Practical Help for Afghans

by Fred P. Hochberg

Fred P. Hochberg was deputy administrator and acting administrator of the Small Business Administration from 1998 to 2001.

This article appeared in The New York Times, Jan. 5, 2002, on the Op-Ed page.


Microlending is a practical way to help the poor world-wide, at low cost and with significant results.

As allied forces narrow their hunt for Osama bin Laden, the broader mission is creating a stable, secure Afghanistan. That will take time and resources, but President Bush can start now by drawing on one of .the most effective, cost-efficient weapons in the fight against poverty: Providing very small business loans to the poorest people -- especially women --through microlending.

Fortune 500 companies may not be lining up to do business in war-ravaged Afghanistan, but there is still businesses to be done. Like much of the developing world, Afghanistan has a well-established, yet informal, economy of street vendors, neighborhood shops and cottage industries. Small loans go a long way. Just $50, for example, could buy a used refrigerator to keep a vendor’s produce fresh, a used sewing machine to make stitches go faster or a bicycle to deliver goods. Tiny transactions like these are part of a proven strategy of poverty reduction. Across the globe, 25 million microentrepreneurs are using loans of very small amounts to increase their incomes and lift their communities.

Microfinance has worked well in war-torn areas. Within nine months of the start of a microlending effort in Kosovo's hardest-hit areas, 1,500 mlcroentrepreneurs were in business and paying their loans back on time at an incredible rate of 99 percent. In El Salvador, recovering from the effects of civil war and then devastating hurricanes, microfinance institutions are now making more business loans than commercial banks.

Microfinancing serves both men and women, but all around the world, it focuses especially on women’s business development, because helping women helps children. One group that can benefit greatly in Afghanistan, for example, is the many women who have become the sole support of their children after years of war. Afghan women and men need the access to microfinance to build something better.

While I served at the Small Business Administration, our own domestic microenterprise initiative grew to a permanent program. With average loans of $10,000, Americans with ideas and initiative but no credit history have been able to start thousands of businesses providing services from day care to gardening to travel arrangements. As small businesses were established, poor communities were strengthened.

Worldwide, the demand for microcro-credit keeps growing far faster than the funds available for it. Despite increased microlending support in recent years, the World Bank estimates nearly half a billion microentrepreners have no ability to get financial accesss. Many are forced to turn to loan sharks, who may charge interest of as much as 10 percent a day.

Microfinance is clearly good development policy, but it is also good security policy. Microenterprise assistance won’t end the threat of terrorism, but it is a down payment on building stronger economies and more stable societies..

As Congress considers legislation to renew international microcredit assistance, the president should raise our investment to $500 million in annual aid from the current $150 million. Unlike other foreign aid, this is a renewable resource; as one family repays a loan, another receives one, multiplying the impact thousands of times over.

The World Bank should also do more. Today less than one penny out of every World Bank dollar is devoted to microlending. The bank should reform its charter to allow it to provide direct financing to microfinance institutions. The United States should also urge other wealthy nations to increase their contributions and include microfinance on the agenda of upcoming meetings of the G-7 group of industrial nations and the World Trade Organization.

We need to update our thinking about helping the world’s poor. Everyone knows the adage that says, "If you teach a person to fish. . ." But in Afghanistan and throughout the developing world, people already know how to fish and farm and make and sell all kinds of goods and services. They need capita1 to invest in what they know. And that investment will pay dividends for us all.