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44–603 CC








JULY 23, 1997

Printed for the use of the Committee on International Relations

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BENJAMIN A. GILMAN, New York, Chairman
HENRY J. HYDE, Illinois
CASS BALLENGER, North Carolina
EDWARD R. ROYCE, California
JAY KIM, California
TOM CAMPBELL, California
JON FOX, Pennsylvania
LINDSEY GRAHAM, South Carolina
ROY BLUNT, Missouri
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SAM GEJDENSON, Connecticut
TOM LANTOS, California
PAT DANNER, Missouri
WALTER CAPPS, California
BRAD SHERMAN, California
BOB CLEMENT, Tennessee
BILL LUTHER, Minnesota
JIM DAVIS, Florida
RICHARD J. GARON, Chief of Staff
MICHAEL H. VAN DUSEN, Democratic Chief of Staff
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Subcommittee on International Economic Policy and Trade
ILEANA ROS-LEHTINEN, Florida, Chairperson
TOM CAMPBELL, California
LINDSEY O. GRAHAM, South Carolina
ROY BLUNT, Missouri
SAM GEJDENSON, Connecticut
PAT DANNER, Missouri
BRAD SHERMAN, California
BOB CLEMENT, Tennessee
TOM LANTOS, California
BILL LUTHER, Minnesota
YLEEM D.S. POBLETE, Professional Staff Member
AMOS HOCHSTEIN, Democratic Professional Staff Member
JOSE A. FUENTES, Staff Associate
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    Mr. Mark Schneider, Assistant Administrator for Latin America and the Caribbean, U.S. Agency for International Development
    Mr. Muhammad Abdul Mannan Talukdar, Senior Officer, Monitoring and Evaluation Division, Grameen Bank, accompanied by Mr. Alex Counts, Executive Director, Grameen Foundation
    Ms. Kathleen Gordon, President and Member of the Board of Directors, Working Capital Florida, Partners for Self-Employment
    Ms. Ella Crespo, Owner and Instructor, EVA Safety Consultants
    Mr. Elveton Newton, Owner, Garden of Eden Lawn Ministries
    Mr. Lawrence Yanovitch, Co-chair Microenterprise Coalition and Director, Policy and Research, Foundation for International Community Assistance
Prepared statements:
The Honorable Amo Houghton
The Honorable Tony Hall
Mr. Mark Schneider
Ms. Kathleen Gordon
Ms. Ella Crespo
Mr. Elveton Newton
Mr. Lawrence Yanovitch
Additional material submitted for the record:
Statement of the International Fund for Agricultural Development
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House of Representatives,
Subcommittee on International Economic Policy and Trade,
Committee on International Relations,
Washington, DC.

    The Subcommittee met, pursuant to notice, at 2:45 p.m. in room 2172, Rayburn House Office Building, Hon. Ileana Ros-Lehtinen [chairwoman of the Subcommittee] presiding.
    Ms. ROS-LEHTINEN. The Subcommittee will come to order.
    I know the other Members will come shortly, but we have our two wonderful friends, our colleagues from Congress, who are here already, and I know that they already had to wait around from our previously scheduled time. So we thank them both for being here today, Tony and Amo, and I will read my statement, and then we look forward to hearing from both of you, who are real experts in this field.
    In this era of reform and budgetary constraints, we find ourselves searching feverishly for viable alternatives, for concrete solutions to the myriad of problems that we must face in today's world.
    As human beings and members of the global community of mankind, our hearts become heavier and heavier as we look at reports by the World Health Organization which document that more than 1 billion people, or one-fifth of the world's population, lived in extreme poverty in 1995 and that poverty is now the leading cause of death worldwide. Yet, other realities force us to make the tough choices, choices which we do not enjoy making but which need to be made.
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    Many times, the problem appears so immense and widespread that it may seem impossible to manage and we end up closing ourselves to our creative, innovative capabilities. However, if we look at these problems, as did Muhammad Yunus, founder and managing director of the Grameen Bank and father of microcredit, we would be well on our way to meeting the demands of our humanitarian instincts, as well as those required by logic and pragmatism.
    In a statement a few years ago, Dr. Yunus said that when we talk about the problems of millions, it becomes difficult to find a way to meaningfully participate in finding a solution. It is so much easier when the problem relates to one person. When one person's life is added to the life of another, and another, we build up the saga of all humanity.
    All human problems, he said, in their basic manifestation are quite simple. This process—that is, putting problems in more complicated formulations—begins by seeing problems from too far away.
    And that is what this hearing will attempt to address and in some way help correct. The objective will be to place the issue of microcredit and microenterprise development within context and to make it real, palpable, something more than another foreign policy tool or domestic program. That is why we will not only hear from volunteers and advocates of microcredit but from borrowers themselves, who will render testimony on how microcredit has impacted their lives.
    But what exactly is microcredit and microenterprise? Simply stated, microcredit involves giving small, low-interest, startup loans to poor but aspiring entrepreneurs to develop into thriving businesses known as microenterprises. It is firmly embedded in the notions of self-reliance and the concepts of free market capitalism. It is credited with having the potential to help the poorest families in the world emerge from poverty and, by extension, help create a more inclusive world economy, a world economy that works not just for the top 20 percent in the world who receive over 84 percent in the world's income, but for all who are committed and determined to work, to use their creativity, talents, and skills to create and control their own destiny.
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    Microcredit is not a handout; it is an opportunity, an investment, an exercise in responsibility and accountability. It is categorized as an inexpensive program that builds businesses.
    Microcredit had its birth in 1976 when the first program began as an experiment by a Bangladeshi economics professor whom I quoted earlier and who founded this bank. Today, microcredit is at work in some form in 43 countries, including here in the United States.
    To look at the model, this bank requires its borrowers to organize themselves into groups where all are cut off if one borrower defaults. These borrowers meet every week to make loan payments with interest and critique one another's business plans. People who repay small loans on time can request bigger ones later on.
    According to various reports, it now makes a profit and claims a higher repayment rate than traditional banks. One-third of its 2 million borrowers have risen above the poverty line, and another third are close to crossing that threshold.
    But how did this concept become an item on the congressional agenda?
    In 1986, a bipartisan group of Members of Congress began to work on an initiative that would convert into reality a new vision for ending poverty. This effort, known as the Microenterprise Initiative, was based on the successful model of the bank and models by the Foundation for International Community Assistance and Accion International. It required the development of a U.S. initiative which would build on other programs and help to dramatically expand access to credit by the world's poor to once again work their way out of poverty.
    In 1994, this goal came to fruition when the Agency for International Development launched a Microenterprise Initiative. Much has happened since then, but the question still remains: Why is microcredit needed, and why is it a smart investment?
    First, the poor are unable to obtain credit from the normal and formal banking industry because they are viewed as bad credit risks. Microcredit provides access to the tools and credit needed for self-employment.
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    Second, it is a winning proposition, because in developing countries the rate of repayment of the more established programs ranges from 95 to 99 percent. Foreign aid used under the microcredit/microenterprise programs is loaned and paid back with interest and is then recycled and used for new loans, thus reaching even more people.
    In the United States, States are finding that promotion of microenterprise can contribute to meeting the requirements set forth under our welfare reform plan.
    Certainly even the staunchest supporters of microcredit will acknowledge that microcredit isn't for everybody, that not everybody has the entrepreneurial spirit and the ability to make things happen. Nevertheless, at a time when traditional forms of foreign assistance are necessarily under a microscope and budget-cutting is a necessity, we must look to new, innovative, and effective programs. Microcredit and microenterprise are winners in this field, and I am pleased to have been and continue to be part of this development.
    I thank beforehand our witnesses who will appear before us today for their commitment and their insight, and I would like to request that our other Members who have any opening statements to make them at the same time.
    Mr. Clement.
    Mr. CLEMENT. Madam Chairman, I am just looking forward to what my two colleagues down there, Mr. Houghton and Mr. Hall, have to say, as well as the others.
    Ms. ROS-LEHTINEN. Thank you.
    Mr. Manzullo.
    Mr. Chabot.
    Mr. CHABOT. No.
    Mr. MANZULLO. No.
    Ms. ROS-LEHTINEN. Without any further ado, I would like to proceed to introduce our first panelists. It is indeed a pleasure to have our two colleagues and friends testify before our Subcommittee. First we will hear from Amo Houghton, who represents the 31st District of New York, and who will be followed by Congressman Tony Hall of Ohio's Third District. Both have been the leading advocates of microcredit and other innovative programs to fight poverty for many, many years, and we thank them for taking time from their schedule.
