Peter Slipper (Fisher, Liberal Party) Share this | Hansard source

At the outset I would like to congratulate the member for Kingsford Smith on proposing the motion we are currently debating in the House. At first glance there are some who would suggest that microcredit could well be the saviour of the world’s poor. It is a concept whereby those living in poverty are given access to small amounts of money by way of a loan that it is hoped will give them the buying power they need to break out of their difficult existence.

Historically the first loans under this scheme were made by university Professor Muhammad Yunus in Bangladesh in the mid-1970s, and the amounts amazingly were $27. Typical loans under Professor Yunus’s microcredit scheme were under $50, while the women’s group Activists for Social Alternatives, based in India, hands out initial loans for amounts as low as $2.70. Under the scheme developed by Professor Yunus through his Grameen Bank, initial small loans that were successfully paid back enabled the borrower to qualify for larger loans. In most schemes the creditors are sorted in groups of around five members. All members of the group suffer if one of their members fails to meet repayment obligations, and this acts as an effective motivator to keep up the determination to strive for success—in other words, people do not want to let down people who they are sorted with because, if they default, then everyone suffers.

The key to this system is the initial small loans to the poor with the overarching belief that with careful management and hard work even a small amount of money loaned to those living in poverty can lead to improvements in the existence of the recipients. If one searches, it is possible to find anecdotes about the success of these schemes. One of Professor Yunus’s early successes was a woman who used one of the first $27 loans to start a bamboo furniture business, which was soon profitable enough to support her family.

A microcredit scheme in China, for example, is where loans are afforded to buy chickens, pigs or goats which are bred to create new stock that are sold to repay the loans. The term of the loan varies according to the type of animal. Chickens, for example, breed and grow more quickly to a sellable size, while pigs and goats take longer to develop. So the loan terms have been set accordingly.

In Bosnia, a village resident who had struggled to make ends meet by selling second-hand clothes was able to take out a loan for $325. She used it to buy clothing which she sold at market and as a result was able to repay her loan within 15 days. For us here in Australia, success stories with a microcredit industry should be a source of inspiration. If those suffering poverty can make a go of it, there really should be no excuse for us, living in one of the world’s most economically successful nations, to at least aim high.

While the World Bank has recognised microcredit as having potential as an agent for development, there are shortcomings. A report from Bangladesh showed that loan recipients ‘tend to use their credit for the same limited range of small-scale activities’ and ‘they soon reach a modest ceiling on the amount they can earn. The reality is that in any given situation there is likely to be only a limited range of economically viable small-scale activities available to the modestly skilled poor and a limited demand for the product of any particular activity.’

It is also noted that microcredit is not a particularly effective generator of employment, which is needed for overall economic growth and stabilisation. There are also concerns that new business established as a result of a microcredit loan may actually create a sort of subsidised competition for existing businesses, thereby destabilising a local economy. One report noted that the Grameen Bank loan recipients had an extremely high rate of loan repayment:

Repayment discipline is strict and subsequent loans to a group are dependent on repayment performance. Repayment rates average 97 per cent ... A comparison of the bank’s members with other poor households shows that the former have clearly benefited from the services provided.

Having said that, the Australian government does support microcredit as a very effective tool for reducing poverty and increasing incomes—but, we stress, in the right settings. Experience has shown that a number of preconditions are needed for microcredit to be fully effective, and these include macroeconomic stability, appropriate financial regulatory systems and enterprise laws, protection of property rights, access by the poor to healthcare and education and key infrastructure such as roads and electricity. In addition to direct support from microcredit, the Australian aid program focuses on supporting these enabling conditions. So the Australian government through the AusAID program does recognise the importance of microcredit. In fact, we support it and we should look at further supporting it. (Time expired)

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