Why do this?
Why microfinance. Why support microcredit efforts around the world. As a tool to fight the battle against poverty, it works. Still, there is much more work to be done, more trials and errors will be needed to perfect this tool and bring near-equal opportunity to the planet's population. In return, alleviate poverty everywhere.
What is microfinance?
From the non-profit donor's point of view, it is the gift that keeps on giving. From the for-profit investor's point of view, it is the expansion of the financial industry to the bottom of the pyramid to reach the poor and poorest of clients who have the same desire, motivation and ability to be successful entrepreneurs and become good clients of banking services. From the micro entrepreneur's point of view, it is having access to financial services where none or nothing reasonable existed before.
Who are the players?
The big names are Grameen Bank, Kiva, Accion, Microplace, Opportunity International, etc. There are thousands of other microfinance institutions (MFIs) all over the world. At one end of the spectrum, the MFIs in the front lines lending directly to micro entrepreneur clients. At the other end, the investors and donors who fund these MFIs. In the middle, a whole universe of groups, companies, organizations, individuals, working to support, operate, grow and profit from this growing industry.
How does microfinance work?
Imagine, you have an idea for your own small business, you need to borrow some money to start it, you know you can earn a decent monthly profit, you may even grow the business and hire some people. But you are too poor, have no credit, have no rich relatives and certainly have no assets. You are also so poor, it shows. The banks don’t want you even walking into their branches. You turn to the local money lender. They want to charge 10% interest a day, yes per day. You turn to another money lender, they offer a loan, to be repaid 150% in 6 weeks.
Or, maybe, there is an MFI operating nearby. You find out that they can offer you a micro loan to be repaid weekly over a 6-month period, at an interest rate of 35% per year.
Who should you choose?
Microfinance in the news...
I must include voices from responsible sources to counter some recent flaring hysteria fanned by some politicians and some media outlets. The following article from The Economist encourage us to Think Responsibly:
To support a passionate indefatigable pioneer of microfinance, Dr. Yunus, go to this website: Friends of Grameen