Nobel Peace Prize winners should get economics prize too

Nobel Peace Prize winners should get economics prize too

These Nobel Peace Prize winners should get the Nobel in economics as well. A Bangladeshi economist and the bank he founded won the Prize for pioneering microcredit loans in the Third World. The concept is that rather than giving handouts to poor people that meet short-term needs, but doesn’t lift them out of poverty, instead they give them small loans that help them get started in a business or job. These loans are often $100 or less, which goes a long way in the economies of these poor countries. Then the loan recipients pay the loan back at very favorable rates, which builds up their self-esteem and confidence, as well as the local economy.

Very often the loans are given to war widows or refugees or people struck by natural disaster. And because of the economic multiplier effect, these loans have an economic impact far greater than just giving the money or equivalent food aid would. In fact, we had several stories in Catholic World Report on micro-credit efforts in Asia and Africa (although I can’t find them easily at the moment) and it’s a very good thing. Several Catholic aid agencies are trying it in the areas rebuilding after the tsunami a few years ago.

“Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty,” the Nobel Committee said in its citation. “Microcredit is one such means. Development from below also serves to advance democracy and human rights.”

Grameen Bank was the first lender to hand out microcredit, giving very small loans to poor Bangladeshis who did not qualify for loans from conventional banks. No collateral is needed and repayment is based on an honor system. Anyone can qualify for a loan — the average is about $200 — but recipients are put in groups of five. Once two members of the group have borrowed money, the other three must wait for the funds to be repaid before they get a loan. Grameen, which means rural in the Bengali language, says the method encourages social responsibility. The results are hard to argue with — the bank says it has a 99 percent repayment rate.

This is how the Church’s teaching on social justice and economic systems can really mesh. I wish more Catholic aid groups would see this.

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  • A fine choice.

    I’ve long wanted to dive into the details of microfinancing, but haven’t had the time. In the past I have wondered why the loans generally go to women. Are the men poor investments? Are they already in a position where they don’t need such loans?

    Also, are there microcredit organizations working in the US, or is it economically prohibitive?

    I’ll have to find the old CWN articles.

  • If anyone’s interested, you can make these sorts of loans to many potential 3rd world entrepreneurs at:

    It’s not charity, you really get paid back (much less chance of default than giving a similar amount to your brother-in-law!) and then you can circulate the money to a new business.