I’m guessing that most adults in the western world have at some stage or another experienced the joys of having a loan. Whether it be for a car, a home or even a business, a loan can help you achieve something you may not have otherwise been able to achieve at that time, or potentially, ever. For many business owners, a loan in their early days helped them get started and ensure their business was successful.
For some people, however, obtaining a loan is not an option; they just don’t tick all the boxes that the banks have set out. About 30-40 years ago while traditional banks were not interested in making tiny loans to the poor due to high repayment risks, there was one man who believed that given the chance the poor would repay the borrowed money. He believed that making small loans could actually be a viable business model. His name was Muhammad Yunus and the concept was became known as micro credit.
Yunus was in Bangladesh at the time, and following an amount of research and study, the Grameen Bank was established. It was the first known community development bank and micro credit institution of its kind. By the end of 2008 it had loaned over USD7.6 billion to the poor. Today, micro credit, also known as micro finance, is widely used in developing countries and is seen to have the potential to have the potential to be an enormous tool for alleviating poverty.
According to www.MicrofinanceGateway.org the “typical microfinance clients are poor and low-income people that do not have access to other formal financial institutions. Microfinance clients are often self-employed, household-based entrepreneurs. Their diverse microenterprises include small retail shops, street vending, artisanal manufacture, and service provision. In rural areas, microentrepreneurs often have small income-generating activities such as food processing and trade; some but far from all are farmers“.
In recent times there has been more and more research done into the effectiveness of microcredit to see if in fact it is making a difference in the fight against global poverty. Studies indicate that in addition to the benefits of what the loan was intended for, the wider benefits suggest microcredit can improve empowerment, nutrition and health of people living within communities where microcredit has been available.
There are a number of organisations around the world, including in Australia, that have been since built to provide small loans to all kinds of entrepreneurs including Kiva, Opportunity International, Lend for Peace and Many Rivers.
What are your thoughts on microcredit and microfinance? Do you think they are making a difference in the world? We’d love to hear your thoughts.
See you in the pond,
The Fish Chick.