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The microcredit revolution

How small loans to people in poverty are empowering women and transforming local economies around the world.
By Dorothy May Emerson
March/April 2005 3.1.05

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We hear a lot about the growing divide between rich and poor. We might get the idea that the situation is hopeless, that we are doomed to live in an increasingly divided world. But there is a significant countervailing force at work around the world to overcome poverty and transform local economies toward justice. From villages in India to urban centers in the United States, this movement is changing people's lives step by step, bringing hope and renewal to families, communities, and ultimately, the world.

This effort goes by several names: microfinance, microlending, and microcredit. The people who benefit are called microentrepreneurs. Support comes from individuals, banks, religious organizations and other nonprofits, foundations, governments, and the World Bank. Donors, investors, and people who work in this field are motivated by a vision of a world where the devastating effects of poverty "no longer cripple the chances of individuals and families to sustain themselves, thrive, and contribute their talents to the world in which they live—where all people have a fair chance at success," in the words of the grass-roots advocacy organization Results.

Increasingly, Unitarian Universalist congregations are embracing this vision and acting on it. It is a timely trend: The United Nations has proclaimed 2005 the International Year of Microcredit in an effort to raise awareness of its importance in the eradication of poverty. "The stark reality," U.N. Secretary-General Kofi Annan said in his proclamation, "is that most poor people in the world still lack access to sustainable financial services, whether it is savings, credit, or insurance. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. Together, we can and must build inclusive financial sectors that help people improve their lives."

Shari Berenbach, director of the Calvert Foundation, estimates that 10,000 microfinance institutions operate worldwide. These include thousands of small, locally based banks, cooperatives, credit unions, and nongovernmental organizations; nearly 100 networks that help the local banks; and large funding organizations such as Oikocredit and the Calvert Foundation. These organizations rely on both donations and investments. Most investments are made for one to five years at low, fixed interest rates. Some investors choose to receive no interest so their money can have more impact. Like mutual funds and stocks, these investments are not backed by insurance, but most established institutions report that they have been able to repay their investors.

In fact, lending money to people living in poverty is good business. Mark Malloch Brown, administrator of the United Nations Development Program, says repayment rates of up to 97 percent in some developing countries have been the envy of big banks and other financial institutions. "Indeed," Brown says, "we should not forget that most businesses everywhere start with just one or two people and grow from there—transforming economies all over the world."


Among the Unitarian Universalist congregations that have taken up the microcredit cause, two stand out: All Souls Unitarian Church in Tulsa, Oklahoma, and Main Line Unitarian Church in Devon, Pennsylvania.

Ten years ago All Souls member Betty Morrow attended a Washington, D.C., conference sponsored by Results, a grass-roots organization working to end hunger and poverty. There she heard Mohammed Yunus, founder of Grameen Bank in Bangladesh, speak about microfinance and learned about the Foundation for International Community Assistance (FINCA), which has organized a global network of village banks. Amazed to learn that it took only $5,000 to sponsor a village bank, Morrow returned home determined that her congregation should do just that.

Morrow got permission from the All Souls board to raise $10,000. The 1,100-member congregation had long been involved with Central America and decided to sponsor a bank in Managua, Nicaragua. In 1997 six members of the congregation traveled to meet the thirty Nicaraguan women whose bank they had funded. The women of "Miss Betty's Bank" take turns serving as officers and meet weekly in a member's home to collect payments and share successes and concerns. They track each woman's payments on a large chart. The first loans are for $100 and must be repaid over four months. In addition to making their monthly payments, the women are given an incentive to begin building a financial safety net for their families: Once the first loans are repaid, their next loan may be increased by the amount they have managed to save.

Morrow recalls a woman who was part of one of the first banks All Souls funded. She made beautiful dresses for little girls, which she then sold in the local market. Each dress took her a week to make, and she was constantly struggling to make ends meet. With the sewing machine and additional supplies she bought with her loans, she can now make twenty-five dresses a week. The money she earns has helped her family move out of poverty.

To date, All Souls has sponsored fifteen banks in Mexico, Nicaragua, Guatemala, and Haiti. The latest was sponsored by the church youth, who had fun organizing the fundraisers, reports 17-year-old Amanda Baker. "The kids at school are impressed," she says. "They know our church really makes a difference in people's lives."

All Souls now includes bank development in its annual budget. The Rev. Marlin Lavanhar, senior minister, explains how important the effort has become to the congregation: "It often comes up in the canvass and other fundraising as one of the tangible things we are doing that people want to support. And it has brought more men into the church, men who like dealing with finance and banking."

Main Line Unitarian Church began sponsoring village banks about the same time as All Souls. Its Latin America Task Force, begun during the sanctuary movement of the 1980s, had always focused on policy issues. But on a 1995 trip to El Salvador and Guatemala, the level of poverty astounded task force members. Mimi Collins decided to attend the first Microcredit Summit in Washington, D.C., in 1997, where she learned about village banking.

