Necessary Roughness

The Nobel Peace Prize was given today to Dr. Muhammed Yunus, founder of Grameen Bank of Bangladesh.Grameen Bank has been making small loans with low interest rates in an effort to get people out of poverty and into entrepreneurship. BusinessWeek has details:

Since its founding in 1983, for-profit Grameen Bank has lent more than $5.7 billion to over 6.1 million borrowers, 97% of whom are poor women, to help them establish small businesses and become self-sufficient. The default rate has been around 1%. An estimated 100 million people, including about 70 million people who were living at a dollar a day or less at the time of their first loan, are expected to participate in the movement by the end of this year, according to the Microcredit Summit Campaign, a group of supporters that in 1997 set the goal of reaching 100 million of the poorest families with microcredit by the end of 2005.

This is way cooler than just handing out money to poor governments. People are more likely to protect livelihoods and property that are earned instead of given. This seems to be a Nobel Peace Prize that is well deserved, in contrast to the IAEA, Kofi Annan, and others.

An interesting thing about Grammen Bank’s microcredit is that it uses peer groups to keep people honest. I can’t locate the article, but I had read that groups of five people were organized, and if two people had borrowed money, nobody else in that group could borrow money. That’s a nice incentive.