October 14, 2007
By Ileana Ros-Lehtinen

Americans have always believed that they have a duty to share their many blessings with those in this country and beyond who face chronic hunger, deadly disease, grinding poverty and hopeless misery. But their legendary generosity is grounded in an expectation that their money will be spent wisely.

The spotty record of our foreign assistance programs over the past several decades clearly demonstrates that good intentions, large-scale projects and an open checkbook are too often a recipe for failure. The most important lesson is that only the private sector, and not governments, can generate wealth. Korea, Taiwan and other former recipients of foreign assistance have demonstrated that robust economic growth is the only effective mechanism for lifting countries out of poverty.

Mountains of aid have accomplished little lasting change in those countries in which the private sector remains shackled. Economists have long recognized that the availability of credit plays a central role in economic growth.

If it is to be useful in undeveloped countries, credit has to be available not only to established businesses but also to individuals who are at the starting gate, those whose dreams may be small in comparison to vast government programs, but who are motivated to make those dreams real through their own hard work.

Micro-credit fits that need.

Although not as widely known as more glamorous endeavors, micro-credit is well-established and boasts a record of success. Its origins lie largely in the work of one man, Dr. Muhammad Yunus, an economist in Bangladesh who established the first true micro-credit lending institution, the Grameen Bank, in 1976.

The concept is simple: In impoverished countries, the self-employed often comprise half the workforce, but most do not have access to credit. Banks judge loans to this sector as too risky and too small to bother with, while informal creditors often charge crippling rates of interest.

Through micro-credit institutions like the Grameen Bank, however, loans typically less than $100 are made to applicants who would otherwise have no access to credit. Because collateral is difficult to come by, peer groups of loan recipients are created who then collectively guarantee each loan. The incentive for repayment is reinforced by the fact that a default on one loan can cut off credit to the entire group.

Today, there are more than 10,000 micro-credit institutions in more than 100 countries, with the numbers of participants estimated as high as 100 million people, most of whom live on incomes of less than one dollar a day.

It is easy to overstate what the micro-credit approach can accomplish. Not every recipient of micro-credit will prove to be a successful entrepreneur.

But most do. And although the accomplishment may seem modest, the difference between living on one dollar a day and the two or more dollars that a micro-credit loan may help produce can be the difference between starvation and survival.

In recognition of the role of micro-credit in alleviating poverty, the United Nations designated 2005 as the International Year of Micro-credit, and Mr. Yunus was awarded the 2006 Nobel Peace Prize.

Micro-credit is an example of the concepts that our assistance programs must incorporate, if we are to accomplish the results the American people expect from us, namely providing genuine assistance to those in greatest need in other countries.

Micro-credit programs build self-reliance rather than dependence on foreign aid.

And there is one other thing they provide, something difficult to define but indispensable to belief in one's own success: hope.

U.S. Rep. Ileana Ros-Lehtinen, R-Miami, serves as the senior Republican on the House Foreign Affairs Committee.

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