Can Microfinance Save the World?

Victoria is a poor young mother living in a semi-permanent home in Uganda. She makes her business selling a small number of bananas in a local market and dreams of educating her children and building a permanent home for her family. To expand her business and buy more bananas to sell, Victoria has requested a small loan of $775 through her local microfinance institution. (Kiva) With microfinance initiatives, Victoria has the opportunity to lift herself out of poverty on her own initiative and hard work. This grass-roots development tool has proven successful around the globe, empowering women and changing lives but does it always live up to the hype? Can this one developmental tool solve all the world’s development issues?

In 1983, Muhammad Yunus started his Garmeen Bank Project in Bangladesh on the belief that credit is a fundamental human right. (“Muhammad”) The idea was simple: provide small loans to entrepreneurs in developing nations to nurture self-sufficient businesses and begin their journey out of poverty. (“Microfinance”) The Garmeen Bank offers the poorest people of Bangladesh loans without collateral and other financial services and opportunities. Started as a research action project sponsored by the central bank of Bangladesh and other local banks, the Grameen Bank is owned today by the borrowers who own a reported 95% of the total equity while the government of Bangladesh owns just 5%. (“Grameen”) In 2006, Professor Yunus and Grameen Bank were awarded the Nobel Peace Prize for their “efforts to create economic and social development from below”. (“Muhammad”)

In an effort to replicate the model of Grameen Bank around the world and create a global network of microfinance institutions, the Grameen Foundation was established in 1997. The Grameen Foundation estimates that 9.4 million people worldwide have been helped through their MFI partners. Outside of Grameen community, a large variety of microfinance organizations have been created such as Kiva. This American born microloan organization uses the Internet to connect lenders and borrowers around the world. Lenders can browse hundreds of loan requests and lend as little $25 to entrepreneurs half way across the world, receive progress updates on the loan, and eventually receive the initial money to re-loan to another entrepreneur. This creative use of technology and philanthropic passion has created an international sensation for funding microfinance.

Both Kiva and Garmeen Foundation report that the vast majority of loans are given to women or groups of women. Studies have shown that women will use the profits from their businesses to send their children to schools, improve their families living conditions and nutrition and expand their businesses (“Microfinance”). In many developing nations, women do not hold the same rights as men and some are subjected to abuse and discrimination. Saima Muhammad of Pakistan lived in extreme poverty, having to give up her oldest daughter to an aunt because there was not enough food for her. Suffering from beatings by her husband and brother in-law and living in destitute, Saima was desperate for money. She joined the Kashf Foundation and took out $65 loan to buy beads and fabric for embroidering. Today, Saima has become a local business tycoon, employing around 30 families to work for her. Out of her own will and hard work, Saima brought her family out of poverty and because of her success is no longer subordinate to her husband, who now lounges around the house occasionally assisting his wife. (Kristof 185) Microfinance has the ability to empower women and improve the lives of them and their families.

With a Nobel Peace Prize and hundreds of success stories, microfinance has proven itself as a successful tool of development. It is important for people of developing nations to have capital to sustain their countries’ growing markets and improve the health and lives of their own families. However, microfinance is not the magic bullet for global development, as it is sometimes portrayed. A certain level of infrastructure and stability in a country are necessary for the success of microfinance institution. While a steady income from a microfinance-funded business offers entrepreneurs the ability to feed, educate and improve the health of their families, it is impossible to do so without schools, hospitals and markets available. Location and age of microfinance programs are equally as important to the success of this movement. According to Nicholas Kristof, microfinance has not worked nearly as well in Africa as in Asia. Kristof offers several explanations for this: maturity of the programs, rural and dispersed populations, slower growing economies, and poorer general health (191). There is also a level of risk within microfinance institutions; the failure of entrepreneurs to repay loans can potentially cause widespread effects to the institution itself. Microfinance should not be discredited as a tool of development but requires a realistic perceptive in the measuring the real effects to development.

As I run out of ideas for Christmas gifts, I will be purchasing Kiva loans for as last minute gifts for friends and family, as I have for the past several years. While I still remain a microfinance romantic, I recognize there is no quick fix or magic bullet in the world of international development. Rome was not built in a day; Developing nations face a variety of obstacles that cannot be solved simply by having capital in the hands of citizens.

Works Cited

"Grameen Bank At A Glance." Grameen Bank | Bank for the Poor - Home. Garmeen Communications. Web. 06 Dec. 2011

"Kiva - About Us." Kiva - Loans That Change Lives. Web. 15 Nov. 2011.

"Muhammad Yunus - Biography". Nobelprize.org. 16 Nov 2011

"Microfinance Basics | Grameen Foundation." Grameen Foundation | Combining the Power of Microfinance and Technology to Defeat Global Poverty. Web. 15 Nov. 2011.