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August 03, 2007

Book Review-A Billion Bootstraps: Microcredit, Barefoot Banking and the Business Solution for Ending Poverty
    by Anne Moore Odell

Phil Smith and Eric Thurman offer a primer on microcredit for businesspeople who want the best bang for their charitable bucks. -- When entrepreneur Phil Smith started out as a philanthropist, he did what he had always done when launching a new business: he educated himself. This time, instead of learning about oil and gas, Smith studied nonprofits and how he could best use his experiences and money to permanently change lives for the better. However, he was surprised by how nonprofits were run and how many offered only temporary solutions to poverty.

In 2003, Smith came across a small article about microcredit, and something inside him clicked. At one point of his career, a loan of $50,000 had enabled him to start a business that changed the direction of his life. Now Smith saw evidence that very small loans of $100, $50 or even $25 were helping people in developing countries lift themselves out of poverty. Smith wanted to learn how.

Smith's research led him to Eric Thurman, an expert in philanthropy and microcredit. After learning about microcredit and seeing firsthand the success of microcredit entrepreneurs in developing nations, Smith is convinced microcredit can help end poverty. The book "A Billion Bootstraps: Microcredit, Barefoot Banking and the Business Solution for Ending Poverty" is Smith and Thurman's argument.

The book aims to educate other businesspeople on what microcredit is and how to apply business acumen to charitable investing and giving. The book's forward is written by Muhammand Yunus, who received the 2006 Nobel Peace Prize for his microfinance work with the Grameen Bank in Bangladesh.

The story that the book tells (over and over again) is that businesses and businesspeople are uniquely positioned to help end world poverty. This can be accomplished when people with money in developed nations to invest in microfinance institutions in developing countries. Connecting businesspeople in developed countries to businesspeople in developing countries could improve economic conditions for millions.

The book is a thorough introduction for people interested learning about microcredit, from basic definitions of terms, to finding microfinance institutions, to what to expect in return. Its authors are enthusiastic spokesmen for microcredit, breaking chapters into easily digestible sections, punctuated by examples of "Microcredit in Action."

Pulling yourself up by your proverbial bootstraps is the empowering idea embraced by the authors. The book states, "The fundamental premise of microcredit is that people can improve their incomes through hard work if given small loans to strengthen their businesses."

Smith stresses that businesspeople in developed nations have to understand that the economies of developing nations operate on a much smaller scale than economies of developed nations. Instead of credit, most developing nations operate on cash and most people do not have access to any banking services. When a microfinance institution opens up in a community, businesspeople-often women-have the chance to receive very small loans without the risk of using a loan shark.

Unlike banks in developed nations that ask borrowers for collateral, microcredit institutions or "barefoot banks" are small, grassroots financial institutions that perform risk analysis on a very different scale. Microfinance institutes help create financial networks as groups of neighbors cross-guarantee one another's loans, meet weekly to make payments on their loans and support each other. Because the terms of the loans are short, microfinance banks can turn their money over several times during the year.

The authors suggest using the term "microcredit" in lieu of the term "microfinance" because lending is the core of the banking progress. They also recognize the other benefits "barefoot banks" can offer. In addition to weekly meetings, the authors point to "microcredit plus" programs that include other services like education and legal advice.

Thurman's chapter, "A Thousand Battles, A Thousand Victories, "is probably the book's strongest. It stands alone as an essay describing poverty and the "war" on poverty, with an acknowledgement that poverty is not only a financial problem. He says that most wealthy people are shielded from the poverty of developing nations, but it is important for people in developed countries to move beyond the data of poverty to a deeper understanding.

Thurman clearly explains absolute poverty and the relative poverty of low-income Americans. The difference between living on $1 a day or less and living on $1 to $2 day is often the difference between starvation and survival. Thurman stresses that microcredit often works best for the poorest people, as he points out, "Doubling an income of $1 or $2 a day is easier than doubling an income of $10 or $20 a day."

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