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    Thank you, Amo.
    Mr. HOUGHTON. Well, thank you, Madam Chairman.
    I must say to start with that you run wonderful meetings. And I will tell you why. I have seen you in the Africa Subcommittee and now also in this Subcommittee, and you always seem to hit the issues that are just a little bit in advance of what is coming on the floor. And it is important to all of us to be able to understand some of these conditions, so by the time we vote we understand what we are doing.
    I also want to thank Tony Hall, who has really been a great advocate in the whole concept of microcredit and the results people—I think they are someplace back here—and Joanne Carter and what she has done.
    But if you would permit me, Madam Chair, I would like to do two things: First of all, submit my written testimony as part of the record.
    Ms. ROS-LEHTINEN. Without objection, it will be so ordered.
    Mr. HOUGHTON. And second, not read it.
    Ms. ROS-LEHTINEN. Thank you.
    Mr. HOUGHTON. Instead, what I would like to do is just to state a few facts that might help toward the decision for this Committee on microcredit.
    I am not a big fan of Mr. Lenin of Communist fame, but he said something at one time that I thought was really important. He said, ''Facts are stubborn things.'' And so what I would like to do is to talk just very briefly about some in the facts here, and I say this not only as a Member of Congress but as somebody who has been involved in the business community over the years.
    First of all, despite brains, a great idea, hard work, perseverance, money is absolutely quintessential in starting and maintaining a business.
    Second, on a scale of about 1 to 10, 1 being the poorest and 10 being the wealthiest, money in the form of bank credit usually reaches to about a level 3. In other words, levels 1 and 2 find themselves without credit. And this is a fact that many people forget and do not understand.
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    Third, credit is available only to those who have either adequate earning power or a reasonable net worth, and levels 1 and 2 do not have either.
    Fourth, the concept of microcredit gets around these obstacles through an unusual combination of small loans, so there is not too much money being extended, and these are loans where banks just don't touch them; their product mix doesn't allow them to do that.
    And also, the other thing is communal or family responsibility, very, very important and really nonexistent in the other lending process.
    Next, poor people historically are good credit risks. I remember my own example, my own experience in the little town I lived in. The people who paid their bills, the people who paid back the loans, were the blue-collar workers, not necessarily the people who were higher up in the organization.
    Next, microcredit works and is profitable if managed not only with compassion but also discipline. It is very important, particularly the example that has been established in the Grameen Bank.
    Next, the availability of microcredit opens up otherwise closed opportunities. It enables a person to employ him or herself and then, if successful, others. And what we find in getting people off welfare or getting people out in the prison system or shock camps or wherever they are, that we train people, we make work available, but there is no work available and this permits that to happen because you are employing yourself.
    And last, those with the wherewithal must prime the pump, and that really means us in this particular case.
    There is a communal effort in a little town that I am living in that is being done privately, but it is a very unusual situation, and it is going to provide just this type of microcredit, which is essential to creating scores of jobs which otherwise would not be possible.
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    So there is a world of opportunity out there.
    Now, very specifically, Mr. Hall and I have a bill called H.R. 1129 which gets at this need. We have about 80 cosponsors. It is bipartisan, and we have lots of support in the Senate, and it is called the Microcredit for Self-Reliance Act of 1997. And it calls for a certain amount of money; it is $170 million in 1998 and a little more in 1999, this to be set aside, half of it going to those people who are the poorest 50 percent of the population which are being affected, and specifically, also in small loans of $300 or less. And that is basically it.
    I want to thank you. I want to thank Ileana. I want to thank Sonny Callahan for all of his help.
    Thank you.
    [The prepared statement of Mr. Houghton appears in the appendix.]
    Mr. MANZULLO [presiding]. Thank you, Congressman Houghton.
    Congressman Hall.
    Mr. HALL. Thank you, Mr. Chairman. I want to thank you and certainly this Subcommittee for convening this hearing and inviting me to testify.
    I am very pleased to be here with my colleague, Mr. Houghton, who has been a leader and strong fighter in the battle against poverty and hunger, and it is a pleasure always to join with him.
    Microcredit is not the only tool for fighting poverty and hunger, but it is a very successful and cost-effective one. I have seen microenterprise programs not only in our own country but overseas, and they are truly effective, and they work; they put a lot of people to work.
    I also want to give a lot of credit for U.S. microenterprise programs to USAID. They have been tremendous in being on the forefront of microcredit and microenterprise.
    IFAD, the International Fund for Agriculture Development, also deserves recognition for their leadership. They have had a record of excellence in carrying out world microcredit programs. And then also RESULTS, which Amo mentioned, because they not only have done good work in a lot of different hunger programs, but they convened the microcredit summit in February and it really, really boosted the microcredit movement.
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    One-fifth of the world's people live in absolute poverty, and they struggle to survive on the equivalent of a dollar a day. The majority of the poor, though, 70 percent, are women. And it is estimated that while women perform 60 percent of the world's labor, they own only 1 percent of the world's land and they earn just 10 percent of the world's income.
    I have spent time in rural areas of many developing countries, traveling to farms and villages, and I have been struck by what seems like superhuman demands on women's labor. Day in and day out, sun up until sun down, women are producers of food, they are traders, and they are family caretakers. In many areas, women are far more than the backbone of the families; they are the backbone of the economy. Yet they face enormous constraints to improving their quality of life, and one of those constraints is the lack of access to formal credit.
    Women have often been bypassed by sources of credit that were available to men through farmers' associations and cooperatives. Today, most microcredit borrowers are women, and they are in the forefront of some of the most successful projects, such as the Grameen Bank in Bangladesh and the Self-Employed Women's Association in India.
    Tomorrow, the First Lady will come to the Hill and she will help kick off USAID's renewed commitment to its Microenterprise Initiative, which established microcredit as an integral part of USAID's strategy in 1994. USAID has worked to strengthen the microcredit program within this framework, particularly those sponsored by U.S. PVO's.
    Yet funding cuts have made it difficult for USAID to maintain its allocations to microcredit programs. Only $120 million was budgeted for microcredit in 1998, down from roughly $140 million in 1994.
    Other donor countries closely watch what the United States does about humanitarian and development assistance, and when we take the lead, others do follow us. When we decide to cut back, they cut back. So we truly are the leaders, and have a great responsibility in this world.
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    I was pleased, though, to learn that my colleague, Sonny Callahan, recommended funding of at least $130 million to microcredit programs in fiscal year 1998, with at least half that amount going to small loans for the very poor, a $10-million increase over what was budgeted in this area.
    I just want to commend the Subcommittee for considering this issue today. I have a complete statement that I would ask be part of the record.
    Ms. ROS-LEHTINEN. We will enter it into the record.
    Mr. HALL. Thank you for allowing us to testify.
    [The prepared statement of Mr. Hall appears in the appendix.]
    Ms. ROS-LEHTINEN. Thank you, both gentlemen, for being here with us.
    Bob, do you have any questions?
    Mr. CLEMENT. Amo, in your H.R. 1129, it establishes a monitoring system that sets certain performance goals for microcredit initiatives. Please describe how such a monitoring system would function and how these goals would be distinguished.
    Mr. HOUGHTON. Well, the basic monitoring concept is something which is essential to the whole microcredit process. It was really established by Muhammad Yunus in the Grameen Bank. Basically what it is, it is a weekly event, and people who borrow $30 or $300 or $50, or whatever it is, come in and describe what is happening. They have members of their family, members of the community; they are there; they are behind them; they are responsible.
    Also, the people who are next in line sometimes can be there and realize that if this person fails in that business or fails in his or her ability to pay back that loan on a regular basis—and it is not inexpensive, either—that the next person doesn't get any loans.
    So there is pressure from the loaning officers, there is monitoring from the family members, and there is also monitoring from those people who are next in line. And it is just a very personal, repetitive, disciplined process that seems to work.
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    Mr. CLEMENT. Mr. Hall, I know you are a true champion when it comes to poverty and hunger in the world. How many nations are participating of the developing nations?
    I mean, does every developing nation—are they all participating or just certain nations? And why?
    Mr. HALL. I would say a good portion of them are participating. I don't have the numbers in front of me. The two leaders that I mentioned are Bangladesh and India. But I have seen microenterprise programs in the Dominican Republic; I have seen them in Haiti; I have seen them a lot of different places. I suspect that they are in most Third World nations where you have private voluntary organizations, but I don't have the actual number. I think it may be 80.
