A Billion Bootstraps: Microcredit, Barefoot Banking, and the Business Solution for Ending Poverty

It is a tried and true maxim: Give a man a fish and he'll eat today; teach him to fish and he'll eat every day. Apply this to the plight of the 2.8 billion people who live on less than $2 a day, give them access to the levers of modern finance capitalism, and combine that with a healthy dose of can-do enthusiasm and community-based organizing — on a global scale — and you have the makings of the Microcredit Revolution.

In their new book, A Billion Bootstraps, Philip Smith and Eric Thurman argue that microcredit — with its focus on tiny individual investments in the livelihoods of the poorest of the poor — is the most effective and promising philanthropic idea of our time. The book, one-third economics lesson, one-third folksy travelogue, and one-third matchless account of literal salvation, is a worthwhile and approachable read for anyone looking to understand the mechanisms of global poverty and how a new breed of "venture philanthropists" are reinventing international philanthropy.

While the causes of global poverty are legion, there is little disagreement that most international efforts have failed to find real and lasting solutions to the grinding deprivation shared by nearly one-half of the world's population. But all that might be changing. Ever since Mohammed Yunus (who provides the foreword to this volume) won the 2006 Nobel Peace Prize, reportage on international philanthropy has been enlivened by the promise of microcredit.

The premise of microcredit is simple enough: the world's poor do not need vast government-led top-down programs of relief, aid, and development; what they need is access to credit, which in turn can be used to create small businesses that lift them, their families, and their communities out of the cycle of abject economic dependence that characterizes much of the developing world. When a billion people live on less than $1 dollar a day, the difference between poverty and economic self-sufficiency may only be the price of a set of hand tools, a sewing machine, or a bolt of cloth. Most microloans are for less than $25 (and they are all loans, not donations), and as a rule most are extended for less than a year (allowing capital to be re-cycled back into more loans). Most microloans also are made to women (a revolutionary idea in itself), empowering millions who previously had little or no claim to property or civil rights.

Microcredit is not new; Bangladesh's Grameen Bank, started by Yunus, has been operating in various forms since 1976 and alone has been responsible for raising more than 35 million people out of poverty (with nearly 98 percent of its loans paid back). The formula is constantly being improved and modified, adapting local customs, new technology, and innovations in international finance into an ever-expanding network of banks and lending groups that have (as of 2006) provided loans to a staggering 130 million families worldwide. With reporting from numerous locales (including Rwanda, Ukraine, and the Dominican Republic, to name only a few), A Billion Bootstraps is full of truly extraordinary stories of transformation and the renewal of family and community through the blessings of microcredit narratives which, alone, are enough to convince even the most hardened skeptic.

Although the authors alternate chapters, the dominant voice belongs to Smith, a retired Tulsa oilman turned philanthropist who is unapologetic in his embrace of philanthropy as a business proposition. To that end, much of A Billion Bootstraps is dedicated to demonstrating the need for effective due diligence, counseling would-be investors (big and small) to be guided by the same bottom-line principles that make American business the envy of the world. Smith and Thurman (the former chief of Geneva Global, one of the largest funders of the microcredit industry) have made a career of identifying sound microcredit opportunities and, of equal importance, encouraging others from the very wealthy to the average contributor — to embrace the transformative power of microcredit.

All this is in keeping with au courant investment and management trends in philanthropy; it is by now a familiar refrain that for philanthropy to be effective it needs to be more head and less heart. Smith takes this idea a step further, suggesting that the value of a philanthropic investment can and should be reduced to the "cost per life changed." While brutal in its reliance on the bottom line as a measure of philanthropic good, the point he makes is worth noting: for all the millions spent on helping the homeless of Tulsa (Smith's example), there are still homeless on the streets of Tulsa. Those same dollars, if effectively invested abroad in microcredit institutions, would, he says, dramatically and permanently transform the lives of hundreds of thousands of people around the world.

For Smith and Thurman, the benefits of that sort of success would redound across international borders and contribute to the remaking of the world as a more stable and prosperous place. That's because, in theory, self-sustaining families and communities promote the development of stable, transparent public institutions and responsive government, which in turn leads to an increase in the rule of law, the ebbing of corruption and violence, and the expansion of property and civil rights.

All this may sound familiar and a bit millennial, and for good reason. Smith is an active member of his church in Tulsa and the force behind its investments in microcredit groups in Eastern Europe. But while Smith and Thurman are quick to point out the benefits of using the organizational apparatus of microcredit groups to provide added services to the growing ranks of micro-entrepreneurs (basic health care, AIDS prevention, agricultural and business education and banking services), they are largely silent on the microcredit activity of religious (predominantly evangelical Christian) groups that are also engaged in the global missionary movement. There is nothing fundamentally wrong about the connection — good works are good works, whether sacred or secular — though it is hardly a leap to imagine that for some evangelicals, microcredit can and should be used as an entre into the spiritual life of the communities they are helping.

Then, too, undergirding the future prospects of the microcredit revolution is faith in the continued expansion of international philanthropy (currently the principal source of capital to microcredit banks) and the free flows of capital that have characterized the post-Cold War world. While globalization might be a juggernaut, Smith and Thurman speak as though there can be no end to the continued growth of the world economy. But in economics there are no guarantees; given recent events on the global economic scene (the 1998 Asian recession, the burst of the dot-com bubble, 9/11, soaring oil prices), there certainly is room to discount perpetually sunny prognostications. Equally absent from their discussion is the fact that the stability required for microcredit to thrive is the exception and not the rule throughout much of the developing world.

But authors of manifestos should not be expected to concede that their solution may not work in all cases. What Smith and Thurman have produced is an excellent argument for rethinking how we invest in philanthropy abroad and for challenging the notion that the poorest of the poor cannot help themselves. They can — and the microcredit revolution just may prove to be the key to ending global poverty, one $25 loan at a time.

Daniel Matz
Web Services Associate
Foundation Center
New York, New York