Micro-Financing, Macro-Effect!
Posted on 24. May, 2010 by Helena in Helena
I came across micro-financing the other day at a youth forum and it made me wonder about effective ways to battle poverty.
First I thought just how much are we donating to charities? How much money are we donating to charities on a yearly basis?
I can tell you that globally, $300 billion U.S. dollars was donated in 2008 (even in the midst of the recession!) In Canada, Canadians have donated over $8.6 billion in 2007 alone. Now lets do some math. The first organizational charity was established in the early 1880s. Throughout these 130 years accounting for inflation, economic growth, and demographic factors. We have donated trillions and trillions of dollars to various costs. In theory, we can “buy” the United States of America, “several” Canada, and even the continent of Africa several times with the revenue of charities. But, although lives are being dramatically improved by generous donations; can we accelerate the process?
Are there more effective ways to support our global neighbors in need other than just giving money to maintain the basics of life?
Giving to charity is a WONDERFUL thing! We should keep on giving to support a cause we are passionate about! Nevertheless, we need to think long term and sustainability.
This is where Micro-Financing comes in!
What exactly is Micro-Financing?
In a nut shell. People lend money to individuals in the developing nations so that people in that developing nation could have the start up capital to start his or her small business. When the business starts making money and becomes successful, the money is paid back to a pool so it goes to benefit others similarly. There is an incredible 98% return on the capital which means there is a high success rate in these businesses!
For example… instead of giving a woman with three children in Lesotho money to maintain the basics of life a sum of $100 over a period of time, through micro-financing, you can give her $100 which will help her buy 5 hens. Shen can then sell the eggs produced by these hens and make a profit. From this, she can afford to send her three children to school and provide them with the necessary health care. When her business makes over $100, she pays it back to the loaner and the $100 can go to another woman in need.
Micro-financing can fight poverty on a larger scale leading to long term economic growth!
Look at it in perspective: it’s a loan. 98% of the business are infallible. Money can go a long way when it’s “invested” into micro-financing. For example you can buy an iTouch for $198.99 and listen to music on it.. OR you can lend $198.99 to someone in need.
Anyone can contribute to this, whether you are a student going into high school, in high school or graduating from high school. Pretty sweet? I think so.
joel barr
May 25th, 2010
Helena: So true! Teach an “man” to fish and buy him the net..then you have successful long term solutions. What is even more ionteresting are the stats on successful change and gender…women are not only more relaiable on paying these loans off but the impact on the family and the education of children is also much greater when women are in charge! { although considering 50% of small business in the west fail the developing world stats on even men are amazing!}. Keep thinking!!!
Abid
May 28th, 2010
Great post Helena, I’ve supported Kiva for the past couple years and I love the concept of micro-financing. It has taken some time to make practices of managing it efficient but if done well, it can revolutionize what development means. Keep up the great blogging!
Elyse Holmes
May 31st, 2010
Helena, so true! That’s why I love World Vision’s holiday gifts. Instead of buying my grandparents and teachers something so-so for themselves, I get a goat or bees for a family to start a business! Self sustainability is much more valuable than a one-time gift, plus what a confidence booster it must be for these people to no longer need to rely on international aid.
Emily
Jun 2nd, 2010
Great post Helena, I’ve supported Kiva for the past couple years and I love the concept of micro-financing. It has taken some time to make practices of managing it efficient but if done well, it can revolutionize what development means. Keep up the great blogging!
Anonymous
Oct 31st, 2010
Helena, you present a very interesting opinion on micro-financing. However, I’d like to disagree with you on several key points you make. First of all, the statistic that 98% of businesses are infallible is completely false, especiall in developing countries. In fact, most businesses fail. If 98% of businesses were successful, Africa would have its own super-economy by now. Why would the stats say otherwise? Because, in developing countries, businesses are not registered unless they are successful enough for some time. Therefore only successful businesses register and only 2% of these already-successful firms fail.
Secondly, all you can really do is, give that woman $100. How she chooses to spend it depends on her. If she was starving kids, she WILL feed them before taking a risk and opening a business. Besides, with the economies of scale that modern corporations have, she would not stand to even regain her start up capital.
Thirdly and most importantly, giving a woman $100 will not lead to long term sustainable growth, because as a study of business history will prove, economies have advanced as technology has advanced. Even if the woman decides to buy hens, she would take too long to get to a level where she creates more efficient and advanced technology.
I think that instead of thinking of microfinancing in terms of small amounts, we should take it to a new level. Everyone should be able to give $100 towards a fund. As soon as $500K is raised, you let businessmen in that country have access to the funds on a needs-basis (or you could turn it into Dragon’s Den: Africa). This will lead them to make bigger firms that can actually compete with MNCs. As the country’s entrepreneurship resource is tapped, more capital will flow in and this will lead to a more efficient use of human and natural resources within the nation.