Microcredit still sowing the seeds of success

Recently, I went to bed feeling like a frozen corpse. I was up in the Himalayas, not dressed for the occasion. Fortunately, the little hotel in which I lodged provided its guests with duvets almost half a metre thick. Once awake in the morning, all was forgiven. I was in the Ganges valley in the foothills of the Himalayas. From where I stood, it was a mighty drop to the river. I was spellbound.

I came to see a project run by the UN agency the International Fund for Agricultural Development, in the Indian state of Uttarakhand. Twenty-five years ago, they invited me to go and see the then budding Grameen Bank in Bangladesh. I was the first international journalist to write about it.

After transforming Bangladesh, Grameen has spread the idea of microfinance all over the world. Microfinance, dreamed up by Muhammad Yunus who later won the Nobel Peace Prize for his efforts, operates mainly through women who form cells of seven or eight. With a seed loan from outside, they each take small loans to start some enterprise - a shop, for example - or to buy a couple of cows and start selling milk, or to start growing ginger as a cash crop.

They borrow at 25 per cent interest, which is a quarter of what some moneylenders charge. They have to repay the loan on time to their group and then, if everyone is willing, they can take up a new loan. In the project I have just visited, the default rate is a low 10 per cent.

There are 42,000 families living in around 1,000 villages in the area covered by this project, most of them living high up with only footpaths for access. In the cluster of villages I visited, 80 per cent of the households are members of the project - there are a few men, but Grameen has always worked with women as they are less spendthrift than the men and are usually the ones who do the agriculture while the men go to the cities to find work. Young women who have been trained for the task visit the remote villages on foot starting these groups, giving them the advice they need, including agricultural and medical support, and providing seeds or a cow or whatever it is they want to buy with their loan.

Sarojana Devi got a microloan to build a rain harvesting tank to collect water for irrigation. This year, she irrigated her apple crop and grew 102 cartons of apples. Her income was 9,690 rupees (HK$1,620) of which 6,000 rupees was profit.

Bal Krishna, who lives in an area unsuitable for cultivation, took his first microloan to buy 1,000 immunised chicks. Before he started, he had been sent by the project for a training course on poultry rearing and the project contributed 60 per cent of the cost, as seed money to get him started. After a month's hard work, he was able to earn a profit of 2,800 rupees.

Champa Devi grew ginger. She bought seed at 20 rupees per kilogram, and sold the harvested ginger for 30 rupees a kilogram. Altogether, her crop was worth around 15,000 rupees - a good income for a woman who had no cash income before. She was able to repay her loan and later take another. Others in her group are following in her footsteps.

Microfinance has had a bad press lately because of a new breed of for-profit micro-lenders in Andhra Pradesh. Local politicians jumped on the lenders demanding that they lower their interest rates. It brought the microfinance business in the state to a halt. But how many reporters have bothered to look at the hundreds of successful projects in other states? All have been tarred with the same brush. It is the fashion to slam aid and that, combined with reporters' propensity not to do their homework, has misrepresented the situation at large.

Don't anyone tell me that aid doesn't work. It all depends on how it's done. And you can see it at work high in the Himalayas.

Jonathan Power is a London-based journalist