A Social Business, Microlending Essay

In both developing and emerging economies, microfinance has vastly and increasingly been seen as one of the most important means for enhancing the lives of the poor and therefore a major tool for economic and social development mostly in rural areas. Lately, contrary to this widespread belief, critics have raised eyebrows against this growing popularity of microfinance as a major tool for enhancing economic development. Contrary to belief, they are of the opinion that microfinance is a ‘make-belief’ that is hindering economic and social development rather than enhancing it.

Seven years ago, Jessica Jackley heard a speech by Grameen Bank founder Muhammad Yunus, an economist from Bangladesh who had developed the idea of microcredit: loans offered to entrepreneurs too poor to qualify for traditional bank loans. She says, "I was so completely blown away by the idea that I quit my job, dropped everything and moved to East Africa to help." In late 2005 she co-founded Kiva.org with Matt Flannery.

Women in developing countries are heavily empowered by micro-loans. These women normally aren’t able to provide income for their family because of a lack of education due to low funds. On top of that, husbands are considered the money makers of the family, while women are expected to stay home and tend to their house and children. But micro-loans change all of this, as it gives women the power to start their own businesses. In full, micro-loans are very influential, and can help with women that struggle, and assist them in making more money.

In this documentary, Tom Heinemann (the director) provides a sharp critique of microfinance in the world. The documentary pertains critically to the work of Muhammad Yunus and the Grameen Bank in Bangladesh. Tom Heinemann tells an unpopular and confronting story about how microfinance, although innovative, leaves few to prosper and the many poor being financially “strapped”. This documentary has caused a flood of criticism about microfinance, while diminishing the reputation of Grameen Bank’s founder, Muhammad Yunus. I feel that The Micro Debt does not shed the full light onto microfinance, yet it is becoming increasingly hard to ignore its effects.

Muhammad Yunus, Founder of the Grameen Bank is often hailed as the architect of microfinance lending and has been praised around the world for his work and even awarded the Nobel Peace prize in 2006. The concept of microfinance is to lend small portions of money to poor people who could not have otherwise acquired a loan from a regular bank. Microfinance banks give the poor a small loan with incredibly high interest rates in the hope that the borrower will create a business or some form of income creating venture to sustain themselves and pay back their loans. Not only is that person left with a way to support themselves, but it also creates jobs in the community. These banks have noticed that when the money was lent to a family through the woman of the household, it went a longer way than if the man of the household received the loan. Yunus has noticed even within the Grameen Bank that “Poor women [have] an amazing skill, the skill of managing a scarce resource.” (12) Studies have shown that if a mother is receiving income the first beneficiaries are her children. The effects of this are amazing, many communities have seen a rise in school enrollment and improved child survival rates because women are more likely to spend money on food for their children and health care than are fathers. There is a saying, “If you give a man a fish, he will eat

Microfinance is grown to one of the biggest areas in fighting again poverty, it can be discussed, if microcredits are the best option to help people out of poverty. In the past it was almost impossible for the poor population of the world to get a loan with acceptable conditions. Banks would not lend to the poor, because the risk of losing the money was too high for them, which meant poor people in Africa had no chance of getting a loan from big banks. The so called “money lenders” would take advantage of this situation, and give the poor an opportunity to receive a loan. The “money lenders” were not trying to help the poor, they just wanted to earn money, thinking on their own personal benefit. That’s why their loans have insane conditions with interest payments of a couple hundred percent. If someone could not pay back the loan in time, they would take everything from the customers, and maybe even kill them. This was the only opportunity for poor people to get a loan until microfinance was born. Another problem is, that women have been excluded from the banking system in general in some regions of the world, because that was nothing women would do in their culture. In most cultures it was implemented, that women are staying at home, taking care of the house, children, and food. Men would go to work and earn the money for the family needed for the cost of living. It would also be more complicated for women to get a loan, because they traditionally work less than men, and

While the spread of microcredit as a development practice has enabled borrowers in many developing countries to access credit, not all experiences with microcredit have been positive. The original model of microcredit lending was not effective in alleviating poverty. To remedy this, an “improved” lending model was introduced; however, this model, too, has failed the impoverished citizens of the developing world because of its exclusivity. Traditional microcredit loaning systems require some form of material collateral to ensure that a borrower will repay their loan. This excludes the ultra-poor due to their lack of possessions to use as collateral (Schurmann and Johnston 2009, 521). To solve this issue and provide the poorest citizens with

Almost half of the world lives on less than $2.50. At least 80% of humanity lives on less than $10 a day. According to UNICEF, 22,000 children die each day due to poverty. Poverty is an ever-present issue that affects the lives of billions of people each day. There are many government subsidies that come into impoverished areas, but does money solve the issue of poverty? No, money alone cannot solve the world’s issue of poverty. In this paper, I want to discuss the role of microfinance in the developing world. Microfinance can be done poorly, which will continue to stunt the economic growth of an area, but if done properly microfinance can being human flourishment to a developing area. In order to take a closer look into microfinance, I will highlight the efforts that Kiva, an online lending company, has done to improve the economic horizon for many areas of the world.

