribute funds.  A large microfinance institution may service thousands or even millions of loans and the average loan amount might be around $100 each.  To make this concept work, microfinance institutions must be sustainable (read profitable), so they can continue to serve the vital lending function and continue to provide loans and an escape from poverty.  If institutions are dependent only upon donations, there may be a year when they don't get enough to cover their costs, they disappear and the poor are left without access to credit.

A 20% interest rate has allowed Grameen Bank, to grow to where it has over 5 million borrowers (96% women) in 55,000 villages.  Grameen is completely sustainable and does not need to ask for government handouts or charitable contributions.  By collecting interest, Grameen is around year after year to loan out over $3 billion in loans.

The obligation to repay and the social stigma of default works. Repayment is either unsecured or at times secured by mutual guarantee from all micro-credit participants in the village. The social construct of these villages and the obligation of a villager to the community, particularly among women, are so powerful that default rates are surprisingly low relative to the risk. Grameen Bank enjoys a loan recovery rate of 99.02% - from the world’s poorest citizens. That is unimaginable in our society of bankruptcy and overextended credit.

Microfinance is about increasing sustainable income and reducing vulnerability. It is about empowering individuals, especially women, to confront the inequities of the structures that produce and reproduce poverty.

Unitus and their acceleration of micro-credit programs confront the seemingly overwhelming 4 billion that live on less than $2 per day, one potential entrepreneur at a time. Changing the lives of individuals improves a village, and then a region, then a nation. 

Coincidentally, I was reading yesterday in my alumni magazine from the University of Chicago GSB and noted that they had sponsored a Microfinance conference . I guess it is no surprise that the birthplace of modern finance is studying the effectiveness of microfinance.

I believe that human creativity and commitment are our greatest resources against poverty. Unitus’ effort to accelerate micro-credit across the globe and bring the concept to the light in the U.S., particularly in the tech community, is admirable leadership.

6 Comments/Trackbacks

Self-reliance changes people, says Hal, "more than any amount of money." As a good leader lets individuals choose whether to follow, so microcredit encourages them to embrace financial independence. Conscious of their lenders' generosity, many responsible borrowers do likewise to others, thereby perpetuating the spread of self-reliance and paving the way for global prosperity.

The Economist just published a survey on microfinance. Here is a link to the cover article.


It is amazing how good principle allows even helping the poor to be charitable, as well as efficient and profitable for everyone.

Greg - awesome link. Thanks for the guidance. Did you check out my experience at U2 concert at the Staples Center?

I did. I'll post a comment.

(By the way, that last sentence in my earlier comment didn't come out like I meant it to. I hope that is apparent enough.)

» Distribution Revolution from Know More Media
We have talked about the democratization of media often and the opportunity that technology affords anyone to contribute a voice, an opinion or viewpoint. We believe this is a fundamental change in how companies can engage customers and potential custo... [Read More]

» Women Leading Out of Poverty from LeaderNotes
There is increasing press on how women are leading the third world out of poverty. I have mentioned micro-credit before and the power it has to alleviate poverty through education, business training and small loans to women entrepreneurs in India,... [Read More]

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