day 19 - microfinance loans yeah!

Microfinance business grabbed the world’s attention in 2006, when Mohammed Yunus of Bangladesh won the Nobel Prize for his efforts in microcredit to reduce poverty. Yunus, the founder of Grameen Bank, recognized the potential a small loan could make in lifting people in developing nations out of poverty. Rather than denying people a loan due to fear of the investment being lost, Yunus trusted that microloans would allow people to buy necessary materials to start a business that would easily repay the initial investment.

 

It seems like an almost risky venture: investing capital in people (most without education) so that they can basically start their own business. It might initially seem that such an investment - albeit, even a small one - might not survive the market to be repaid, let alone have any serious economic returns. But according to statistics from the Consultative Group to Assist the Poor (housed at the World Bank), in 2010, foreign microfinance investments of $13 billion had asset returns of $68 billion (5.2 times greater than the initial investment!). Microfinance is capable of economic returns times over.

The social returns of microfinance can be considered even greater. Consider, for example, a woman that is given a microcredit loan to start a small weaving business in her home. She can invest in materials and use profits to expand and purchase more materials. She improves the economy of her village. By earning money (sometimes even playing the role of breadwinner), she becomes a positive asset, not a material possession whose only role is to cook and have children. She actively improves the family’s well-being and socioeconomic status. And though she herself might not have an education, she is able to afford school tuition for her children, allowing them opportunities she might not herself have known.

Janna