    Mr. CLEMENT. 80?
    Mr. HALL. Yes.
    Mr. CLEMENT. I noticed there are about 2 million borrowers right now.
    Mr. HALL. Yes. I think the wonderful——
    Mr. CLEMENT. I just wonder, if it is such a success story, why aren't we doing more of it? I know it is relatively new, 1976, and it has grown slowly over the years.
    Mr. HALL. Why aren't we doing more of it overseas or in our own country?
    Mr. CLEMENT. Overseas.
    Mr. HALL. That is a very good question. It is one of the great success stories. It is kind of a compassionate program with discernment. It means that we are helping people to help themselves. We are giving them small loans. These kinds of loans are not for everybody. People are screened. You can't get a loan just because you want one, because you want to start a business; you are screened.
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    And the payback rate on these loans is something like over 95 percent. It is just unbelievable.
    It must not be a particularly exciting issue from the standpoint of the press, because it has been around for a number of years and it has worked very, very successfully. And I think it basically started with Muhammad Yunus in Bangladesh when it first took off. I think he made a $29 loan.
    Mr. CLEMENT. $26.
    Mr. HALL. $26. I met a man in the Dominican Republic that received a microcredit line of $50, and he was a shoe repairman. The $50 went to buy some extra equipment that he needed, and after about 20 years, he employed well over 100 people. He exported all kinds of shoes, mostly baby shoes, throughout the Caribbean. And he is a great success story on a $50 loan, which, of course, he paid back.
    There is just one success story after another, and why it hasn't spread to the United States in any big way—we do have it in Iowa; we have it in Chicago; I even have microenterprise in my own district. But we can learn a lot from how the poor really work the microcredit, and we ought to be doing more of it in the United States.
    Mr. HOUGHTON. Could I take a crack at that?
    Mr. HALL. Yes.
    Mr. HOUGHTON. Could I add a note here? You know, if you are in the banking business, this is a real threat, because banks do not reach down, and these are potential customers which they hope to catch at the next stage, but if you catch them at this stage, they are going to stay with you, as most people would. So that is one thing.
    Another thing, you have got to have somebody step up to the plate. You know, it is very easy to say microcredit is a good idea, but who is going to put the money up? And there has been sort of a difference, and we have talked about this in the past, because it should be a profitable enterprise or it should be a nonprofitable enterprise. I mean, that debate still goes on.
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    Also, there have been other agencies who have wanted to come in and put in money. Initially the World Bank wanted to do this, and they didn't want the World Bank because they thought it would smother the whole concept. It was a sort of local, indigenous process that had to work itself very, very slowly.
    Mr. CLEMENT. Well, I was wondering if maybe some financial institutions discourage this microcredit, because some of them say, well, you are competing with me.
    I am in the National Guard, and when we kicked off that Mediguard program to do health profiles in Tennessee and other States, hospitals and doctors looked at us: Hey, we are interfering with the process.
    But we really weren't. All we were doing was identifying people that needed health screening and finding out what their problem was, and then we would turn them over to the doctors and hospitals. But we weren't trying to compete with them for business at all.
    It seems like in this type of program, after you bring them up to a certain level, then they probably are able to borrow money somewhere else.
    Mr. HOUGHTON. But Tony and I have talked about this in the past, and I am sure you know a lot about it also. But when you are established as a professional in a function and somebody comes in with a brand new idea, it is a threat to you.
    The good news, however, is that many of the banks that I have been associated with, and also the World Bank, now are turning around and they are beginning to feed money into this area rather than just having it through private sources or governmental sources.
    Of course, you can't project, but I would think in the next 10 years you are going to see a very, very dramatic difference in the picture here.
    Mr. CLEMENT. Thank you, both.
    Ms. ROS-LEHTINEN [presiding]. I hope you are right, Amo.
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    Mr. Manzullo.
    Mr. MANZULLO. Thank you.
    I was just asking Mr. Eskeland, my aide here, a question. I could ask it to both of you. (I unfortunately have to leave after this panel.) As I have gone through the materials, my understanding is that microcredit would be not administered just through the Grameen Bank.
    Mr. HALL. Well, it would go through the Grameen Bank if we made a loan to the Grameen Bank in Bangladesh. But I am not so sure they need any more money; they are doing so well. It would go through indigenous groups in various countries.
    Mr. MANZULLO. Tony, maybe you can explain it to me. I think your answer was that the $170 million goes into a special account at USAID. And then how does that get down to the people? Are the NGO's also involved in this?
    Mr. HALL. Normally it is through NGO's. They contract with AID, and they contract in the various countries, whether it be World Vision or CARE or Catholic Relief Services, or whatever NGO. Sometimes it is an indigenous group in the country that does it, and they receive a grant from AID.
    Mr. MANZULLO. Do we know how much money comes back each year on the loans? I presume these loans have a very high repayment rate. I saw it is about 93 to 95 percent. Is there a figure as to how much is returned?
    Mr. HALL. In the past, it has been 95 percent.
    Mr. MANZULLO. It is very high.
    My question focuses on the $170 million requested in H.R. 1129. Is that for administrative expenses or does that help go to replenish the capital accounts of the money that is actually spent? I think somebody behind you has the answer there.
    Mr. HOUGHTON. Well, the $170 million is primarily loaned money, not administered money.
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    Mr. HOUGHTON. What happens is, the USAID is the clearinghouse for that, and they make loans to private banks.
    Mr. MANZULLO. OK. The banks make the loans. They get repaid, and they repay the loan to the bank?
    Mr. HOUGHTON. Yes. This is an investment, this isn't an expense that goes away forever.
    Mr. MANZULLO. This and OPIC is what is going to help developing nations really pull up.
    Amo, do you know, is——
    Ms. ROS-LEHTINEN. Good try, Don.
    Mr. MANZULLO. Well, that is true, Ileana. I have got to teach you, my friend.
    I did not realize that I put out a subtle thing about OPIC there. I didn't squirm when I said that OPIC would be good for a free Cuba and you said that a free Cuba needs no government programs.
    Ms. ROS-LEHTINEN. OPIC, democracy and microenterprise, a perfect tie-in.
    Mr. MANZULLO. That is right.
    Amo, do you know if presently AID is serving Africa with microenterprise lending?
    Mr. HOUGHTON. I am pretty sure they are.
    Is that right? Yes.
    I don't know how many countries they are. I mean, they are all over. And not only money—not only is the AID, but also many times the State Department ambassadorial discretionary funds, you know, they will lend somebody $50 for a chicken farm, that type of thing.
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    So there are a couple of programs that are already in existence now.
    Mr. MANZULLO. Then the last question: Can we somehow incorporate the theory of 5 for 1 and all for 5 into American finances?
    This is the most intriguing loan system I have seen. Talk about mutual accountability. That is the standard all over the world for these loans. Is that correct?
    Mr. HALL. That is correct.
    Mr. MANZULLO. Five people get together, and they are responsible for each other's repayment, joint and several liability. Is that it?
    Mr. HALL. It is kind of an accountability group, too.
    Mr. MANZULLO. I think it is fantastic.
    Mr. HALL. Yes. It is very good, because it is accountability, and your kind of accountability—you are accountable to the other people, and they are kind of not only encouraging and spurring you on, I would imagine that they are really after you if you are not making your loan repayment either. And they are trying to help you and encourage you and trying to develop your potential.
    Some of these have been copied in the United States. There are some very good microenterprise organizations here in this country.
    Mr. MANZULLO. I have got to leave, but after we get back from our August break, I would be interested in doing a Special Order and, Amo, incorporate into it the new African trade bill that we co-signed on to just a few weeks ago. Let's have the Special Order on alternatives to foreign aid by showing people how to get involved in commercial enterprises themselves.
    Mr. HOUGHTON. Right. Well, I think it would be well worth while. I have always felt there are two types of expenses; there are investment expenses and expense expenses. I think this is really an investment expense. I think, as Tony said, it has ramifications far beyond anything we can even understand now. Certainly it creates jobs, and certainly it creates a feeling of self-sense and it pulls communities together. And for us to make a $10- or a $50-loan has thousandfold ramifications in terms of our relationships with these countries.
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    So I would be delighted to do a Special Order, a 1-minute, or anything with you.
    Mr. MANZULLO. That is great. Thank you.
