Created by students and faculty at Utah Valley University to raise awareness of the importance of mountain communities around the globe, and the role they play.
10.28.2010
Micro-finance: A New Weapon To Combat Global Poverty
In January, New York Times columnist David Brooks wrote a great piece called The Underlying Tragedy. He expounds on what made the Haiti earthquake so devastating. He explains that in 1989 there was an earthquake of similar magnitude in San Francisco, yet the death toll only reached sixty-three. This number is significantly less than the tens of thousands of Haitians that lost their lives in the most recent quake.
What is it then that accounts for such disparity in loss of life? Brooks points to poverty and the weak infrastructure it creates. The recent earthquake in Haiti is just a reminder of the poverty that plagues much of the world today. The tsunami in Indonesia and the floods in Pakistan are recent events that remind us of the need around the world for aid. Poverty is a perpetual problem in many countries and it seems that with the current economic crisis it is only getting worse. It can also easily plague mountain regions of the world that have not fully adapted their economies to their geographies. Some of the hardest hit victims of the current, world financial crisis are those that are already suffering from poverty. Stifling circumstances and inflation have made it difficult for the already stretched or non-existent budgets of these poor.
The citizens of the United States and Utah are some of the most charitable in the world, yet there are still many more people who are aware of world poverty, want to help, but just do not know how to do it. One emerging method of aid to help these people in foreign countries comes in the form of micro-lending. Organizations are beginning to surface that provide micro-lending and micro-finance to people that need money to maintain and start their businesses in foreign countries. Some of these institutions include Kiva, MicroPlace, Grameen Foundation and Accion.
Customarily, and especially as of late, banks and lending institutions are not prone to lending money to poor people of the world because it is usually not economically viable. Without access to at least some capital, people living in poverty-stricken countries are not able to maintain and start up businesses, and therefore the communities in which they live remain stagnant and the problems only perpetuate. This is where micro-lending institutions can bridge the gap.
Many of these micro-lending institutions such as Kiva function primarily through field partners. The way it works is that the field partner will find an entrepreneur that is in need of money and then loan them the principal. The field partner will then, through Kiva or other micro-finance institutions take donations in sums as small as $1-25 (depending on the institution) from generous lenders all across the globe to support the efforts of the entrepreneurs and make micro-lending more viable. Kiva then gives the lent money to the field partner. As the entrepreneurs earn money, they repay the field partner who gives that money back to Kiva and Kiva ultimately returns that money back to the lender. The lender is then encouraged to re-loan that money, but they are able to keep it if they wish. Money is easily and quickly transferred through lenders and Kiva through pay pal. It should be noted that as in all loans there is always the risk of default.
Field partners for Kiva range from a myriad of institutions in different parts of the world such as IMON International in Tajikistan and Fundacion Leon in Nicaragua and Central America. On the lending institutions’ web-sites potential lenders may browse through the profiles of entrepreneurs in need in countries around the world. The potential lenders are then able to choose whom they wishes to lend to, and what amount to lend.
These micro finance institutions are not yet person-to-person lending sites, due to the field partners but they hope to achieve this goal someday. In an interview with the New York Times, Premal Shaw, Kiva’s President said “It’s highly imperfect, but it’s like a 3 1/2-year-old child: it has a lot of potential.”
Kiva and other micro-lending are making it much easier for individuals to easily aid those less fortunate in poverty stricken areas across the globe for an extremely low cost. What makes these programs all the more effective and preferable is the fact that even though many lenders give money in the spirit of charity the recipients of loans are further invigorated to pay them back, giving themselves a sense of greater ownership and personal accomplishment, and the money that was paid back from the loan is able to go out and help someone else. Through micro-lending institutions any entrepreneur has the ability and can be empowered to be successful of their own merit.
Micro-finance is evolving quickly and one day we will see many micro-finance institutions that can help those in poverty better decide their own destiny. For now, many of these micro-finance institutions are a good way for people to get involved and in their own small way combat world poverty.
By Jesse Gray, student at Utah Valley University
Photos Courtesy of:
http://www.dailyworldbuzz.com/haiti-earthquake-duration/14482/
http://www.kiva.org/lend/239941
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