What’s It All About? Microfinance

“What I am proposing … is that there are a whole host of things that individuals and governments should be doing which can meaningfully put a dent in poverty. It’s everything – from trade [to] foreign direct investment. But on a micro, individual level, it’s things like microfinance. Where you can actually give people a leg up and help them in terms of investment. And it’s a very different proposition from handing out aid and monies.”
– Dambisa Moyo, international economist and author of the NY Times bestseller Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa

 

(Image from :, Kids Can Press)


Microfinance. It’s a complex-sounding word that captures an idea beautiful in its simplicity: making tiny loans to the poor can have a tremendous positive impact.
According to the United Nations, more than a billion people around our world are forced to live on less than a dollar a day. For those who live in such poverty – without the benefit of a steady income or resources to use as collateral – help from financial institutions in the form of traditional bank loans is simply out of reach.


That’s why making small loans available to the poor at reasonable interest rates (known as microcredit) can be the key to lifting them out of poverty. With a modest loan, a woman in the developing world might purchase a sewing machine, some fabric and thread in order to start a business making clothing or doing garment repairs. Another might buy provisions to bake and sell loaves of bread, while another might purchase chickens in order to produce eggs, thus feeding her family and generating a modest income.


Microfinance has been called “a hand up – not a handout.” The idea really came into the public consciousness in 2006, when Muhammad Yunus and his Grameen Bank were awarded the Nobel Peace Prize for “their efforts to create economic and social development from below.”


The Nobel Committee noted in a news release at the time that “lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights.”

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