    Ms. ROS-LEHTINEN. Thank you so much, Don.
    Mr. Rohrabacher, who wants to know if we can start a microenterprise program in southern California for a better surf group.
    Mr. ROHRABACHER. I am sure that this program does a lot of good in the Third World and probably helps overcome the negative impact of OPIC.
    Ms. ROS-LEHTINEN. You don't have to feel the need to respond, Mr. Manzullo.
    Mr. ROHRABACHER. I have been following this program. It is a great program. I think it speaks highly of both of you for the fact that you are putting such a lot of time and energy into this.
    We all have just limited time, and I just want to commend both of you for getting involved in a program that you don't have a lot of guys inviting you out to the country club to thank you for the effort you put in on behalf of that program.
    So thanks a lot, fellows, and you exemplify a good, positive spirit.
    Mr. HOUGHTON. Dana, if I could say a word, first of all, thanks very much for those comments. But second, you know, this is not just a Third World program. I mean, this has been tried in the South Shore Bank in Chicago, other places. Tony talked about Iowa. And I buy into this thing big time, because we have people who want to work and are trained to work and they are capable. They have got to be received by somebody, and they can be received by themselves.
    Mr. ROHRABACHER. I agree that it is not just aimed at Third World countries. However, let me note this: Your efforts will be much more successful in Third World countries than in the United States for one reason, and that is, in Third World countries, where they haven't developed the regulatory burden. I was married years ago, and my wife came from a very poor background. She was a Cuban, in fact, with a really wild temper.
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    Mr. HOUGHTON. I don't think we ought to get into the middle of that.
    Mr. ROHRABACHER. Anyway, her mother wanted to have a child care center in her home. This is just the type of micro project that would get a loan. And they came from a very working-class family.
    And guess what? They had this day care center for local people on their block so people would know where to take their kids, and she did it for about a year until the county showed up. And the county showed up and said, oh, well, you can't do this unless you meet all of these requirements, and, plop, here is the book of all of the requirements that you have got to meet in order to take care of other people's kids.
    Well, whatever enterprise it is, there is going to be plop, there is going to be a bureaucrat with his requirements. It is going to drive the little guy out of business but the bigger guy can stay in business. And in Third World situations they don't have that bureaucrat come around because they haven't developed that.
    So I hope that we can learn from that situation. All I know is in the situation that hit home to me was that poor woman had to close up that little day care center she had in her home, and the people on that block then didn't have the cheap day care center with a lady they knew. They had to have a more expensive day care center a couple of miles down the road with professionals.
    Let's help the Third World folks get over it. If we can do it, more power to them. I am for those little guys.
    Ms. ROS-LEHTINEN. That is a good example.
    Mr. HOUGHTON. I think this program sheds a more piercing light on government bureaucracy with this tiny little microenterprise business than it would on General Motors.
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    Ms. ROS-LEHTINEN. Thank you.
    Mr. Blunt.
    Mr. BLUNT. Thank you, Madam Chairwoman.
    I am just grateful you had this hearing. I don't have any marital stories to share or anything. I would say my wife is remarkably even tempered, if she happened to hear about us discussing these things.
    I am certainly very supportive of the efforts of the program. I am glad you are holding a hearing on it and look forward to the other panels you have.
    Ms. ROS-LEHTINEN. Thank you, Amo and Tony, for your leadership for so many years on this topic. Thank you.
    Mr. HALL. Thank you.
    Mr. HOUGHTON. Thank you.
    Ms. ROS-LEHTINEN. For our second panel is a long-time friend of all of the subcommittees of our Full Committee, Mr. Mark Schneider, who serves as the Assistant Administrator for Latin America and the Caribbean of the U.S. Agency for International Development.
    Prior to joining AID, Mr. Schneider served as Chief of the Office of Analysis and Strategic Planning at the Pan-American Health Organization, and he has also served as a Senior Deputy Assistant Secretary of State for human rights and a legislative assistant and Senate committee staffer for Senator Edward Kennedy. He was a reporter for various publications and served in the Peace Corps from 1966 to 1968 and just a general good guy.
    Thank you, Mark, for joining us today. We look forward to hearing you. Perhaps you can answer some of the questions that the panelists had asked, especially about the Africa involvement. I know Kenya has got a very successful program. Maybe you could touch on that in your remarks. And we will be pleased to enter your full remarks in the record at this time.
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    Mr. SCHNEIDER. Thank you very much, Madam Chairman.
    Let me just say that it is an honor for me to represent the U.S. Agency for International Development and Administrator Atwood before this distinguished Subcommittee and to discuss the importance of microenterprise in reducing poverty, in empowering women, and in contributing to broad-based economic growth.
    As we have heard, microenterprise development and microfinance provide credit and economic opportunity to the disenfranchised poor, helping to ensure that the benefits of economic growth are available to all.
    This is a very special week in USAID's microenterprise history because tomorrow, at 4 p.m., in this very room, USAID will formally renew its Microenterprise Initiative with Members of Congress and the Microenterprise Coalition. First Lady Hillary Rodham Clinton will join us for this occasion and highlight the broad-based support within the Administration for the goals of the program. Your chairman, Congressman Gilman, and the distinguished Ranking Member of the Subcommittee, Congressman Gejdenson, are hosting the event. I hope, Madam Chairman, that you and other Members of the Subcommittee will join us for that.
    I think it is accurate to say that USAID has always been the lead donor in support of microenterprise programs in the world. We are proud of our history of leadership. We intend to continue that leadership, and we intend to do that both with our own programs and with the role that we play in bringing other donors into this important area of activity.
    We have worked together with the World Bank, the IDB, and others in bringing them to recognize the impressive potential of microenterprise in reducing poverty around the world.
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    In the hemisphere, let me just say that perhaps our leadership can best be seen in our role in the Summit of the Americas process in Miami in 1994, in bringing together all 34 Heads of State to pledge support for microenterprise programs as part of the commitment of those governments for pressing for democracy and development in the region.
    As you know, there will be a Santiago summit upcoming next year, and I am pleased to say again that we are assured that microenterprise development will have a prominent role on that agenda as part of the effort to move against poverty in the region.
    Let me also mention that just 2 months ago, when President Clinton went to both San Jose, Costa Rica, to meet with the Presidents of the Central American countries and to Barbados to meet with the Heads of State from the Caribbean, microenterprise development was a key part both of the Declaration of the Presidents and of the U.S. Government commitment to continue to support those efforts as part of the attack on poverty in the region.
    You have mentioned in the testimony and discussion some of the key concerns relating to moving forward with microenterprise development, removing legal and regulatory barriers, ensuring the integration of the formal and informal credit institutions, and giving poor access to credit.
    We are seeking additionally to strengthen the institutional capacity of informal and formal sector institutions in order to expand the delivery of credit to microenterprises and small businesses, and we are encouraging the participation of other development agencies, commercial banks, NGO's, and other intermediary credit organizations.
    Our investment in microenterprise began in the early 1980's after the experience with the Grameen Bank. We nurtured microenterprise programs, supported pioneers in the field, and have been rewarded by seeing successes across the globe.
    Today—and this is in response to one of the questions—USAID alone is supporting 150 institutions in 50 countries around the world. These institutions have demonstrated that poor people can become both savers and borrowers. Microenterprise has proven to be one of the most valuable available tools in helping people make their way out of poverty and into the economic mainstream.
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    As you know, the Microenterprise Initiative was first launched in 1994 in an effort to expand our program. That initiative, which has been endorsed by Members of Congress, had three specific goals: first, to assist the efforts of the poor to increase their income and assets; second, to increase skills and productivity to enhance economic growth; and third, to facilitate the development of economic democracy, the participation of the poor in the economic lives of their countries.
    We know that among the highest barriers to the participation of the poor in national economies is their lack of access to credit. Microenterprise programs tear down that wall and enable the poor to obtain the capital they need to create and expand businesses.
    USAID pledged in 1994 to expand its programs that lend to the very poor and to women and to create a new, centrally funded grant mechanism which focused on U.S. PVO's—private volunteer organizations—in the microenterprise field.
    The regional bureaus of USAID and our missions also depend on many of those PVO's, some of which you are going to hear from later on, groups like Accion International and FINCA International. The initiative was an integral part of our broad-based economic growth strategy, and it has been very successful.
