Foreign Policy Blogs

Alleviating Poverty with Microlending

Often referred to as “banking for the poor,” microcredit programs provide collateral-free small loans to those too poor to qualify for traditional bank loans.  Originating in developing countries, microcredit has provided a successful model for enabling impoverished individuals to engage in self-employment projects to generate income.  It is part of the larger microfinance movement, and often focuses on lending to women, who have shown to be more reliable in repaying the loans and also more likely to devote their earnings to benefit the entire family.

Two organizations, BanComun de la Frontera and Grameen de la Frontera, focus on microlending in Mexico's northern regions.  The latter is named after the famed Grameen Bank in Bangladesh, which is credited with developing the microcredit model that is now widely replicated worldwide.  BanComun loans, which range from just $50 to $800 per person, have reached over 1,500 residents in the poorest neighborhoods of Nogales.  Approximately 85% of the clients are women, and the program has a 95% repayment rate.  BanComun is expanding to other cities including Juarez and setting up a social investment fund that will allow people to help finance the socioeconomic welfare of its clients. 

Meanwhile, the Dallas-based Chiapas Project has helped more than 4,000 impoverished women in the state of Chiapas, through a partnership with Alternative Solidaria. The loan repayment rate has been 98%, encouraging organization leaders to further expand their reach through the Grameen Foundation. According to the Chiapas Project, with loans as small as $50, women can buy chickens and sheep to raise, plant trees to produce and sell fruit, purchase a corn grinder to make tortillas for the market, or buy cloth to create and sell handicrafts. The hope is that through microfinance, women such as those in Chiapas who typically live on less than $2 a day, are able to earn the income necessary to rise above poverty.