Anup Shah claimed on the Global Issue website, “Almost half the of world’s population, which is over three billion people, live on less than two and half dollars a day” (Globalissue.org). This is the poverty level. To reduce poverty effectively many of us have donated money to aid the poor, the question arises weather there are other ways to reduce poverty effectively. Traditional approaches like charities, social programs and government assistance are conductors to reduce poverty levels. However, Mohammed Yunus proposes to reform the financial system and increase social awareness due to the escalating gap between the wealthy and poor. Specifically, Yunus plans for micro lending and social business are viable options he proposes as they

Microcredit can be defined as small loans, or microloans, for people around the world in extreme poverty to help spur entrepreneurship. The issue of microcredit is extremely important in the world’s economy. Poverty alleviation and economic development are the primary goals of microcredit programs, that is why they began in the developing countries of Asia and Latin America, economist Muhammad Yunus and his Grameen Bank in Bangladesh are credited of pioneering this financial innovation (Smith, Thurman, 2007). After acquiring a loan, impoverished people get involved in self-employment projects that help them to start a business and begin generating income and in many cases leave poverty. Microcredit offers loans to poor people without

Microfinance institutions (MFI) have created intense debates in an industry of traditional banking. Being primarily focused on mission of poverty reduction through economic stimulation of low income areas, MFI have sharpened the credit policy to specification of area of interests. The major distinction is loan interest rate being notably higher in comparison to profit orientated financial institutions (Rosenberg et al. 2009). The reason roots in excessive cost of funds and administrative loses faced by growing industry. As noted in Cull et.al (2009), interest paid by borrowers represents the struggle of MFI to overcome the burden of expenses and achieve financial sustainability. The latter however, can be reached by altering the capital structure of MFI through diversification of source of funding or rejection of capital which can lead to malfunction. As soon as the changes are implemented, institutions can proceed to expansion reaching increasing return to scale and beneficially affecting sustainability. This essay would focus on the role on subsidies in performance of MFI. The rationale behind exploring this form of noncommercial capital is that total amount of subsidized capital in MFI reached almost 16 billion in 2009 (Bloomberg, 2012) posing a question regarding the alternative and probably more efficient use of respective funds to support poor. The second reason derives from the number of researches discussed later,

Banker to the Poor is a readable, engaging first-person memoir by Muhammad Yunus, the founder of the Grameen Bank of Bangladesh. Born in 1940, Muhammad Yunus grew up in the Bengal Province of British India (now Bangladesh). Yunus studied economics at Dhaka University receiving a B.A. and M.A. in the field. Afterward, he accepted a Fulbright scholarship in order to study at Vanderbilt University receiving his Ph.D. in economics in 1971. While teaching at Chittagong University , Yunus observed the poverty epidemic in the rural villages around Chittagong and began a poverty reduction program which later became Grameen Bank.

In reality, it is generally perceived that small scale fund plans have met constrained triumphs. The capacity of a lady to change her life through access to money related administrations relies on upon her individual circumstance, capacities, environment and the status of ladies as a gathering. Control of capital is one and only measurement of an intricate procedure of strengthening. Tragically, advantages of smaller scale credit are undermined by inconveniences confronted by ladies in getting to data, informal communities, and different assets they have to prevail in business. An investigation of the effect of miniaturized scale credit plots in Bangledesh uncovered consequences of just 21% of respondents getting to be enabled. Out of financial variables investigated, they inferred that ladies institutional cooperation, media presentation and family arrive property were the more critical necessities for ladies strengthening than accessibility of credit. A few faultfinders have contended that the greater part of microfinance projects are organized so as to have their most noteworthy effect in helping ladies perform conventional parts better. They contend that by accentuating the advantages that ladies' families get from their entrance to credit and ensuring this does not meddle altogether with their customary obligations, microfinance foundations may strengthen conventional sex parts as opposed to change

Paradoxes abound in the English language; from comical ones like “jumbo shrimp” to more profound ones like “deafening silence”. But paradoxes are more than literary terms, they also exist in real situations as well. For example, one method of reducing world poverty seems to be an inherent paradox. When a country is impoverished it seems counterintuitive that one of the most desirable ways to alleviate large-scale poverty is by loaning money to the people. Despite this, microloans have improved countless economies in impoverished areas; most notably, in Africa and Southeastern Asia. Certain countries have received more attention than others and their situations have been used as models for further expansion of the micro-financial

The Grameen Project was started in 1977 by the Grameen Bank as part of a delivery-recovery mechanism for impoverished individuals living in Bangladesh. The Grameen Project went against the typical banking philosophy of the time with regards to who received loans and the re-payment structures for loans. The premise of the Grameen Project was that support groups would be beneficial for both the bank and the individual borrowing money, in that all individuals in the group would assume a moral responsibility for each other’s loans from the bank. Anyone borrowing money from the bank had to be a member of a five person support group, in which all members were required to receive training in bank policies and take a test prior to receiving a loan. The members of the five person support group were required to approve loans for their members. The loans were initially offered to two members of the group. Upon the first two members of the group successfully repaying a portion of their loan, two more individuals from the group could receive a loan from the bank. The chairman of the group was usually the last to receive a loan. Every member of the group that received a loan was required to deposit 5% of the loan into a group fund, which would be used to assist a member of the group if a crisis arose. The loans offered by the Grameen Bank, lasted for a year, were paid weekly and based on a 20 percent interest rate. The loans were used primarily by women to start businesses so