    USAID has obligated more than $400 million for microenterprise programs worldwide in 3 years. The newly established central programs support microenterprise efforts that reach hundreds of thousands of poor microentrepreneurs in more than 20 countries. In addition, our programs are being copied by other donor agencies, by governments, by NGO's, and a start within the private banking community as well. And this imitation perhaps is the highest kind of flattery for USAID's leadership in this field.
    If I could, let me simply express the hope that you will be hearing from members of the Microenterprise Coalition, and I think it is accurate to say that they would all agree that we are making excellent progress in increasing the numbers, scale, and sustainability of microenterprise programs around the world, and that those programs are beginning to make a difference in poverty alleviation.
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    Let me point out how these programs have changed lives in the developing world—in Africa, in Asia, in Latin America and the Caribbean particularly, and also in Eastern Europe and the Newly Independent States of the Soviet Union.
    Some of the programs you know well. The highly successful rural banking program at the Bank Rakyat Indonesia (BRI), and the urban-based BancoSol in Bolivia are examples of how relatively modest investments by USAID have been leveraged with private funds many times their value.
    BRI has attracted small savings of more than $1 billion from 12 million Indonesians, and lends to more than 2 million microentrepreneurs today. At BancoSol, USAID about 10 years ago made a modest grant of some $4 million to provide the seed money to begin operations. BancoSol now has become a profitable commercial bank, serving 75,000 microenterprise clients, with no further need of subsidy. It pumps more than $35 million into the Bolivian economy every 3 months in the form of new loans to its members, or about $140 million a year, generating new jobs and new economic activity.
    We also, obviously, support the Grameen Bank replication program that is now providing grants and technical assistance to more than 45 Grameen representatives worldwide. And, as you noted, Madam Chairman, USAID is supporting another microfinance leader, the Kenya Rural Enterprise Program, K-REP, which is well along in the process of transforming itself into a bank able to leverage private investment for the benefit of poor microentrepreneurs.
    My testimony lists accomplishments from various countries around the world. I will pass over that and cite some of the key challenges that remain.
    Up until now, most microfinance innovation has occurred outside the mainstream financial system, with NGO's and credit unions, financed mainly by governments and donors. If microfinance is to reach the millions who need it, it will have to transform its sources of finance. The future of microfinance requires additional private sector financing as well.
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    The doors of the private sector will open, as microfinance programs show as they have begun to do, that they can be profitable. BancoSol, BRI, and others have shown that it can be done. Programa Genesis in Guatemala, another affiliate of Accion International, received its first grant from USAID, but its most recent capital infusion came from the private commercial capital market.
    The good news is that we are seeing greater involvement of commercial banks and finance companies in the microenterprise field as they begin to see it as a profitable activity, because the poor repay and they repay at a much higher rate than the average borrower.
    As you have heard, the repayment rates generally for all of our programs are more than 95 percent. That gives you some idea of the potential that exists to convince the private commercial and financial market to reach down and open their doors to microentrepreneurs.
    The other challenge is to ensure that banking regulations in the countries permit the NGO's, the microfinanced institutions, to grow up to become legitimate banking institutions able to expand their own access to the private capital markets.
    I want to emphasize again that approximately two-thirds of the clients of microenterprise institutions supported by USAID are women. Beginning with loans as little as $50, poor women can begin the process of escaping from poverty. And their repayment rate, as I said, is higher than 95 percent.
    In February, the Results Education Fund organized a highly successful microenterprise summit. USAID and the Clinton Administration were wholehearted participants. First Lady Hillary Clinton served as honorary co-chair and had this to say after visiting microenterprise projects around the world. And let me quote, because we often focus only on the linkage between microenterprise, microfinance and helping people move out of poverty. It does more than that.
    She said: ''I want to emphasize that it was not just stories about what the loans bought and what they were able to do with the loans; it was the entire sense of self-worth and potential that those loans created in the women that made the biggest impression on me. Women stood up and said that they had been vegetable vendors in the markets and had been abused by police officers, others of authority, with no place to turn to try to keep their businesses going when times were difficult.
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    ''They told me of working on their family farms, eking out a living in very hard soil with little equipment and little support. And yet, woman after woman stood up and said to me that since they had been members of the Self-Employed Women's Association, they were no longer afraid.''
    It is that kind of reality that captures the additional value of microenterprise, and it demonstrates that a crucial result of microenterprise loans is empowering women in societies which traditionally have excluded them from the economy.
    I want to note that the February summit set a goal of reaching 100 million of the world's poorest families in microfinance in the next 9 years. USAID supports this goal. It is ambitious, but we believe it can be achieved. We have to look at ways to ensure that microfinance reaches out to the untapped market of the world's poor. We believe it is possible but only if microfinance also becomes part of the private financial system, in addition to continuing with the effort to ensure that NGO's and the microfinance institutions and the nonprofit community continue to operate as a crucial part of this network.
    Do the programs work? There is no question. You have only to look into the eyes of the people who are building a new life with these loans. In those eyes shine the pride of a village woman in El Salvador as she displays the ledger showing the chickens she sold and the dignity of the women in Bolivia in some of the indigenous communities served by BancoSol.
    These programs are changing the face of poverty. They are empowering people. They are beginning to contribute to the reduction of poverty and economic growth in these countries. They are a great success. I want to thank and congratulate the Subcommittee for its support.
    Thank you.
    [The prepared statement of Mr. Schneider appears in the appendix.]
    Ms. ROS-LEHTINEN. Thank you so much, Mark.
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    Mr. Rohrabacher.
    Mr. ROHRABACHER. Thank you for your testimony today, and I appreciate it very much.
    Could I just ask some basics here? How much is this costing the taxpayers, this program, totally?
    Mr. SCHNEIDER. In terms of current expenditures, I believe that we are now at around $138 million in terms of the obligations last year, which was about the level of our commitment during the initiative.
    Mr. ROHRABACHER. How much do we have to allocate per year? What are we talking about?
    Mr. SCHNEIDER. That was the obligation, about $138 million.
    Mr. ROHRABACHER. And that has been going on since 1994?
    Mr. SCHNEIDER. In terms of the increase to that level of expenditures; that is right.
    Mr. ROHRABACHER. Before that, it was?
    Mr. SCHNEIDER. Slightly lower.
    Mr. ROHRABACHER. Slightly lower. How long has the program been going on?
    Mr. SCHNEIDER. The program began in the early eighties. It has been continuing and what we basically did in the 1994 initiative was to make a commitment to reach down to all levels of the agency and ensure that this was a fundamental part of our effort to promote economic development.
    Mr. ROHRABACHER. Right. And the $138 million, because it is paid back, then stays in the community——
    Mr. SCHNEIDER. Exactly.
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    Mr. ROHRABACHER [continuing]. And becomes——
    Mr. SCHNEIDER. It rolls over and continues to promote additional jobs and additional economic enterprises.
    I should add one thing that I think is important to recognize. Those funds also are used to help provide technical assistance to those microentrepreneurs to help them expand. It is very impressive to see some of these—the books of an individual borrower showing a $50-loan three times over a year and then it maybe goes up to $60 and then $70 and then $100, as their microenterprise begins to have some success. And they show that they will repay.
    Mr. ROHRABACHER. So you are teaching these people how to keep books?
    Mr. SCHNEIDER. Absolutely.
    Mr. ROHRABACHER. And such as that.
    And your goal is to reach 190 million people?
    Mr. SCHNEIDER. 100 million of the poorest families.
    Mr. ROHRABACHER. 100 million of the poorest families.
    Mr. SCHNEIDER. Nine years, 2005.
    Mr. ROHRABACHER. OK. 2005.
    Well, I wish you luck. It is an admirable goal. And, again, when you are aiming this at people at this level, it can't do anything but good. I am sure that that same spirit goes all the way down, because every time I have looked at this program, I have seen that there is a spirit of benevolence but also of enterprise. And, you know, benevolence can be very oppressive at times if it is not really associated with the spirit of enterprise, which is necessary to prevent dependency. This is a nondependency program, and I appreciate it very much.
    So thank you very much for your testimony.
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    And, Madam Chairman, again, thank you, for participating.
    Ms. ROS-LEHTINEN. Thank you very much.
    Mr. Clement.
    Mr. CLEMENT. Yes.
    Mr. Schneider, where is AID focusing most of its efforts with regard to microcredit, and why? And what countries are receiving the most attention by AID?
    Mr. SCHNEIDER. I would have to say that what we have attempted to do in this initiative was ensure that all regions within AID recognize the importance and the priority that the administrator and the Members of Congress attach to this program. We have, I would say, a fairly decent balance between expenditures for, let's say, Latin America and the Caribbean, and in the other regions.
