Credit for the World's Poorest

For someone living on a dollar a day, a loan of a few hundred dollars - to buy sewing machine, a refrigerator or a bicycle - can mean the difference between destitution and a productive life. That was the premise behind Bangladesh's successful Grameen Bank, established 25 years ago, and the global microfinancing movement it helped spawn.

Modest loans to the world's poorest so they can invest in enterprises close to home have proved a winning development strategy, an effort decidedly short on success stories. If done properly, microfinancing can also be good business. The million or so "micro-borrowers" in countries like Bangladesh, India, Colombia and Indonesia have proved more diligent about meeting their loan obligations than most commercial banking clients anywhere.

This is the reason "real" banks are starting to get involved, and the reason an increasing number of governments and international organizations have realized that microfinancing provides a worthy from of renewable development capital. Instead of traditional collateral, the guarantee that these loans will get repaid is often a community-wide commitment, or a neglected individual's deep appreciation for being offered an unexpected chance.

The most effective programs lend to women clients , with the added benefit of bolstering their independence and strengthening their role in society. Expect microfinancing to play an important role in helping to reconstruct Afghanistan, and in bringing its women back into economic life.

As these programs come increasingly into vogue, however, they should not become victims of their own success. Governments would do well to heed the advice of respected pioneers in the field like Women's World Banking, which worries that microcredit will becomes keyed to better-off borrowers. Nor should microcredit programs be overrun by politically motivated government handouts.

Treasury Secretary Paul O'Neill is scheduled to address a microcredit conference in New York this week. Mr. O'Neill has shown a willingness to think creatively about foreign aid. He should see to it that the administration steps up its support of microfinancing organizations as part of its broader move to increase development spending that can be shown to be effective

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