Now the task force holds an annual fundraiser toward their ongoing goal of sponsoring new banks. The first year FINCA founder John Hatch was guest speaker. The task force also sponsors trips to visit the banking groups. One trip included a three-day seminar on village banking at a retreat center in Ecuador. Thus far the 680-member congregation has sponsored four banks and is working toward a fifth.

Task force cochair Don Smith notes that many congregants have been drawn to support an anti-poverty project that is a business proposition and not a handout. Others are attracted by the fact that the money is lent to women. "When you give women access to money, they put food on the table and educate their children," Collins says. Many of the women bring their children to the banking meetings, so the boys get to see their mothers dealing with money, making decisions, and contributing actively to the family's financial well being, Smith reports from a recent visit.

Luz Diamantina Cáceres and her husband are two of the people FINCA banking groups have helped. Like many poor families in Tegucigalpa, Honduras, Cáceres and her husband worked hard operating a small business out of their home to support their family of five. Each week they could produce six dozen pairs of shoes, earning $500 per year, far below the country's average annual income per person of $904. Cáceres heard about a local FINCA community banking group called Milagro de Dios, or Miracle of God, from a neighbor and decided to join. Her first loan was $74. She repaid and borrowed four more times, buying important assets for her business: two industrial sewing machines, a polisher, and a used vehicle to travel to the market. Each time she was able to repay her loan and save, enabling her to borrow more the next time, for a total of $1,650 over five cycles. Cáceres's shoemaking business now has ten full-time employees, and her annual income has risen to $4,000. With access to credit, savings, and investment, she has been able to pull her family out of poverty.

Betty Morrow and Mimi Collins embody the answer to the often-asked question "What can one person do?" Both travel to speak, encouraging other congregations to get involved in the microcredit movement. One year they gave a UUA General Assembly program on village banking and sold products from their village banking friends. As a result, a total of twenty-five communities now have village banks sponsored by other UU groups: Saltwater Unitarian Universalist Church in Des Moines, Washington; First Unitarian Church of Oklahoma City; Bay Area Unitarian Universalist Church in Houston; the Unitarian Universalist Church of the South Hills in Pittsburgh; and the Southwest Unitarian Universalist Women's Conference.

Each successful small business, each village bank that is created, pushes the movement a step closer to the International Year of Microcredit goal: to permanently support the inherent worth and dignity of people in their efforts to create prosperity for their families and communities. When enough village banks have been established in a country, the creation of full-service banks with savings and checking accounts and larger loans becomes commercially viable. In Uganda, after twelve years and 40,000 village banking clients, FINCA was able to establish a nationwide community-focused banking industry. That is what it will take, country by country, to give people the tools to move themselves out of poverty.


Microfinance emerged on several continents at about the same time, in the 1970s. Each of these founding stories involves personal and institutional commitments to a vision—a vision that people who live in extreme poverty matter and that, given the tools, they can walk out of poverty on their own.

Grameen Bank. Generally recognized as the father of microlending, Muhammad Yunus, an economist from Bangladesh, led his students on a field trip to a poor village in 1974. A stool maker they interviewed explained she had to borrow at rates as high as 10 percent a week to buy raw bamboo, leaving her with only a penny profit margin for each stool. All she needed to rise above subsistence level, Yunus saw, was the ability to borrow at a fairer rate.

Yunus began lending his own money to craftspeople. He went on to organize them into small circles of borrowers. The circle members—mostly women who needed only a dollar or two of working capital to support their businesses—screened and guaranteed each other's loans, supporting each other through business difficulties. Yunus proved that lending to poor people could be good business and low risk, as long as they had a mutual support system. Weekly bank meetings—a key to the extraordinarily high repayment rates for microloans—also became a vital focus in the small businesspeople's lives, giving them reinforcement, knowledge, and dignity.

In 1983 Yunus founded Grameen Bank, which now has 3.4 million borrowers in Bangladesh and serves as a model for microfinance all over the world. "Grameen is a message of hope," Yunus says, "a program for putting homelessness and destitution in a museum so that one day our children will visit it and ask how we could have allowed such a terrible thing to go on for so long."

Acción. More than forty years ago, amateur tennis player Joseph Blatchford returned to southern California after a goodwill tour of thirty Latin American cities troubled by the poverty he had seen. Friends from law school helped Blatchford raise $90,000 from private companies to start Acción, a community development organization designed to help the poor help themselves.

Thirty volunteers began work in Venezuela in 1961, identifying community needs with local residents. They installed electricity and sewer lines, started training and nutrition programs, and built schools and community centers. Calling themselves "Acciónistas," they soon expanded into other Latin American countries.

But after a decade of development projects, Acción's leaders realized they still were not addressing the major cause of urban poverty: lack of economic opportunity. Each year thousands of rural migrants were moving to the cities, starting their own small enterprises such as weaving belts, making pots, or selling food. But they could not make a living. To buy supplies, they had to borrow at rates as high as 10 percent a day, locking them in a daily struggle for survival. Acción staff in Recife, Brazil, speculated that if these small-scale entrepreneurs could borrow capital at commercial interest rates, they could lift themselves out of poverty. They coined the term microenterprise and began issuing small loans in 1973.