    In terms of percentages, probably over recent years, I would have to say Latin America and the Caribbean may have had a slightly higher percentage of its budget devoted to microcrdit support.
    Is that a fair statement?
    I am checking on that.
    But I think the effort has been made to ensure that all regions and all missions recognize the priority attached to microenterprise programs. There is a question as to how many countries in Africa.
    Mr. CLEMENT. Well, you can submit it for the record, if you so desire, and that will be acceptable to me, if it is with the chairman.
    [The answer below was supplied following the hearing.]

    USAID informed the Committee that 18 countries received direct microenterprise support from USAID in FY 1997.
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    Mr. CLEMENT. What is the advantage of having USAID take leadership in coordinating the efforts of microcredit development?
    Mr. SCHNEIDER. I think what we are able to do is to ensure that other donors recognize our commitment and are brought along by the evidence that we are able to show of success in order to enhance the possibility of their making similar commitments, particularly the banks.
    I would say that the major change, if you look out in the donor community, is that in recent years the major international financial institutions, the World Bank and in this region the Inter-American Development Bank, have begun to do more and more in the area of microenterprise support. They are beginning to do that, and we think that is a way to bring additional sources of finance into the microfinance community.
    Mr. CLEMENT. If NGO's are contracting from AID, are they acting as a not-for-profit bank and serving the same function as Grameen Bank, or are the NGO's an extraneous middleman?
    Mr. SCHNEIDER. In some instances, I would say that it is similar to what Grameen would be doing with its affiliates in Bangladesh. In other instances, they will be setting up, as you will hear from FINCA International, their own affiliates within the country, and they will be providing additional technical support to them while the affiliates are the ones that are actually giving out the specific loans.
    Accion affiliates operate the same way; they are the ones who are actually giving out the loans within the country. In a certain way, they initially provide the same kind of support.
    Mr. CLEMENT. Thank you.
    Ms. ROS-LEHTINEN. Thank you so much.
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    Mr. Roy Blunt of Missouri.
    Mr. BLUNT. Thank you, Madam Chairman.
    Mr. Schneider, how long does the payment period last on the average loan?
    Mr. SCHNEIDER. Although it may vary, the experience of USAID in Latin America shows about 3 months for the programs. BancoSol and some of the other solidarity programs also have about a 3-month time period.
    Mr. BLUNT. So is most of the money that is appropriated in a year paid back in that same?
    Mr. SCHNEIDER. It rolls over so that the capital that is used can be reused for additional loans.
    Mr. BLUNT. I guess on Mr. Rohrabacher's question, he asked you, I am just trying to understand this. I am very supportive of what you are doing. I don't know that there is a better thing we do in the whole area of international aid than a program like this. It really does allow people to develop their own enterprise, to have that hand-up that is so helpful.
    But in terms of his question, is the $138 million—is that what is basically tied up in this fiscal year, or does that build on money that was loaned last year that hasn't been paid back yet? Or just help me through that a little bit.
    Mr. SCHNEIDER. In a sense, it builds on, because I would say somewhere approaching 60, 70 percent is actual money for capital for the loans. The additional percentage would be for technical assistance to, for example, those affiliates.
    Mr. BLUNT. Yes.
    Mr. SCHNEIDER. Or to the entrepreneurs themselves, or the support for the NGO's in carrying out the programs.
    Mr. BLUNT. So with a $138-million appropriation, what would be the amount of money that people owed to the microlender under this program, would you think?
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    Mr. SCHNEIDER. Somewhere around 60 percent.
    Mr. BLUNT. And, basically, what was loaned last year was probably paid back last year?
    Mr. SCHNEIDER. Right.
    Mr. BLUNT. And then that goes back into——
    Mr. SCHNEIDER. Into the local affiliates for relending.
    Mr. BLUNT. For relending. OK, thank you. That is helpful.
    Ms. ROS-LEHTINEN. Thank you so much.
    Mr. Sherman.
    Mr. SHERMAN. Thank you, Madam Chairman.
    Do commercial banks participate in these microloan programs?
    Mr. SCHNEIDER. They haven't in the past. They are beginning now.
    In Latin America, I think that we can count nearly 20 commercial banks that are beginning to open a microenterprise window. We are hopeful that we can expand that.
    Last year, we carried out a conference with several other donor institutions, NGO's, and the banking supervisors from countries in the region, in order to see what it would take, what the barriers were within the regulatory systems to banks participating in microenterprise programs and microfinance programs.
    Mr. SHERMAN. What is the total amount of our foreign aid commitment that goes to microenterprise?
    Mr. SCHNEIDER. Approximately $138 million last year.
    Mr. SHERMAN. And you expect over a period of several years to help 100 million families?
    Mr. SCHNEIDER. Well, we expect that, together with other donors, with the local institutions, we expect to be able to achieve the goal of reaching 100 million of the poorest families, and that, we think, is a reasonable goal.
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    Mr. SHERMAN. What portion of that achievement is attributable to the funds provided through U.S. foreign aid?
    Mr. SCHNEIDER. That is a hard question. We are looking at those kinds of questions right now and undertaking some studies in that regard.
    I will say that if you look at what we do in relation to other donors—World Bank, IDB, African Development Bank, et cetera—USAID's contribution is very significant.
    Mr. SHERMAN. Well, as an elected official, I spend most of my time taking credit for the work done by my staff. The fact that AID, et cetera, can take credit for the work done by other donor countries seems meritorious.
    But I would, for the record, submit something so I can judge how much we are spending each year and how many of those 100 million families that will be affected we can take care of.
    Mr. SCHNEIDER. Remember we are building up to that. It is a 9-year goal.
    Mr. SHERMAN. I understand.
    Are there places in the world where microcredit is viewed as a threat to existing social hierarchies and where there has been resistance in local communities?
    Mr. SCHNEIDER. I am not sure that I can give you specific places where that is the case. In general, getting institutions to focus on the problems of the poor as part of the responsibility of governance, has not always been easy. We have a situation even today in Latin America where perhaps 35 to 40 percent of the population remain in poverty.
    The policy focus and resource focus on the needs of the poor is not necessarily the easiest political policy goal to convince people to undertake. So in that sense, it has not been something that governments have jumped at.
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    Nevertheless, I think we have demonstrated, through the microenterprise program, that incorporating the poor into the economic system is in everybody's benefit, and that it can be done, and that, contrary perhaps to some past theories or beliefs, the poor repay better than anyone else, higher than 95 percent, and make important contributions to the national economy.
    Mr. SHERMAN. So there may be situations where local governments and institutions don't actually help, they may even doubt the likely success of your efforts, but you don't have situations where you are actually opposed by those who fear that you will have a social impact?
    Mr. SCHNEIDER. I can't personally give you specifics—I would suggest you ask the next panel, as well, that question.
    Mr. SHERMAN. Thank you very much.
    Ms. ROS-LEHTINEN. Thank you so much.
    Mr. Luther, thank you for joining us.
    Mr. LUTHER. Thank you, Madam Chair. I appreciate the testimony and the written testimony.
    One question that I had is, what is the due diligence process that you follow in making the loans and reviewing the applications? Can you just explain that briefly?
    Mr. SCHNEIDER. OK. First, we are usually providing the grants to a U.S. or a local private voluntary organization or nongovernmental organization, and they are required to abide by all of the requirements of the U.S. Government reporting and auditing system.
    The next step is that the recipients must ensure that the local affiliates, who will be making loans, abide by due diligence requirements. And they know that they are going to be audited by major accounting firms in order to ensure that that is the case. So they undertake the due diligence requirements.
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    Mr. LUTHER. And in terms of default rates, what information do you have on that at this point? I realize we are talking about a fairly short period here.
    Mr. SCHNEIDER. As I said, the repayment rate is about 95 percent on the loans. My recollection is that there is about a 2 percent default rate.
    Mr. LUTHER. OK. And then the money, obviously, having been repaid, is then available for additional extensions.
    Mr. SCHNEIDER. Right.
    Mr. LUTHER. And so is this what one would call basically a revolving line of credit, something along those lines, or a revolving funded program?
    Mr. SCHNEIDER. Right. In instances where you have a village bank, the bank also then will have the opportunity to have both that capital as well as obtaining deposits, and that becomes, again, the source for additional credit.
    Mr. LUTHER. So then basically, with additional appropriations, this is the kind of fund that can grow over time? And that has been the case, I take it?
