This front-page article from Tuesday’s Washington Post gets so much wrong that it’s hard to know where to start. It discusses “microfinance” in Guatemala and how locals use it to illegally immigrate to the United States. The story mentions Muhammad Yunus as “one of the forefathers of microfinance” even though the ordinary bank loans discussed have nothing in common with his carefully managed program of tiny loans awarded to very poor women in countries like Bangladesh.
It’s not the first time that sleazy Third World banking has been prettied up by calling it “microlending.”
Here’s a snip from an explanatory blog I wrote some years back, Alleviating the Pressure to Emigrate:
Microloans are very small loans made to women so that they can start their own businesses. It was started by an economics professor, Muhammed Yunus, who believed that the poor needed credit, not charity. Starting in 1976, Yunus created the Grameen Bank and secured donations to fund its lending programs. (Grameen is a Bangladeshi word that means rural.) Today the bank is self-supporting from the interest paid on its loans to the poor. Repayment rates are very high because Grameen has learned how to structure its program for maximum success.
Microloans are aimed at women, since across most cultures women consistently deal more responsibly with the loans than men. An individual woman might buy a sewing machine or a loom, or perhaps a simple handcart to start a delivery business. Although the money is loaned to individual women, every loan must be repaid in order for others in the local group to get any additional loans. In addition, there is a social contract to which every participant must agree. Among other things, members pledge to drink only safe water, limit the size of their families, educate their children, grow vegetables and refuse any participation in dowry customs (which are the source of much violence against women).
Another point made in the Post article is that “microfinance” is important to finance illegal immigration to the United States, which is entirely contrary to Yunus’ goal of creating a loan program that would strengthen local communities.
Interestingly, I attended a 2008 Yunus lecture in San Francisco, and he answered my personal question about immigration:
COMMONWEALTH CLUB: A member of the audience asks this question: With five billion people living in countries poorer than Mexico, don’t you think microlending is a better strategy for tackling poverty than massive immigration…
YUNUS: People seek their opportunities if you can attract people with microcredit, keep them in their places, of course they will love that.
It’s not fun to leave your home and struggle through all kinds of legal barriers, live like thieves and criminals in another country.
[Immigration] is no fun. They do it out of desperation because life is so difficult there, So if we can all make life better where people live, where they were born, where their forefathers lived, then nobody will leave their place.
So here is the highly flawed Washington Post article, reprinted in the Houston Chronicle:
USAID helped set up microfinance in Guatemala. Now it’s funding illegal migration., Kevin Sieff, Washington Post, November 4, 2019
NEBAJ, Guatemala – The winding roads into the valley of Nebaj are lined with advertisements for cheap loans. Banks and cooperatives and microfinance operations make their pitches: “Credit in three days.” “Funding for your small business.” “We’ve lowered our interest rates!”
U.S. officials have long touted the power of finance to lift people out of poverty – and backed loans to farmers and small-business owners across the developing world. But here in the Guatemala Highlands, the epicenter of the country’s migrant exodus, those loans often fund a different activity, the region’s most profitable: Smuggling migrants north to the United States.
Over the past nine months, the number of Guatemalans who have reached the U.S. border has swelled to more than 250,000. They include many of the country’s poorest people – subsistence farmers who have somehow managed to scrape together up to $12,000 to fund the journey north.
What enables those payments is a vast system of credit that includes financial institutions set up and supported by the United States and the World Bank, part of the global boom in microfinance over the past two decades. The U.S. government and the World Bank have each extended tens of millions of dollars in funding and loan guarantees, money that helped create what is now Guatemala’s biggest microfinance organization, Fundación Génesis Empresarial, and backed one of its largest banks, Banrural.
But in Nebaj and communities like it around the country, those financial institutions now serve Guatemalans eager to migrate.
Access to credit has helped make this Central American nation the largest single source of migrants to the United States over the past year. About 2% of the population has been apprehended at the U.S. border since 2018.
It has also had devastating consequences for those who fail in their journeys – those who are deported before they earn enough to pay back their loans. They become ensnared by debt, losing savings, businesses and homes, which makes them more likely to try to migrate again.
“We do our best to keep our loans from funding migration or paying smugglers,” said Jorge Guzmán, the manager of the Banrural bank in Nebaj. “But there’s only so much we can do to monitor.”
U.S. officials say they stopped supporting direct-lending microfinance programs in Guatemala more than 10 years ago. The World Bank funded Génesis Empresarial as recently as last year. (Continues)
