14 October 2006

Noble Peace Prize for Making Loans?

Muhammad Yunus won the Noble Peace Prize. He has pioneered the use of micro-loans as a way to fight poverty. His is a brilliant idea that deserves the additional focus that it will get now that he's been made famous by the Scandinavians.

Yunus's idea is simple. Rather than offer charity to the poor, offer them credit. In a typical loan, he'll give a woman enough money to buy a sewing machine or cow, just enough capital to enable her to begin working for herself rather than working for subsistence wages. These women are able to pay back the loan while still generating more revenue than they made as employees. Some have gone on to what their village might consider moderate affluence. Nearly all are in better financial shape than before they received the loan.

Poverty can be mitigated but sustained by charity. It can be ignored by free markets. Much better that policy be used to invest in people who haven't the means to invest in themselves. This breaks the cycle of poverty and what Yunus has done is shown that access to credit is as important to this process as access to education or health care.

As mentioned earlier in this blog, one of the most transformative forces of the 20th century was the extension of credit to a wider and wider swath of the population, the popularization of credit. How wonderful that the world community will be given more reason to consider access to credit as much a right as education or health. In a market economy, as all the world is fast becoming, access to financial markets is key to freedom, to autonomy. In 20 years, it will be considered a right. Noting its importance in making the world a more peaceful place, the Noble Prize Committee has shown itself a visionary group.

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