Mohammed Yunus, head of the Grameen Bank in Bangladesh and apostle of microcredit lending, sat down recently with NPQ to talk about poverty, development, microcredit and globalization.

NPQ | The microcredit revolution you initiated has now spread across the world. What is that state of that movement?

MOHAMMED YUNUS | In 1997 we invited all the institutions involved or interested in microcredit lending, including the World Bank, to a summit. During that summit we set a goal of reaching the 100 million poorest families in the world, preferably through the women, with microcredit by the year 2005. We define microcredit as loans of $200 or less.

By the end of 2001, we had been able to reach 20 million of those families. We have a ways to go, and we are working hard. In that year $7.5 million was in Bangladesh, about one-third of the total worldwide lending. It has the most intensive use mainly because we have the experience and infrastructure up and running already. Then there are the Philippines, India and Nepal. Africa and Latin America so far have done very little.

The real limiting factor is money. Yet, in the scheme of things, the money required is not exorbitant-a total of $22 billion to meet the target of 100 million families, and half of that could come from market sources.

NPQ | In the meantime, the United Nations' Millennium Summit in Monterrey, Mexico, has set the goal of reducing by half the poor of the planet by 2015. Do you worry that the commitments of new aid from that meeting will be largely wasted, going down traditional tubes?

YUNUS | Yes, I'm afraid inertia has already set the old machine in motion. And putting more aid into the same old machine will yield the same old results. The aid will likely go, as it has in the past, from government to government, where it is allocated to "health" or to "education" budgets. But the reality is that, even in countries where the health system and education are "universally" provided, they rarely get down to the absolute poor.

In any society, the upper half is capable of taking care of itself. It is the lower half that is consumed by the worst poverty.

By contrast, microcredit is done by the private sector, which is better. Governments cannot handle credit for the poor or, indeed, credit for anything because it gets politicized. In many of the neediest countries, the money just disappears. Soon, bureaucrats can't pay their own salaries unless there is a new infusion of aid.

Microcredit can be done in a very small way. You don't need a big infrastructure. And it is sustainable-unlike traditional aid, you don't need to keep pouring in resources to keep it alive. Every $200 lent is paid back, replenishes the pot and grows. The lending is mainly to women, helping to establish their dignity and identity in the family. This in turn most helps the children. The default rate is extremely low; the payback rate is as high as 98 percent, something traditional banks can only dream about. And the whole system works on trust, not collateral. And accountability is total. It is easy to trace where each dollar goes because the sums are so small and used for highly specific purposes.

In Bangladesh, where the experience has been most enduring and studied, we've seen how income goes up, housing, education and even child mortality improve as a result of a woman making her own business, for example by buying a cow or a goat to produce milk for the local market or pots and pans to open a tiny restaurant.

NPQ | Besides microcredit, what is the most important thing that can reduce absolute poverty?

YUNUS | Information technology, not at the macro level, but at the consumer level, the poor-woman level. For example, in Bangladesh we had a program to provide financing for cell phones to poor ladies in the villages. They, in turn, would sell phone calls to the other villages, in effect, becoming the local telecom "utility."
This didn't require a huge government investment in land-line infrastructure. No big "training" program. Today, there are 11,600 "telephone ladies," each of whom covers two villages.
The telephone ladies in these villages not only were able to make a go of their own business, but they could call and get medical information where no doctors were available or they could check commodity prices in the national markets to be sure local farmers weren't being underpaid for their crops. So this information technology empowered the villagers by removing the middlemen who often cheated them.
NPQ | Is globalization irrelevant to the really poor since they are so far outside the world economic system?
YUNUS | On the contrary, it is very relevant. We live in a world system. If globalization is taking away my job, it matters. If globalization brings waves of machine-made textiles onto the market, how can my hand-made shirts have any chance? It is both easier and cheaper now for the suppliers to buy from the big factories than from me. So I lost my livelihood.

On the other hand, globalization is happening, and has been happening, since the dawn of trade and travel. The Silk Road and Columbus were part of globalization. It is not waiting for anyone's verdict. So it makes no sense to be for it or against. You have to figure out how to use it-to make it the right kind of globalization.

The way you make globalization right is to take advantage of it and not be victimized by it. The way to do that is to find the resources to get into the system-for the poorest that means microcredit finance and information technology. Then, globalization will help reduce poverty more than anyone imagined because the whole world, instead of the local market, becomes a place to make a living. Instead of a traditional wage, the poor guy can now make real money. Everyone will want the hand-made shirt instead of the machine-made one.

Of course, for the right kind of globalization to work it must be regulated. Today there is a lot of global traffic but no traffic control. If you are big you can push through. If you are little you get pushed aside. The rules must work for the slow driver with the beat-up tricycle as well as for the 747 cargo jet. There must be room for the pushcart as well as the supermarket.

All there is today is the WTO (World Trade Organization), which is little more than a bulldozer for the biggest economies and companies to push their way in to take over the markets of small producers. The big economies-like the United States-say they must be able to sell everything in other markets, but then tell the world "you can't sell steel or agriculture to us."

The just-passed US farm-aid bill increases subsidies to US farmers this year by $83 billion-four times the total amount it would take to fund microfinance for the world's 100 million poorest families for the next 10 years!

That kind of globalization is not the right kind.