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Show MlGROGREDIT IN INTERNATIONAL DEVELOPMENT Jeff Merchant concepts of modernization and expanded by Western scholars; a school of thought which saw development as a linear path leading from the backwardness of "traditional society" towards a modernized "age of high mass-consumption" (Rostow 1991). This "orthodox" view of development was popular throughout most of the 1950s and 1960s, creating the rationale for international aid. Aid flowed from developed nations like the United States to the "less developed" nations throughout the world, since they were "helping" those nations that could not help themselves (Dickson 1997). Traditional aid led many developing nations to reject notions of orthodoxy, arguing developed nations had taken advantage of them. For example, one school of theorists rejected the entire international system, which they believed forced a dichotomy between the developed and the developing. Rather than a linear path, these theorists saw development as "a world system composed of a developed center or core and an underdeveloped periphery" (Dickson 1997). The core created manufactured products from raw materials provided by the periphery. Raul Prebisch, the chair of the Economic Commission of Latin America (ECLA), argued that industrialized countries have greater economic growth than developing nations, because developed nations take cheap raw materials from poor states, and then sell expensive manufactured goods to them (Baer 1962). Eventually, this unequal exchange, leads to a wider economic gap between the core and the periphery (Dickson 1997). Some theorists took this concept a step further, arguing that the capitalist system forced underdevelopment by its "persistence of commercial rather than industrial capitalism in the underdeveloped world" (Frank 1966). They rejected both modernization theories and the theories initially created by Prebisch and the ELCA, arguing that neither took historical factors into account nor addressed the overall economic theory used by the international system (i.e. capitalism). Additionally, these critics abandoned the notion that there was one universal theory that could apply to all cultures (Amin 1972).1 Currently, development debates center on new neo-liberal concepts of political economy. Today's theorists deny two mainstream concepts in development theory: first, that the developing world constitutes a "special case" and needs to have special considerations, with particular policies and economic theories; and second, that the nation-state should play a key role in economic development. Modern theorists instead embrace the notion that neo-liberal concepts of development have been affirmed by the continued dominance of globalism in the economy. Globalism is defined as "the idea that, through a series of mechanisms, the world has become more closely interconnected, and by implication that it will continue to become 1 That is, they understood that people in Pakistan lived completely different lives than Germans, and that holistically speaking, their customs were almost always incompatible. more closely interconnected...Globalization [is] a qualitative change in the nature of social activities, linkages which are of an intensity never before experienced" (Dickson 1997). Because capitalism is self-propelling, neo-liberals believe that capitalist elements of globalism will push money and resources into and out of every country, so long as they participate in the international market. Because prevailing theories advocate that developing countries no longer need special attention, many policies today that are based on traditional theories are beginning to seem out of place. MICROCREDIT DEFINED It is within the context of the neo-liberal model of international development that this discussion will consider micro-credit. The concept of microcredit was born in 1976 when Bangladeshi economics professor Muhammad Yunus loaned $27 to 42 very poor people (about 64 cents each) in the village of Jobra (Burritt 1997). The people in the village made bamboo stools. In order to get the needed supplies, they had to borrow money from loan sharks at exorbitant interest rates. By extending credit to those rejected by traditional banks and financial institutions (i.e. the poor without collateral, the illiterate, and women), Yunus not only helped these people pull themselves slowly out of poverty by giving them the resources they needed to start small businesses, but he also got his money back. Eventually, Yunus was able to form the Grameen Bank, the world's most famous microfinancing institution (Guzzetta, Lusk, and Stoesz 1999). In a very loose way microcredit, microfinancing, and microenterprise all refer to the same notion: the practice of extending small loans to the poor, usually in the amount of $50, $100, or $300 to help establish a small business or enterprise (Ihle 1997). "It [microcredit] is firmly embedded in the notions of self-reliance and concepts of free-market capitalism" (Ros-Lehtinen 1997). Microcredit is identified by certain characteristics. First, it is informally structured, which is essential to meet the needs of the poor (Johnson and Rogaly 1997). Second, its funds are loaned to the poorest of the poor, the bottom 50 percent of people living under the poverty line in a particular country (Gibbons and Meehan 2000)2. Since these attributes are able to attract people who have no where else to go but up, they have helped make microcredit a success. The New York Times recently reported about a microcredit program the United Nations is pursuing in Madi, Kyrgyzstan. In this community, the poorest of residents once scraped to keep their families from dying of malnutrition or exposure. When microcredit was introduced to one woman in this community, she was able to buy a few hens. Over time, the woman sold the eggs produced by these hens, and 2 Gibbons and Meehan use the Microcredit Summit's definition of the "poorest" families, as those who live in households with incomes that place them in the bottom 50 percent of the people living below the poverty line as defined in each country. Those in the top 50 percent under the poverty line are deemed "poor." |
