How Important is Microfinance Really?

By October 20, 2015Blog, Microfinance

By Jacinta Lu, 2nd year, Pre-Haas with GPP minor

If you’ve been following EthiCAL for a while, you’ve probably read countless blurbs and pitches briefly summarizing what microfinance is in relation to EthiCAL’s mission. If you are a Berkeley student and have had the lovely experience of being flyered to by an EthiCAL sales or marketing associate, you’ve probably heard something along the lines of:CONCEPT4PNG

Short, quick, and probably gave you zero idea of the significance microfinance actually has on our current world, or how momentous of an innovation it was for the movement to end global poverty.

 

It’s all good, because I’ve written a very simple, easy-to-read summary for all of you so the word “microfinance” can carry more substance for you the next time you hear it. (And hey, if this inspires and interests you, definitely look into either working with us in the near future or check out organizations like Kiva or the Grameen Foundation.)

This guy called Muhammad Yunus (banker, theorist, civil society leader and Nobel Peace Prize winner) took a look at this problem of global poverty and was like, wtf. The poor are naturally innovative and  entrepreneurial–many could basically open businesses to get out of this deep trench of extreme poverty, stimulating and reviving their local economies, but cannot because:

  1. they’re really, really poor, and have no capital to start these businesses, and
  2. being this poor means they have no credit, and banks either don’t loan to the very poor or charge insanely high interest rates.

CONCEPT: Yunus believed that the poor are naturally innovative.

These entrepreneurs, therefore, often have no other option but to fall prey to loan sharks, who can charge the entrepreneurs ridiculously high interest rates that many entrepreneurs could never pay off. This causes them to fall into an endless cycle of debt and be just as bad, if not worse off, than before.

Yunus thought this was could change and opened up a bank called the Grameen Bank. He believed credit was a basic human right, and insisted that this bank would loan to those too poor to qualify for traditional bank loans, especially women who are usually discriminated against.

CONCEPT: Yunus believed that credit was a basic human right.

Yunus pioneered this whole concept of microfinance and microcredit which became a widely accepted method of global poverty alleviation–later on there’s this whole thing with the IMF and the World Bank where the world tries to come together and solve all the world’s issues together (how effective that was, we can comment on later) but basically microfinance was agreed upon by pretty much every NGO organization involved with global poverty alleviation that it was a super bomb method of poverty alleviation. Of course, there is controversy concerning how it should be implemented, etc, but in general, giving poor people the opportunity to innovate and jumpstart their own economies and therefore improve their situations is completely revolutionary.

So yeah, there you go–it’s pretty awesome what we’re all helping to do here at EthiCAL. Now next time you hear the word Microfinance you actually know what it means–and you know how easy it is to join the fight to end global poverty. You’re welcome 😉

 

Works Cited:
Poverty Capital: Microfinance and the Making of Development, by Ananya Roy
Pictures from Google Images