Over the next decade Acción helped start microlending programs in fourteen countries in Latin America. Working with partner organizations, they developed a lending method specifically for microenterprises, without traditional loan applications. Using the Latin American concept of solidarity groups, they invited potential borrowers to join with four or five other people in their community who also needed loans. As with Grameen's borrowers circles, these solidarity groups guarantee each other's loans and help each other in their businesses. These new microentrepreneurs soon shattered the myth that they were bad credit risks. Given access to affordable capital, people who had been living in poverty were quite capable of improving their lives.

Oikocredit. At a 1968 meeting of the World Council of Churches in Uppsala, Sweden, a radical new idea was born: Why not develop some way to invest religious resources directly to reduce poverty, one of the major goals of the World Council? This question led, seven years later, to the founding of the Ecumenical Development Cooperative Society. The society would help people living in poverty achieve self-reliance by funding microfinance institutions in the poorest regions of the world, and it would mobilize religious institutions to invest.

Later the society's name was changed to Oikocredit, to reflect its mission: "to give credit to disadvantaged people in an attempt to build a more just society." Oikos is the ancient Greek word for "house," "community," or "world"—places where people live together—and forms the root of words like ecumenism, economy, and ecology. Credit comes from the Latin  credere, "to believe," a root meaning Oikocredit emphasizes: "Credit is an act of belief in people who deserve to be believed in."

Terry Provance, executive director of Oikocredit USA and former interim minister of All Souls Church, Unitarian, in Washington, D.C., explains: "Families are the building blocks of society. We need to establish right relationships between privileges and rights on the one hand and duties and responsibilities on the other, for all families. Only then do social justice and harmony for communities, nations, and the world become possible."

Today Oikocredit makes loans to microfinance institutions in sixty-seven countries in Africa, Asia, and Latin America, which are then divided into thousands of microcredit loans. Some of the local banks are in areas devastated by the Indian Ocean tsunami, and microcredit will be important as people there rebuild their lives. According to the World Bank, Oikocredit is the world's largest source of private funding for microfinance, with investments of more than $80 million.

Acción USA.The need for small loans at fair rates exists in developed countries as well. Microentrepreneurs and small business owners in the United States often face significant barriers: bad or no credit history or a loan request that is too small for a bank to bother with.

Reversing the usual direction that financial expertise flows, Acción International brought its Latin American microfinance experience home in 1991, adapting its lending model to the very different social and economic context of the United States. Most microloans in the developing world start at $50 to $100, compared with initial loans of $500 to $1,000 in the United States. And with no tradition of solidarity groups that accept responsibility for each other in the United States, loans are usually made directly to individuals.

Many community development financial institutions in this country offer microloans in addition to larger loans for housing and community services. These banks, credit unions, and loan funds usually provide technical assistance and support groups for borrowers. A growing number of UU congregations have investments in these institutions that are matched by investments from the UUA.

Today, Acción USA is the largest microlender in the country, operating in thirty cities and towns. Directed by Bill Burrus, a Unitarian Universalist and former director of Acción International, its mission is to provide permanent access to credit for small business owners. Since 1994 it has disbursed more than $100 million in loans to more than 10,000 small business owners in the United States.


The Unitarian Universalist Association has a long history of support for community investing as one of the important practices of socially responsible investing. The UUA currently invests more than $1.5 million of its endowment, more than 1 percent, in microfinance and community development funds in the United States and around the world. The UUA's goal is to invest up to 5 percent. One way it is moving toward that goal is offering to match congregational community investments of $2,000 to $10,000. Here are some examples of UUA community investments:

  • To support microfinance institutions worldwide, the UUA invests in Oikocredit.
  • As a followup to its antiapartheid divestment in previous decades, the UUA now invests in Shared Interest, a fund that finances black-owned South African enterprises.
  • Continuing its long-term financial support for communities of color in the United States, the UUA invests in Self Help Credit Union, which provides microloans for low- and moderate-income women and rural residents in the South.
  • In support of indigenous people, the UUA invests in First Nations Oweesta Corporation, whose mission is to enhance the financial capacity of Native communities and to provide capital for Native development efforts.
  • The UUA also invests in two pooled investment funds that support a wide variety of microfinance and community development programs: Calvert Foundation and the National Federation of Community Development Credit Unions.

The Rev. Meg Riley, the UUA's director of advocacy and witness, is a big fan of microfinance. "It allows Unitarian Universalists to take seriously how wealthy we are," she says. "Too much of our social justice work is predicated on a lie—that we are marginalized and underprivileged. In global terms we are outrageously wealthy, considering that nearly 1.2 billion people—that's one-fifth of the earth's population—live on less than $1 a day."

Joan Cudhea, chair of the UUA's Committee on Socially Responsible Investing is also enthusiastic about the new movement. "The field of microfinance is immense and growing, and we need to know more about it," she says. "This is such an opportune moment, with the United Nations focus on microcredit this year. Besides, this is a topic both Republicans and Democrats can agree on."

By supporting the microfinance movement with investments, donations, and energy, Unitarian Universalists and others are putting their resources to work in a revolution against poverty.


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