Microfinance – A Way out of Poverty

Gord Stewart

“I originally became involved in the poverty issue not as a policy-maker, scholar or researcher,” says Muhammad Yunus, “But because poverty was all around me, and I could not turn away from it.”

kiva

Yunus is an economist, Nobel Peace Prize winner, and author of Banker to the Poor. As founder of the Grameen Bank in Bangladesh, he is generally regarded as the “grandfather” of the modern microfinance movement.

 

His original focus was on microcredit, which he defined as “loans offered with no collateral to support income-generating businesses aimed at lifting the poor out of poverty.”

 

Microfinance (loans, insurance and savings) can play a part in the sustainability journey – offering some stability in a crowded world. There will always be political refugees and in the decades to come, with water shortages and sea level rise, a growing number of environmental refugees and migrants. But anything we can do now to help get people in less developed countries out of poverty is a surely a good thing.yunus

 

Yunus was on to it on his return to Bangladesh from America in the early 1970s. While serving as a university economics professor, he said, “I eventually came face to face with poor people’s helplessness in finding the tiniest amounts of money to support their efforts to eke out a living.”

 

He initially provided small personal loans to individuals to get them out of the clutches of moneylenders. Next he became a guarantor – borrowing money from the banks and lending it to the poor (since the banks deemed them not credit worthy and, of course, without collateral).

 

Yunus was stunned by the results. “The poor paid back their loans, on time, every time,” he said.

 

In 1983, with changes to banking legislation, the Grameen (which means “village”) Bank was formed. The rest, as they say, is history.

 

kivaThe bank now provides loans in over 78,000 villages in Bangladesh. Loan repayment rate is close to 99%. Sixty-four percent of borrowers who have been with the bank for five years have crossed the poverty line. The bank is self-reliant and has not taken donor money since 1995.

 

Grameen Bank focuses on loans to women, having learned this brings cascading social and economic benefits to the whole family (particularly the children) and eventually to the entire community.

 

Borrowers belong to self-made groups of five friends. Ten or so of these five-member groups meet together weekly. Meetings allow for discussion, education, support. Applications are completed. Loans and interest repaid.   

 

Success of the Grameen “model” led to formation of Grameen Trust, a consultancy tokiva help groups in other countries create their own lending institutions for the poor.

 

Established non-profits are adding microfinance to their range of offerings for donors. World Vision’s Micro is a very good example of this. And the Web has allowed lenders to connect with borrowers through a range of sites, including Opportunity International, Zidisha, and Kiva.

 

My wife, Sandy, and I have recently become lenders ourselves through Kiva . We deposited an initial amount, divided it in half, and each searched the site for potential borrowers. We have made 12 loans so far.

 

I am following the Grameen approach, favouring loans to groups of women (and mainly for agricultural efforts). I’m refining my “investment strategy” as I go, now favouring loans in Samoa and Ecuador, and looking for new opportunities as principal is repaid to us (interest goes to the in-country microfinance institution managing the loan) and we put more money in.

 

kivaMy hunch is few loan funds to Kiva are ever withdrawn, particularly once you read the borrowers’  stories and see what the loans can do.

 

Mohammed Yunus, early on in his lending to the poor, said, “The excitement that was created among the people by this small action got me further involved in it. If I could make so many people so happy with such a tiny amount of money, why not do more of it? That is what I have been trying to do every since.”

 

 

 

 

Last three images from Kiva.org

Gord Stewart is an environmental sustainability consultant. He does project work for government, industry, and non-profit organisations.

 

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