In a world that
is covered by huge corporations and financial institutions many of which have
scales that are larger than some countries, the need for a campaign that
supports poor is a rising issue. Like every people, poor ones may also be in
need for financial services. There is a program, which is showing its positive
outcomes more clear in recent years called microfinance. Microfinance is a
program that fights against poverty, aims to help the poor and women to reach
financial services that they cannot reach without any support.
Three parts that
are microcredit, microsavings, and microinsurance form microfinance. The widest
part is microcredit, which is in use by the ones who cannot find a capital to
open a business but are poor entrepreneurs. It is a very important opportunity
for breaking the poverty chain. It helps
the poor to open small-scale businesses, to improve their pre-existing
small-scale businesses, or to afford their emergency needs like health or
education. Although it is not cheaper to use, the users of microcredit are not
able to have services from the financial institutions. The second part,
microsavings, is a way to keep the savings of the poor regardless of the amount
in a safer place, and protect them against inflation and give the opportunity
to gain interest on these savings. In addition to these two parts,
microinsurance is an umbrella over the poor’s houses protecting from open-risks
like catastrophes, deaths, illnesses and accidents. For example, deaths of head
of families or unsatisfied harvests may cause the poor become meld, homeless
and defenseless. By periodic principal payments, the poor can reduce the risks
and guarantee to survive with microinsurance.
The Grameen
Bank, which is a great example and the start point of a microfinance
organization, and a community development bank started in Bangladesh that makes
microcredit to the poor without collateral. The bank was founded by Muhammed
Yunus in 1976 with some core objectives, which are extend banking facilities to
poor men and women, eliminate the taking advantage of the poor by money
lenders, create opportunities for self-employment for the vast multitude of
unemployed people in rural Bangladesh, bring the disadvantaged mostly the women
from the poorest households within the fold of an organizational format which
they can understand and manage by themselves, and reverse the age-old vicious
circle of "low income, low saving and low investment", into virtuous
circle of "low income, injection of credit, investment, more income, more
savings, more investment, more income" (Grameen Bank, para. 2). Yunus
started with the idea that the poor can be good lending risks even without
collateral. With solidarity lending a group of 5 women would form a
lending pool. The other four could not get a loan until the first was paid off.
So instead of collateral there is a peer pressure as an incentive to repay.
This system has been turning the poor into entrepreneurs and survives them from
poverty. Hence, its founder Muhammed Yunus was deemed to deserve the Nobel
Peace Prize in 2006.
By the
evolution of microfinance, it becomes a major role player in community
development. The system creates many entrepreneurs through years and today they
are the owners of small businesses. Although it is less popular in the US
because many businesses can be started through credit cards, the Bank of
Grameen US that has started recently is a good example to realize the spread of
microfinance. There are also groups such as Accion and the Small Business
Administration. They bring the spirit to the community and now they account for
18% of new employment in the U.S. It brings self-employment, living wage, and
local spending; in other words, it brings a stronger community. Many of these
poor opportunity seeking potential entrepreneurs cannot get loans from banks
and they have to borrow from family or friends or the worst they use credit
cards that brings out high costs of capital. Accion, which is operating in
microfinance industry in U.S. has loaned out about $210 million to over 20,000
entrepreneurs. They have created an average of 2.4 jobs in each business. They
called microfinance as a chance instead of charity (Accion). As another institution,
Alternatives Federal Credit Union in Ithaca has classes to teach people how to
run a business. They have Individual Development Accounts. After they take
a class, they can open a savings account to encourage savings. After one year,
the savings are matched 3 to 1. So if a low-income person saves $500 over
the year, they end up with $2000 to start a business or buy their first home. It
definitely helps the poor to gain assets.
The
New York Times profiled some
microlenders experimenting in the USA. They note
that in 2003 that there were 246 known microlenders most of which were
non-profits (Zipkin, 2005). These microlenders have the capability to move quicker
and provide more flexible products that are critical for businesses. Microlenders
all over the U.S. are connecting the credit gap that is widespread within
income levels from low to moderate among communities. By creating lending
programs such as start-up loans or established business credits in order to
meet the needs of the poor entrepreneurs located in the U.S., microlenders pride
of repayment rates that are in competition with those of traditional
lenders.
In U.S. there
are non-profit organizations that help the idea owners with lacks of support
and training. According to Chalupa, microfinance phenomenon has been slowly
growing in U.S. for the past 30 years and is picking up steam as a result of
the credit freeze. The stimulus bill that President Obama signs gave $6 million
to fund microloans in 2009 and $24 million to market and manage microlending
programs (2009, para. 3). Obama's mother was also involved in microfinance
through the Ford Foundation in Indonesia. Another president, Bush, used
microfinance as a cost-efficient and effective tool to fight against poverty in
Afghanistan. He provided very small business loans to the poorest people with a
majority of women by microfinance (Houchberg, 2002, para. 1). Marida Otero, who
was the CEO of Accion and coordinator of the Council of Microfinance Equity
Funds, was nominated by President Bush to be a member of the United States
Institute for Peace (MicroCapital, 2007). These events indicate the supports of
both President Bush and President Obama’s Administrations on microfinance.
To sum up, small
loans can help the poor to gain the assets they need to get themselves out of
poverty. Lending cooperatives and credit unions have been serving for many
years but fortunately, innovation in microfinance is continuing and providing
financial services to the poor by giving them fair stakes to survive from poverty.
Today, the World Bank estimates that microfinance is serving about 160 million
people in developing countries but this is not enough for a perfect survival
(Kiva, para. 2). There are 1.4 billion people who are in need of financing
against poverty and seeking an access to microfinance.
Accion. (n.d.). What Is Accion. Retrieved from: http://www.accionusa.org/home/small-business-loans/about-us/what-is-accion.aspx
Chalupa, A. (2009). Microfinance In The USA About To Explode?. Retrieved from: http://www.dailyfinance.com/2009/02/17/microfinance-in-the-u-s-a-about-to-explode/
Grameen Bank. (n.d.). A Short History of Grameen Bank. Retrieved
from: http://www.grameen-info.org/index.php?option=com_content&task=view&id=19&Itemid=114
Houchberg, F. P. (2002). The New York
Times. Practical Help for Afghans. Retrieved
from: http://www.nytimes.com/2002/01/05/opinion/practical-help-for-afghans.html?src=pm
Kiva. (n.d.). About Microfinance. The History of Modern Microfinance. Retrieved
from: http://www.kiva.org/about/microfinance
MicroCapital. (2007). Who’s Who in Microfinance: ACCION President
and CEO Marida Otero. Retrieved from: http://www.microcapital.org/microcapital-story-whos-who-in-microfinance-accion-president-and-ceo-mariða-otero/
Zipkin, A. (2005). The New York Times. For Some, a Little Loan Goes a Long Way. Retrieved
from: http://www.nytimes.com/2005/12/22/business/22sbiz.html
