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.
Photo from USAID