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Another great Microcredit Conference, Victoria B.C.
Category: Microcredit | By VMC-2011, 22-Mar-2011 | Viewed 8393  Comments 0
Victoria, British Columbia, Canada
Wow where does one begin to report on yet another great microcredit conference — this time in Victoria B.C. It must be so that it is best to start at the beginning. Phil Smith, co-author with Eric Truman of A Billion Bootstraps was the Friday night key note speaker. As a wealthy oil man from Tulsa Oklahoma, Phil led off with a thought provoking summary of the merits of microcredit. Some of his quotable remarks from A Billion Bootstraps used during the evening were: that the poor did not create poverty; the poor are not a problem to be solved, they are human beings with feelings; and charity is not the solution to poverty. Credit, he said, is borrowing from the future while savings involve borrowing from the past. Focusing on poverty he told us was very different from focusing on business.

Using some home spun logic Phil said he liked the work being done by microcredit entrepreneurs because "that's what I would have done". One example offered by Smith involved an encounter in a Russian bus station. Packages were coming off the people bus rather than people. It was explained to Phil that merchants in this town had decided to hire one businessman to bring in all of the merchandise (in this case arriving by bus) allowing the merchants to focus on what they did best - offer their wares in the market. 

Turning to the recent controversy with Grameen Bank in India Phil noted that politicians are renowned for wanting to have the poor in their pockets. Don't repay the loans the country's leaders told the borrowers ignoring or worse manipulating the countries long term good. In that instance the poor became a political football. Phil says that as everyone observing microcredit in the field knows, -microcredit works.

Grameen Bank's assets which total about one Billion USA Dollars are something that any developing country's politicians would like to have under their control. The action of challenging Dr Yunus and encouraging the poor not to repay loans results in banks failing but the poor still require loans. Phil asked whom do you think stepped in to loan the money, not the government but wealthy individuals often the same folks that made large contributions to political candidates.

Interest rates shot up to as much as 20% per day and non payment could mean physical punishment or extracting from members of the family extra duties often in the form of child labour. Thus abuses of the poor arise from a variety of circumstances.

In the USA a foreclosure rate of 3% would be higher than desired but it would be no reason for the government to force mortgage companies to quit making loans. Why Phil asked would the government of India feel compelled to make such a call?

Interest rates were explained as ranging between 25% and 45% depending on the political risk and inflation, amongst other factors. This interest payment must cover the cost of loan administration and procurement of new funding. To make the point that one could judge the relative interest of the microcredit institutions by the amount of the interest / profit which was recycled in the community. 

In the Middle-East Phil opined that the unrest is due to more than one factor. Global access to information via the internet is transforming people's aspiration particularly about better / more democratic government. High unemployment is less acceptable in light of global possibilities — a little like Aristotle's famous quote that poverty is the parent of revolution and crime.

Microcredit works less well in the developed world Phil said because here, the assumptions of microcredit don't fit. In the developed countries, it is necessary to subsidize overhead because we can't cut the cost on loan repayments. Also, in USA the driver of change — technology — actually creates less community, anathema to the strength of microcredit in the developing countries. People here are less willing, Phil says, to co-sign for others. 

In many situations here, a potential borrower doesn't know 8 people that would co-sign for a loan. And still there is no collateral.  Time is critical for the poor. Borrowers will repay their loans over the computer or cell phone and not attend the business training meetings. Phil summed up the difficulty of the evolution of microcredit in the developing world when he said the focus on poverty is not the same as the focus on business "they are doing what I would do".

For a more fulsome review of the 2011 Victoria Microcredit Conference visit: http://www.microcredit2011.org/

Steve Rickard, Founding President
Rotarian Action Group for Microcredit
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