"Without micro-credit, poor people would not be able to participate in globalization. The big question that everyone asks is, yes or no to globalization. For me, this isn’t the question. The real question is a good globalization versus a bad globalization."
Such was the perspective of Mohammad Yunus, the Bangladeshi economist who invented The Grameen Bank, or The Poor People’s Bank. This bank involves lending small amounts of money to economically challenged people who want to start up their own community projects or businesses. The transaction is based on trust and word of mouth; there are no signatures or paper work. The idea is to infuse confidence into the lending process and empower the borrower.
Yunus developed this lending process after observing that poor families, especially women, could not receive credit by using the traditional financial banking system. He realized that many poor people were living in a viscous cycle that would not allow them to escape from poverty. Many were creative and had a huge capacity to work and produce, but because of their poverty and a lack of credit, they were unable to rise above their situation.
The loans had very low interest rates (2%) and were for, as Yunus explained, "the poorest of the poor." He believed that the desperation of these people was so great that when they had any opportunity, they would make the most of it. The system was highly successful in his country and later spread internationally. It is now practiced in Africa, Central America, Asia and the Caribbean.
When Nestor Kirchner became the president of Argentina, his administration began a lending program based on this system. Pupi Palero and Fernando Mastrantonio work as representatives of this bank in a poor neighborhood on the edge of Mendoza, a city with a population of roughly one million in western Argentina.
"Major financial institutions are based on a lack of confidence," said Palero. "In order to get a loan you have to have documents about your house, your property and sign everything. The loan system we’re working with is based on confidence."
In Mendoza’s Poor People’s Bank, when people want to borrow money, they have to create a group of five people who promise among themselves that they will pay the loan back. After the group is formed, they meet with Pupi and Fernando once a week for a month until the loan is given out. During this time, the members discuss how they will carry out their projects. It is also a time for the people in the group to get to know each other.
"This system gives the people in the neighborhood the power to decide what needs to be done with the money. It is organizing from the bottom-up; they know what needs to be done because they live in the neighborhood and know the community," Palero explained. "We never say no to a project. If it needs more work, we give advice, but we never say no."
The amount of the loan starts out at 300 pesos, which is roughly 100 US dollars, and the loan is paid back in twenty-four weekly installments. If the loan is paid back in time and the project goes well, more money is lent after that. Projects often include starting up small businesses or improving the ones already existing. Some people in the groups were starting kiosks; others made clothing, another baked bread and sold it to other women who then distributed it at their kiosk.
Barrio Favorito
I accompanied Pupi and Fernando on a visit to a poor neighborhood in Mendoza called Barrio Favorito. Many of the houses in the neighborhood were shack-like and densely packed into a labyrinth of narrow, garbage strewn paths and roads. "The land these houses are on was taken over roughly twenty years ago, and still no one pays rent to live on it. The electricity is all pirated, but the water and gas is paid for," Palero explained.
All of the groups they have worked with so far have been women. She attributed this to a variety of factors. "Nearly half of the women we work with are single mothers, and they have to look out for their children, so they are thinking about the long term more than men and often they are better administrators."
The group we met with called themselves, Las Mudas, or The Deaf People. The name is a joke because they all talk constantly. When Palero handed out the money, everyone began cheering and clapping. It was the culmination of weeks of work, meetings and details.
As one of Las Mudas explained, "I have two kids, no husband and I have to pay someone to watch my kids. I also have to work and study because I went back to school. I receive a subsidy from the government, but it is not enough to live on."
"More than the commercial and economic success of the person, the best part about this work is reinforcing social connections and dignity," Palero explained. "A person without work, who is living off government subsidies, loses dignity. We are helping to rescue the dignity and the pride of someone who realizes they can work again. This project also organizes neighbors and helps them get to know one another. It is hard to find good groups because of individualism – capitalism promotes cultural individualism. People have lost confidence in their neighbor. The idea with this project is to recuperate the confidence in the other."
Benjamin Dangl is the editor of UpsideDownWorld.org. Click here to read more of his articles.