How Microfinance is Helping to End Poverty in Developing Countries
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I’m Steve Ember. And I’m Barbara Klein with EXPLORATIONS in VOA Special English.
Today we talk about a method that helps provide low-income people with the financial services they need to improve their lives. Organizations around the world are showing how microfinance methods can help lift poor people out of poverty. We also discuss a book that shows how the answer to economic progress in the developing world lies in opening up possibilities for women.
You do not need to be an economist to understand microfinancing. The idea is to provide extremely poor people with small loans so they can start and operate a business. The borrowers are able to save money and pay back the loan over time. Microfinance helps support financial security because it is not just a donation. The idea behind microfinance is to empower borrowers by helping them build a business which can create income and grow.
Microfinance is different from other kinds of aid. Huge organizations like the United Nations or International Monetary Fund might provide millions of dollars in aid to build systems in a developing country. The government that receives the aid can make extensive long-term plans about what to do with the money. But local people might not see the effects of such aid. Microfinance, however, is a kind of aid that helps on a small scale in ways that are direct and local.
Poor people in rural areas often cannot get banking services. Also, banks generally do not provide very small loans because administrative costs are too high. Microfinance provides poor people with a way to build savings and work toward 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 began experimenting with microcredit in nineteen fifty-nine. He began loaning small amounts of money to people in poor areas of Pakistan. His efforts grew into a project that would later be called the Bangladesh Academy for Rural Development.
In nineteen seventy-six the economist Muhammad Yunus helped develop a research project in his native country of Bangladesh. He began by studying the lives and activities of poor people in small villages. He said these people 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 the materials they needed to make objects to sell. The women wanted to work and earn money, but they needed money to get started. And, Mr. Yunus observed that every woman paid back her loan on time.
Robyn Nietert says the women in this group never failed to make a payment. But if a woman does miss a payment, the nineteen other women in each loan group help to repay the money. After thirty-six months, the women graduate to independent banking with a financial company.
ROBYN NIETERT: “We’ve taken our lead from the women on the ground. This is a grass roots program. It grows from the ground up. We don’t impose regulations from the top down. We ask the women how they want the loan program to work, and what’s suitable, what is culturally appropriate for the area. And then, we just implement it!”
Today the Women’s Microfinance Initiative has given more than one thousand loans to women in Uganda and Kenya. It has about one hundred and seventy thousand dollars in a rotating loan fund.
ROBYN NIETERT: “The program actually generates income on the local level. When these loans are repaid, the money goes into the local village women’s bank account. It never comes back to the United States.
Robyn Nietert says the income created by these loans is not only useful for the individual women and their families. She says the increase in income has a huge effect on the whole community as well.
ROBYN NIETERT: “You jump from making my family stronger and raising my own living standards, to raising my community’s living standards hopefully to raising my sub-county’s living standards to raising my district’s living standards, to raising my country’s living standards.”
We asked Ms. Nietert what advice she had for someone who might want to get involved in helping others through microfinance. Her advice is to do research and volunteer.
ROBYN NIETERT: “Get on the Internet. Do some research. This industry is like the Wild, Wild, West right now. It goes from Grameen Bank, from someone who has won the Nobel Peace Prize to moneylenders who are ripping people off every day with hundred percent a month interest rates. It’s all over the place with little regulation.”
Newspaper reporters Nicholas Kristof and Sheryl WuDunn feel very strongly 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.”
The writers discuss how women represent the most pressing human rights problem in the world. And, they show that women are the answer to successful economic and social development in the world.
Mr. Kristof and Ms. WuDunn explain how all over the world women are subjected to violence, sexual slavery and other forms of severe oppression. They show how the abuses are rarely reported or discussed. For example, in some South Asian and Muslim countries it is estimated that millions of women are missing.
This is because parents give resources, education and medical care to their boys before giving them to girls. So, many girls do not survive childhood.
The writers say microfinance is one of the important tools for empowering women and lifting them out of these conditions. They use the example of a woman named Saima who lives in Pakistan. Saima’s unemployed husband used to take out his anger on his wife by beating her. Saima did not even have enough money to feed her children.
She took action by joining a woman’s group linked to a microfinance organization. With a sixty-five dollar loan, she began a sewing business and began to earn money. She became so successful that she employed other people. She has been able to send her children to school so that they can have a better life.
The writers also point out that microfinance does not work in all situations and will not solve all problems. No loan will replace the need for education and health services. However, microfinance does show how it is possible to change the lives of women and girls around the world with just a little help.
This program was written and produced by Dana Demange. I’m Steve Ember. And I’m Barbara Klein.