    Mr. SCHNEIDER. That is correct.
    Mr. LUTHER. And generally, what has the growth been then in the available funds in this fund? I mean just roughly. I don't mean specific numbers.
    Mr. SCHNEIDER. Each of the past 3 years we have obligated about $130 to $138 million per year. About 60 to 70 percent has gone for credit programs. So each year, that adds to the available total.
    Mr. LUTHER. OK. So then that 60 or 70 percent, whatever the number is, except for the default percentage, obviously——
    Mr. SCHNEIDER. Right.
    Mr. LUTHER [continuing]. That would keep accumulating so that this fund would continue to grow?
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    Mr. SCHNEIDER. Right.
    Mr. LUTHER. OK. Well, thank you, Madam Chair.
    Ms. ROS-LEHTINEN. Thank you so much, Bill. Thank you.
    Mr. Schneider, you had said in your testimony that thanks to our leadership in the United States, with the President and the First Lady's help, and with the help of some other countries, we were able to make microenterprise sector one of the priorities at the Summit of the Americas held in my hometown, in Miami.
    Now with these upcoming discussions about the free trade area of the Americas, what role do you foresee that microcredit or microenterprise will be having in these discussions? What impact do you think this will have on the economies in the countries of our hemisphere, and what is the potential impact on labor within the context of these discussions?
    Mr. SCHNEIDER. Thank you, Madam Chairwoman.
    The agenda for next year's summit meeting in Santiago generally looks like it will focus on education, democracy, trade, and reducing poverty. And there is an agreement now to have a focus on microenterprise as one of the key areas of action with respect to poverty reduction. So the countries in leading up to Santiago will be developing initiatives designed to expand support for microenterprise development as part of the debate and discussions at Santiago.
    I will say that in the debate with respect to the FTAA, one of the areas that we are concerned about is ensuring that the micro and small entrepreneurs around the region also benefit from the expansion of free trade. And so we are looking in our programs at ways to encourage that.
    As you know, we have had success with nontraditional agriculture programs, and we are looking at ways in which microentrepreneurs can receive part of the benefits of expanded trade opportunities.
    Ms. ROS-LEHTINEN. I believe you have touched on this before. Can you elaborate on what the differences are between microlending in the developed countries and underdeveloped countries?
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    Mr. SCHNEIDER. One of the points that I was going to make, and I am glad for the opportunity, is that we have seen some of the experiences that we have had around the world have great relevance for the poverty community in the United States.
    Over recent years, there have been some 400 institutions around the United States that have begun their own microlending programs. Accion and FINCA both have similar programs in different communities in the United States. In a program that we call Lessons Without Borders, we brought some experiences that we thought had relevance to problems in the United States, like FINCA and Accion, into Baltimore and other cities to demonstrate this. And some have been picked up by local community groups, local governments, and adopted.
    Ms. ROS-LEHTINEN. Thank you so much, always, Mark, for your testimony. We look forward to working with you, and we will see you and everyone is invited tomorrow, right here, at 4 p.m. with the First Lady.
    Thank you so much.
    Mr. SCHNEIDER. Thank you very much.
    Ms. ROS-LEHTINEN. I would like to introduce our last set of panelists, and I would ask them to come join us here. First we will here from Muhammad Abdul Mannan Talukdar.
    I hope I didn't do too much damage to your name.
    Mr. Mannan is currently senior officer in the Monitoring and Evaluation division of Grameen Bank's head office. He started as a bank worker in 1980 when he was the 48th employee hired by Grameen Bank. Today, Grameen has more than 20,000 workers. Previously, he served as a manager of three branches and as unit manager of what has become the highly successful Grameen Fisheries Foundation.
    He is accompanied by another very knowledgeable individual, Alex Counts, who serves as the executive director of the Grameen Foundation here in the United States. He has long involvement with Grameen and microcredit and has been published extensively on this issue. Mr. Counts is serving as interpreter for Mr. Mannan today.
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    We thank you for that, Alex.
    And then our second witness is a constituent of my congressional district, someone who is truly driven to have a positive change in our community and our State and in our Nation and worldwide, and I am referring to Kathleen Gordon. Ms. Gordon is founder, president, and member of the board of directors for Working Capital Florida, Partners for Self-Employment.
    Before moving to Miami in 1974, Ms. Gordon owned and managed Arts International Galleries in Beverly Hills, California. So she has hands-on experience in the business world. In addition to this business experience, Ms. Gordon has served as regional coordinator of the Hunger Project and on the boards of numerous organizations, including Cedars Medical Center Development Board and End World Hunger as well.
    In 1995, Ms. Gordon was a nongovernmental organization delegate to the U.N. Conference on Women.
    And we welcome you today, as always.
    And she will be followed by two individuals who are success stories of microcredit, and I am referring to Elisa Crespo and Elveton Newton. Ms. Crespo is the owner and instructor of EVA Safety Consultants, a company whose primary focus is CPR and corporate safety compliance. As a result of corporate downsizing, she turned her part-time venture into a home-based microenterprise. Elisa has used her bilingual skills to broaden her Miami client base and has begun to translate her courses into Creole also to reach out into other communities of south Florida that remain untapped. And we welcome Ms. Crespo here today, and we are very honored to hear her testimony.
    Mr. Newton, also from our area, is the owner of the Garden of Eden Lawn Ministries, a lawn maintenance and landscaping company. Elveton will not only maintain your lawn but will also design a floral garden, complete with a fountain, pool, or waterfall. He enhanced his business by being both functional and artistic. He has practiced the art of designing a garden to provide products which are beautiful and artistic. And we thank Mr. Newton for his testimony today.
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    And now our final witness for this panel is someone who is at the forefront of this issue, Mr. Lawrence Yanovitch, who is the co-chair of the Microenterprise Coalition, the chair of Working Capital, and an elected member of the Policy Advisory Group for the World Bank, Microfinance Consultant Group.
    He also serves as director of policy and research at the Foundation for International Community Assistance, FINCA, which was referred to by Mr. Schneider a few minutes ago.
    Mr. Yanovitch has been a microenterprise practitioner for 10 years, having managed and provided technical support to microcredit programs in Latin America, in Africa, Asia, and the New Independent States, the Caribbean, and right here in our United States.
    We thank all of the witnesses for being here today and for sharing their views and recommendations and insights with us on this very important issue. And now we will begin with Mr. Mannan Talukdar.
    Thank you.
    Mr. TALUKDAR [through an interpreter]. My name is Abdul Mannan Talukdar. I work for the Monitoring and Evaluation Division of the Grameen Bank in Dhaka, and I joined the Grameen Bank in 1980 on the 9th of January in Tangail District. The person who gave me the job was Professor Yunus, the founder and managing director of the bank. And when he gave me this job, he said that, I am not giving you just a job, I am giving you work, and it is the most arduous work that I can give anyone.
    When I got this work, I had some apprehension—I was happy to get a job, but I was worried that, here I am going to loan to the poor, and will they repay? But very soon I gave a loan to a woman named Halimon, who was one of the poorest women in her village. She had three sons, and her husband had abandoned her, and she had to work in other people's houses as their servant for just some small amount of food to eat, and yet because of the loans, she was able to make an unbelievable progress in the first year that I was working at this branch.
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    I have always worked in other places since then, and I would estimate that I have given loans to more than 10,000 people directly from my hands. And I have seen them make progress, and I have loaned them millions of Taka. I was the founder of a branch in the Shaymganj area of Manikganj district. And when I first went there, there was very little—if any—economic activity, and yet I have seen the progress that these people have made, and I have found that the poor of my country are extremely sincere about repaying their loans.
    Several years ago, I became the research assistant of Alex Counts, and I got to go back to the branch that I was at in 1980, and I saw that Halimon who was so poor, she had become a homeowner, owns her own house, owns her own tube well to get clean water. And beyond that she had made social progress, and people in the village who would treat her very disrespectfully were now treating her as a respected person, consulting her on village matters.
    I would finish by saying that I have only given one example of Halimon, but there are hundreds of thousands of others in Bangladesh, and I just want to thank the Chairman and other Members for convening this hearing to give me an opportunity to speak, and I feel that if the American Government can support programs modeled on Grameen Bank throughout the world, this would be a tremendous help and will actually get resources into the hands of the poorest in a way that they can benefit.
    And, again, thank you for giving me this opportunity to speak.
