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Is Microfinance the Cure for Global Poverty?

Is Microfinance the Cure for Global Poverty?

The idea of microfinance started back in 1974 when the rural poor in Bangladesh were suffering from a famine that killed 1.5 million people. Dr. Muhammad Yunus, an economics professor at the University of Chittagong, was frustrated with his discipline’s seeming inability to come up with a practical way to help the poor.

In his autobiography, Dr. Yunus recounts how he visited a neraby village named Jorba and met a woman whose life story inspired him to develop the concept of microfinance. An article in the Toronto Star summarizes:

Sufia Begum made a living making bamboo stools, but was caught in a grinding cycle of debt. After repaying the moneylenders who financed her craft, she was left with only two cents a day. Yunus lent her and 40 other villagers a total of $27 (U.S.) to pay off their debts, saying they could repay him when they could. He got his money back within a year — planting the idea for Grameen Bank. Today, the microcredit concept Yunus pioneered is practised in more than 100 countries.

The idea took off, and so far, more than $7.59 billion U.S. has been distributed through Grameen Bank to more than 7.94 million people. The vast majority of microfinance borrowers — 84 percent — are women. And experts believes that empowering women through programs like microfinance is the key to ending poverty and its resulting social problems.

According to Microplace, a peer-to-peer lending service, although many women are initially hesitant to accept loans, their self confidence soars when they realize they can run a successful business and repay their loans. They use their profits to pay for things that can enhance their family’s welfare, like education, healthcare and nutritious food. Their status in their family and social circle increases. They tend to have fewer children. They can therefore invest more in the health and education of each child, making it more likely that future generations will end the cycle of poverty. The mother in the Kenyan family above used her microfinance loans to buy a dairy cow, and is sending her children to school with the money she earns from milk sales.

Microfinance can have deeper implications as well — in fact, a recent article credits microfinance in Afghanistan with helping keep rural farmers from joining the Taliban forces. Indeed, Shah Mohammed Mir, director of the Helmand Islamic Investment and Finance Corporation, says that more than 30 men in his microfinance group credit the program for the ability to leave the Taliban. A Jakarta Globe article explains:

Since the end of 2007, the credit union in Helmand has in total lent $1 million to 1,441 people, from farmers to flower sellers, from tailors to tradesmen.

“I’m just competing with the Taliban,” Mir said. “It is our country, our Afghanistan, and we’re prepared to work for it. The Taliban intimidated me into leaving my job but I’m not scared — I’m a young man and a young man is never scared at any point.”

The loans are given in kind, in keeping with Shariah law and paid back with a 2 percent “administration charge” rather than interest repayments, which are forbidden under Islam.

The money, usually less than $2,000 each loan, means farmers who would have grown poppy — whose inputs are provided by the Taliban and repaid with their harvest — can grow wheat and other crops independently and sell their own produce.

Giving microfinance loans is one part of Care2′s new Butterfly Rewards program — with 10,000 butterfly credits, you can give a microfinance loan to women in Peru, Kenya and Cambodia. Microfinance is such an important way that we can help overcome poverty around the world — and it’s important to spread the word about how well it works and why it’s important to do. This holiday season, take the pledge to discuss microfinance with people in your community and find out how you can make a difference with a microloan.

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240 comments

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12:48PM PDT on Jun 24, 2012

it's helpful

9:06AM PDT on Aug 6, 2010

Thank you for the thoughtful description of microfinance. As the Jakarta Globe article shows, the effects of micro-credit can extend far beyond micro-businesses. Microfinance can, for example, also play a role in helping the poor to adapt to climate change, one of the most urgent global issues we currently face. By diversifying their services and offering products such as weather related insurance and flexible repayment schedules, microfinance institutions both maintain their sustainability and help the poor continue to move out of poverty while protecting them against some of the harmful effects of global warming.

Asif Dowla published a paper in November 2009, Climate Change and Microfinance. The paper addresses the dangers that climate change poses to the world’s poorest and lays out multiple strategies that microfinance institutions can adopt to minimize the effect that global warming has on their clients. By introducing these services now, microfinance institutions can help to both curb climate change though the supply of green technologies, such as solar panels, and work with their clients to help them adapt to a changing world.

Sincerely,
Remy Olson
Grameen Foundation

2:38PM PDT on Apr 15, 2010

I think it's a great idea. I've given a loan through this site. I think it also lets people know whom receive the loan that others in the world besides the Govt cares & is trying to help.

1:11AM PDT on Apr 15, 2010

Microfinance: An effective tool for poverty alleviation

Give a man a fish, he'll eat for a day. Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime.
~ Bono (Paul Hewson), U2 Lead Singer and Global Poverty Activist

Microfinance is an idea whose time has come. ~ Kofi Annan

This is not charity. This is business: business with a social objective, which is to help people get out of poverty. ~ Muhammad Yunus

At the most basic level, the key to ending extreme poverty is to enable the poorest of the poor to get their foot on the ladder of development. ~ Jeffrey D. Sachs

Microloans enable the poor to lift themselves out of poverty through entrepreneurship.
~ Pierre Omidyar

2:36AM PST on Jan 3, 2010

Yes!

7:10AM PST on Dec 30, 2009

it`s a very good idea and i think,(hope) it works.

10:41PM PST on Dec 28, 2009

i sure hope somthing can work!

9:07AM PST on Dec 28, 2009

Let's hope it works.

12:07AM PST on Dec 27, 2009

Yes, it is. Yet to achieve a global positive outcome, the cure must be applied with a universal standard protocol.
Yunus principle should be the ten commandments for all Donor Agencies in the drive for holistic human development.
Developing nation Governments must be pushed to adopt this principle to correct glaring insensitiveness to awesome and distressing poverty of the masses. So-called developed nations who made no significant breakthrough in their efforts against poverty eradication have a big lesson to learn and adopt.
The question is, will they ?
Edwin Scott Asemota,
Assc .Professor, Help Point International
Care and Development

4:50PM PST on Dec 25, 2009

Good ideas

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