Summary of A World of Three Zeros

The Microcredit Model

Microcredit is based on a concept that mainstream economists and business leaders assumed couldn’t work. The microcredit model calls for lending small sums of money – without collateral and at reasonable interest rates – to extremely poor women. Microcredit providers do not use attorneys and the courts to seek payment of bad debts. Instead, they rely on community ties and peer pressure to keep borrowers current.

Conventional banking wisdom regards this as a foolhardy business model – a recipe for lenders to lose money fast. Economic theory’s implicit and explicit view of “Capitalist Man” dictates that such an approach would produce a high nonrepayment rate. But conventional wisdom is wrong: Microcredit, which takes a humanist perspective that elevates the “Real Person,” does work.

Launched in 1976 after practical trial-and-error attempts to test its feasibility, the renowned Grameen Bank in Bangladesh now lends more than $2.5 billion a year to nine million women, with a 98.6% repayment rate. Since the Grameen Bank launched its project, microcredit has helped 300 million people worldwide.