    Ms. ROS-LEHTINEN. Thank you. We are honored that you were here with us today, Mr. Talukdar.
    Alex, I am sure you did a great job of translating.
    Ms. Gordon, thank you for joining us.

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    Ms. GORDON. Madam Chair, Members of the Committee, it is an honor for me to be here today, and also former chair, Dante Fascell, I have to acknowledge him also because it was under his leadership that we originally got microcredit money in the budget in 1987. The first money was for $50 million, and so the fact that we are now up to $135 million and that money has now been built on and recycled and has thrown off interest to help fund the project is really miraculous.
    I am also honored to sit next to this gentleman, because he started with this bank where there were 100 borrowers, and at the Grameen Bank there are now 2.1 million borrowers, and he has been there since the beginning, slugging it out to make that happen. So of the 8 million loans that are out now in the world, 2 million of them are with the Grameen Bank and the other 6 million are in other parts of the world.
    So it is just an honor for me to be here next to him, and I would love for him to come to Florida to help us with our program.
    The World Bank estimates that of the 6 billion of us on the planet right now, approximately 1 billion of us are living in dire, dire poverty, and dire poverty looks like the—if you broke 1 billion people down to 5 people in each family, that means that each one of those 200 million families are living on about a dollar a day. That means their income is around $300 a year. And so for want of a loan between $50 and $150, those families are stuck in overwhelming, dire poverty and malnutrition.
    It is those families, those 200 million families, that are losing 35,000 children a day due to malnutrition and other illnesses. So the goal, when we say, of reaching 100 million families, that means we want to reach half of those 200 million families with a loan in the next 10 years, and that is very exciting, because where is the money going to come from to do that? It is going to come from three places. It is going to come from the normal financial markets; it is going to come from government and aid agencies around the world, pooling the resources to do that; and it is going to come from the savings of the borrowers themselves. So it will be one-third, one-third, one-third.
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    So you get an idea of what we are here talking about. We are talking about the potential to actually verify, recycle the money, throw off interest, that will break the back of poverty, and we in this room are the people that are going to take a look at doing that. And any participation that this Committee, any energy that this Committee could do to make that happen, might be the most meaningful thing you could ever do during your time in office.
    You have heard about the history of microcredit, so I won't go through that. RESULTS, an international grass-roots citizens organization that we are a part of, that advocates on these issues, we played a major part in the beginning set-asides of the money through the U.S. Government, and that money has been used, I think, wisely. If it is not used wisely, you can count on us in RESULTS to really, really go after it, because we are adamant that, of the money you are appropriating, let's say the $135 million, we insist that 50 percent of it be to loans under $300.
    A family that only makes $300 a year does not need a $1,000 loan. What they need is $50, $100, $150, $200 loan to get them up out of poverty.
    If you don't mandate that half of that money goes in that direction, it gets skimmed off at a higher level and it never gets down to where it is supposed to go.
    I want to talk about the United States, because we are involved in a program in the State of Florida. Working Capital was founded by Jeffrey Ashe. He originally founded Programs Overseas, meaning Accion, brought back his expertise in lesser developed countries, and started the program in seven States in the United States.
    So Working Capital is reaching 3,000 businesses in the United States today. We have about $3 million out in loans, with a 95 percent repayment rate in America.
    Working Capital Florida, which is the program that I am the cofounder and president of, we are 2 years old. It is a public/private partnership. We receive the loan capital through eight banks at the local level, and they pool the loan capital, and we receive government—meaning county government—money and foundation money for the operating costs to expand the program.
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    I gave you a report card of Working Capital Florida within the packet, so that gives you the breakdown of how our program functions.
    We have two of our small business owners to give you personal testimony on how Working Capital has worked in their lives in Miami. So I will turn it over to them.
    Thank you very much.
    [The prepared statement of Ms. Gordon appears in the appendix.]
    Ms. ROS-LEHTINEN. Thank you so much.
    Ms. Crespo. And unfortunately, we have a vote so we will have to wrap this one up really quick. I apologize.
    Ms. Crespo.


    Ms. CRESPO. Sure. Madam Chair and Members of the Committee, I do thank you very much for this opportunity. It is a pleasure for me to be here this afternoon.
    I came to Washington for the first time in my life, being a Cuban American from Miami. I am a divorced single person, and I have two children to raise. The reason why I am here is because I believe in the principle of Working Capital, and I believe that no matter how much talent, intelligence, training you have, if no one is able or capable of giving you an opportunity to make your dreams come true, you will never achieve what you are, you know, entitled to.
    I have borrowed $1,500 from Working Capital, and that has helped me to establish my business in CPR and first aid. I have long-term and short-term goals. I have already acquired my short-term goals, and I am working on my long-term goals.
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    If everyone in the community that needs a small amount of money to start their own home-based business gets the opportunity that I have gotten, they will be a success and they will bring to the community an empowerment and truly believe in the American dream.
    So thank you very much.
    [The prepared statement of Ms. Crespo appears in the appendix.]
    Ms. ROS-LEHTINEN. Thank you, Ms. Crespo.
    Mr. Newton.


    Mr. NEWTON. With the understanding that we only have a little bit of time, good afternoon, Madam, and to my distinguished guest, Mr. Luther, who is behind me.
    I am Elveton Newton, and I am the business owner of the Garden of Eden Lawn Ministries, my business, which provides lawn maintenance and landscaping design. However, my purpose here today is to utilize this opportunity to inform the Committee of the great dynamics that are taking place in Miami.
    I would attest to the fact that Working Capital has established over 300 businesses within the last 2 years since they have arrived in Miami, Florida. All of these owners, who have these businesses, come from low-income backgrounds. I myself in 1974, I was financially disabled, limited to only serve two or four customers on a weekly basis. Finding transportation to my various business assignments was a difficult task in itself. Without having the proper credit, I was continuously rejected by many financial institutions.
    Finding transportation, again, like I say, was very difficult. However, these rejections made my business ideas seem impossible until I was introduced to the Working Capital program in March 1995.
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    It was there that Working Capital, they accepted me and assisted my business idea financially. By doing this, they built my self-confidence and established a credit history that I needed. My first loan was $500, which I used also to start a business bank account, and the remaining of that money for garden tools and purchasing material on education and financial management of business.
    From that, I was able to pay that back in 4 months, and then after that, I borrowed $1,000 which I used to put a down payment on a truck and also equipment for landscaping.
    Ms. ROS-LEHTINEN. Thank you, Mr. Newton.
    We are going to put your statement in the record. If you could wrap it up so that we can recognize for a minute Mr. Yanovitch, because we apologize, we have a series of votes and the room is needed for another venture.
    Mr. NEWTON. OK. Basically, however, like I say, Working Capital gave me an opportunity, and through that I was able to employ two part-time employees.
    I thank you very much.
    [The prepared statement of Mr. Newton appears in the appendix.]
    Ms. ROS-LEHTINEN. We are proud of you and Ms. Crespo. Thank you very much for sharing your personal testimony. That is a good investment for our community.
    Mr. Yanovitch. And I apologize.
    Ms. ROS-LEHTINEN. You have so many years of experience condensed to 1 minute.


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    Mr. YANOVITCH. 60 seconds it will be.
    Again, I am from FINCA. We have a network of village banks, over 2,000 worldwide in 14 different countries. Since the nice thing about being last is most of the points have already been made by the other eloquent participants, I will just touch on a couple.
    How much is it going to cost to reach those 100 million clients? We are estimating $200 per client; that is $20 billion. That is half the cost of the savings and loan bailout.
    What does the sector need? We have to understand that right now, collectively, we are reaching about 14 million clients; overall, 100 million clients. So what is really critical is that we build the capacity of institutions to grow with safety and soundness.
    Ms. ROS-LEHTINEN. Well done.
    Mr. YANOVITCH. I think that is the critical thing.
    [The prepared statement of Mr. Yanovitch appears in the appendix.]
    Ms. ROS-LEHTINEN. I apologize. We hope to see all of you tomorrow at 4 p.m. And I will ask you all of my tough questions then when we see each other.
    Thank you so much for being with us and for your patience.
    Mr. NEWTON. We appreciate you. Thank you.
    Ms. ROS-LEHTINEN. Thank you, Mr. Newton.
    The Subcommittee is now adjourned. I am going to scoot out of here fast.
    [Whereupon, at 4:20 p.m., the Subcommittee was adjourned.]


    Insert "The Official Committee record contains additional material here."

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