Today, we will discuss a method that provides low-income individuals with the financial services they need to improve their lives. Organisations around the world are demonstrating how microfinance methods can help lift people out of poverty. We will also discuss a book that argues that economic progress in the developing world lies in creating opportunities for women.
You don’t need to be an economist to understand microfinancing. The idea is to provide extremely poor people with small loans so they can start and run a business. Borrowers can save money and repay the loan over time. Microfinance helps to promote financial security because it is not just a donation. The idea behind microfinance is to empower borrowers by helping them to build a business that can generate income and grow.
Microfinance differs from other types of aid. Large organisations such as the United Nations or the International Monetary Fund might provide millions of dollars in aid to build systems in a developing country. The government that receives the aid can then make long-term plans about how to use it. However, local people may not see the effects of such aid. Microfinance, however, is a form of aid that provides direct, local support on a small scale.
Poor people in rural areas often cannot access banking services. Banks generally do not provide very small loans either, as administrative costs are too high. Microfinance enables poor people to build savings and work towards becoming part of a country’s official financial system.
The terms ‘microfinance’, ‘microcredit’ and ‘microlending’ are often used interchangeably. Several people are credited with being the first to use microfinance as a tool for social improvement.
Akhtar Hameed Khan started experimenting with microcredit in 1959. He started by lending small amounts of money to people in impoverished areas of Pakistan. These efforts evolved into a project that would later become known as the Bangladesh Academy for Rural Development.
In 1976, the economist Muhammad Yunus helped develop a research project in his native Bangladesh. He started by studying the lives and activities of impoverished villagers. Yunus said that these people had taught him a whole new kind of economics. He loaned twenty-seven dollars of his own money to a group of women so they could buy materials to make objects to sell. The women wanted to work and earn money, but they needed an initial investment. Mr Yunus also observed that every woman repaid her loan on time.
He created the Grameen Bank project with the aim of providing banking services to the poor and putting an end to unfair loans from moneylenders.
The programme was designed to help people in Bangladesh find employment and learn how to earn and save money. The project started in one village. It was then successfully repeated in additional villages. In 1983, the project was transformed into an independent bank, primarily owned by its borrowers.
In 2006, Mr Yunus won the Nobel Peace Prize for his work with Grameen Bank. When accepting his award, he stated that poverty goes against human rights. He said that people accept that poverty will always exist, and so it does. However, he believes that if people changed their mindset, it would be possible to create a world without poverty.
Many organisations provide microcredit primarily to poor women. This is partly because women are often more excluded from financial services and educational opportunities than men. Women typically allocate their funds towards improving their families’ nutrition, health, and education. Studies have also shown that women are better than men at repaying loans on time.
To find out more about women and microfinance, we spoke to Robyn Nietert in Bethesda, Maryland. She is the president of the Women’s Microfinance Initiative, a small non-profit group of volunteers. She founded the organisation in 2007 with a group of friends.
The Women’s Microfinance Initiative made contact with a group of women in the Ugandan village of Bulambuli. All of the women were widows, meaning that their husbands had died. W.M.I. agreed to set up a loan programme for them. Ms Nietert first travelled to Uganda in December 2007. She met twenty women chosen by the widows’ association as suitable candidates for the programme. She discussed a business proposal with them. She helped each woman organise a business plan. She also showed them how to keep careful records. The Women’s Microfinance Initiative then loaned each woman between fifty and one hundred and fifty dollars.
‘We gave them business plans to work through. We made sure their cash flows were sufficient to cover the loan repayments and generate a profit, and we issued the first twenty loans.’
Robyn Nietert says that the women in this group have never failed to make a payment. However, if a woman does miss a payment, the other nineteen women in her loan group help repay the money. After thirty-six months, the women graduate to independent banking with a financial company.
‘We’ve taken our lead from the women on the ground. This is a grassroots programme. It grows from the ground up. We don’t impose regulations from above. We ask the women how they want the loan programme to work and what is suitable and culturally appropriate for the area. Then, we just implement it!”
To date, the Women’s Microfinance Initiative has provided over one thousand loans to women in Uganda and Kenya. It has a rotating loan fund of about one hundred and seventy thousand dollars.
‘The programme actually generates income at a local level. When these loans are repaid, the money is deposited into a local women’s village bank account. It never comes back to the United States.
Robyn Nietert says that the income created by these loans benefits not only the individual women and their families, but also the wider community. She says that the increase in income has a huge effect on the whole community as well.
‘You progress from strengthening your own family and raising your living standards, to raising your community’s living standards, and hopefully on to raising your sub-county’s, district’s and country’s living standards.’
We asked Ms Nietert what advice she would give to someone who wanted to help others through microfinance. She advises doing research and volunteering.
‘Get on the internet. Do some research. This industry is like the Wild West right now. It ranges from the Grameen Bank — a Nobel Peace Prize winner — to moneylenders who rip people off every day with interest rates of up to 100% per month. There’s little regulation and it’s all over the place.”
Newspaper reporters Nicholas Kristof and Sheryl WuDunn are passionate about empowering women in the developing world. They wrote a book on the subject called Half the Sky: Turning Oppression into Opportunity for Women Worldwide.
In it, the authors discuss how women represent the world’s most pressing human rights issue. They also demonstrate that women are key to successful economic and social development.
Mr Kristof and Ms WuDunn explain how women around the world are subjected to violence, sexual slavery, and other severe forms of oppression. They demonstrate that these abuses are rarely reported or discussed. For instance, it is estimated that millions of women are missing in some South Asian and Muslim countries.
This is because parents prioritise providing resources, education and medical care for their sons over their daughters. Consequently, many girls do not survive childhood.
The writers argue that microfinance is an important tool for empowering women and lifting them out of these conditions. They use the example of Saima, a woman who lives in Pakistan. Her unemployed husband used to beat her when he was angry. Saima did not even have enough money to feed her children.
She took action by joining a women’s group linked to a microfinance organisation. Using a $65 loan, she started a sewing business and began to earn money. She became so successful that she was able to employ other people. Thanks to her business, she has been able to send her children to school, giving them the opportunity to have a better life.
However, the writers also point out that microfinance does not work in all situations and will not solve all problems. No loan can replace the need for education and healthcare. However, microfinance demonstrates how lives can be changed for the better for women and girls around the world with just a little help.
