Monday, March 03, 2008

Beating Poverty

“He looks at a poor person and sees a potential entrepreneur.”

Has there ever been a time when poverty didn’t exist? Even Jesus said, “For ye have the poor with you always, and whensoever ye will ye may do them good…” (Mark 14:7). Although we may never be able to conquer poverty in general, the Scriptures are also replete with admonishments to help the poor. For a believer, the question is how that can best be accomplished.

The traditional method of simply throwing money at the poor has its shortcomings. Nobel Prize winner Dr. Muhammad Yunus says in this Wall Street Journal interview that the “dollar has only one life” in philanthropy; “you can only use it once….” His solution is to introduce an element of capitalism. When it comes to truly helping the poor, Yunus claims, “income is the best medicine.”

Dr. Yunus has been at this for a couple of decades. He has created a profitable banking business based on making microloans to the impoverished, aiming especially at women (because women tend to use the funds in ways that benefit the family better than do men). Grameen Bank lends small sums to poor women for small business ventures. And they repay at the rate of 98%, even though the interest rates are not low, collateral is nonexistent, and legal documentation is nearly nonexistent.

“Social business” is what Yunus calls his business model. He describes it “as "cause-driven" rather than profit-driven.” The “social business dollar has endless life, it recycles. And you build institutions,” says Yunus. “When it's an institution you bring creativity into it. You bring innovations into it. You bring continuity into it.”

Philanthropy is best employed in extraordinary situations, suggests Yunus, rather than in dealing with everyday poverty. For that you need a business proposition. Then, Yunus claims, “immediately you become concerned about the cost, about the revenue, the sustainability, the surplus generation, how to bring more efficiency, how to bring new technology, how to redesign, each year you review the whole thing . . . charity doesn't have that package.”

Yunus has no problem with a traditional profit-based approach to business. He simply offers another option. He seems to be all about freedom of choice and expanding options. He does suggest, however, that the reason for the current woes in the subprime lending industry can be boiled down to shoddy business practices and getting too greedy. “They have the collateral, they have the lawyers, they have the entire legal system behind them” he says, “But they still could not protect themselves.”

The entire article is really worth reading. One of the main points that I garnered is that there are ways to empower the poor so that they generate income and lift themselves from their current desperate condition. It starts by seeing their potential to do much more for themselves than they are currently doing and then working to enable that to happen.

Many of our anti-poverty programs treat the poor as if they are incapable of changing and improving. It should not be surprising that they remain poor. But there are ways to create mutually profitable situations that actually help the poor achieve and learn how to stop being poor. Those kinds of efforts are worthy of our support.


David said...

Two of my favorite examples of this philosophy at work are the LDS Perpetual Education Fund (PEF) - giving loans to people in poor countries to lift themselves out of poverty by helping them get an education, and - giving micro-loans to people in poor countries who need a little help in starting or expanding their businesses.

The thing I like about both of these programs is that they help people help themselves, they seem to make good use of philanthropic resources, and they each allow anyone to participate in helping out. Anyone can donate any amount to the PEF. And anyone can donate any amount over $25 to a specific recipient of your choice on Kiva with no need to fund their entire need - multiple people can give their $25 (or higher) contributions until a person's request is met. You can communicate and offer encouragement to the recipient of the loan and you can then reuse your money for some other project when it gets paid back.

Jesse Harris said...

Nearly 250 years ago, Benjamin Franklin observed the same thing: Britain's system of "the dole" was a way for the wealthy to assuage their conscience about poverty while leaving the impoverished in their current state. Amazing how a lesson so old has been so easily forgotten.

I loved the idea of microloans the moment I read about them. It's the perfect way to give real and lasting help that builds up those nations instead of leaving them perpetually dependent.