Reducing World Poverty Through Micro Lending, Social Business and Government Intervention

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.

269). There is no easy way for those with little money to begin earning interest on savings or obtain loans with reasonable interest rates: the banking community is failing the poorest people (Banerjee & Duflo, 2012, p. 269). Also, Banerjee and Duflo (2012) assert that medical and agricultural insurance are not favored by the poor in spite of the fact that they could benefit greatly from such products (269). Their proposed solutions come in the form of microcredit (to provide access to more reasonable loans), electronic money transfer systems (to reduce the fixed costs of saving), and rewarding people for making good financial decisions (either via markets or the government if needed) (Banerjee & Duflo, 2012, p. 270). The incentives could even be something unrelated, such as bed nets, which then help the recipients in more than one way (Banerjee & Duflo, 2012, p. 270). This would need to be coupled with government regulation so that unscrupulous individuals wouldn’t have a way to easily game the system (Banerjee & Duflo, 2012, p. 270).

Poverty has stricken many developing nations. However, there are many ways to limit things like this from occurring, micro-loans being one of those things. It is apparent that women in developing countries are empowered by micro-loans. Micro-loans are a small amount of money given to small businesses. Micro-loans help make women more independent and help them not rely on their husbands for money. It helps these women in poverty get their kids and themselves an education with the money they receive. Additionally, micro-loans make it possible for women starting a business, in order to make more money. There are many benefits for women receiving micro-loans.

At the beginning when Muhammad Yunus first introduced the idea of lending money to the poor people, there was a lot of apprehensiveness and skepticism among conventional banks because poor people

Microfinance is a complex but important issue for both the average person, and the financial sector to understand. While the financial instruments used may be similar, the demographics of the users of microfinance is important to understand. The main purpose of the paper is to give the reader a better understanding of microfinance and provide a researched opinion on the overall impact of the practice.

Poverty is a widespread disease, afflicting about 3 billion people around the world, that can be cured by taking effective measures. However, it seems incurable by the sheer amount of people affected by it and the convoluted, multifaceted reasons it is caused. This horrible affliction has perhaps hit developing countries the hardest, where around 98% of the undernourished children reside, creating an atmosphere of melancholy. These developing nations include some big countries like Brazil, India, and China with large populations suffering from low standard of living. It is tragic that so many people have to endure such harsh conditions. It is imperative to find a solution to poverty if we wish to progress as a society. Many politicians claim that poverty is one of the foremost factors hindering economies from progressing. Clearly, for the betterment of humankind we must find a solution, and soon at that.

As of July this year, $880 million dollars have been lent through Kiva, a popular crowdfunding website for micro-finance loans, since its founding in 2005. That same year, the United Nations Economic and Social Council declared 2005 the “Year of Microcredit” to emphasize the importance of providing financial services to the world’s poorest in an attempt to lift them out of poverty. The idea is simple: instead of donating to charities that provide some services to people in poverty, micro-credit organizations could just lend poor people the money they need to start or expand their own enterprises and then they will both lift themselves out of poverty with the growth of their business and repay the loan with some interest. These micro-credit institutions thus have the goal of simultaneously achieving financial sustainability, a positive social impact, and significant scale to lower costs. Micro-finance expands on the idea of micro-credit to include other useful financial services such as savings, money transfers, business education or insurance, depending on the institution. While the intentions of these institutions were undoubtedly good when they were founded, not all have maintained practices that have an actual, measurable, impact on poverty reduction. Micro-finance has the capacity to be a successful means of poverty reduction, but we need to look further into the actual practices and assessments of these institutions to make the millions of dollars being put into them

Muhammad Yunus has had phenomenal success helping people lift themselves out of poverty in rural Bangladesh by providing them with credit without requiring collateral. According to his microfinance theory is largely based on mutual trust, the enterprise, and accountability of millions of women villagers.

Poverty in the world overall is decreasing, but there are still plenty that live in it. As we have learned in our Pearson Revel textbook, about 1 billion people in the world live in abject poverty, without access to healthcare or basic nutrition. Most people who live in extreme poverty are concentrated in Africa, where again according to our textbook, income levels have lagged for decades. 3 million children per year die of malnutrition, and the average annual income for an African is only $3,200. According to the official World Bank website, “Half of the extreme poor live in Sub-Saharan Africa. The number of poor in the region fell only by 4 million with 389 million people living on less than US $1.90 a day in 2013, more than all the other regions combined.” In addition to that, the website also says that “A vast majority of the global poor live in rural areas and are poorly educated, mostly employed in the agricultural sector, and over half are under 18 years of age.”. Indeed, the extent to which there is a problem of world poverty is great.

Over the last 15 years microfinance institutions (MFIs) have rapidly expanded. The number of poor families with a microloan has grown from 7.6 million in 1997 to 137.5 million in 2010. Microcredit has generated significant confidence for fast poverty alleviation; creating a multiplier effect leading to the eradication of poverty and hunger, universal primary education, the promotion of gender equality and empowerment of women in developing nations. It can be argued that microcredit is a “win-win” opportunity, in which the poor are given the financial capital and

Microfinance is widely talked about throughout the world. Through the remote part of Bangladesh it kicked off its journey and gradually flew through the kingdom of light hovering clouds to spread its message. And the target group easily understood and promptly absorbed its mesmerising effect. This way credibility of the system was established within comparatively short span of time. In a World Bank estimate about 160 million from the developing countries at present take assistance through microfinance. However, credit goes to the Bengali economist Dr. Mohammed Yunus who invented in his factory the idea and threw it with a note that it would effectively absorb the shock of poverty and empower the

Microfinance institutions are playing an important role in the delivery of financial services to the poor. Increasingly, these MFIs are for-profit, limited liability companies, the ownership of which is in the hands of multiple shareholders. In most cases, shares are privately held (i.e., not publicly traded). Most such MFIs are licensed financial institutions finance companies and banks. Many are deposit takers. The microfinance industry has directed to change all that by building a financial market to meet diverse financial needs of under-served people (Armendáriz de Aghion and Morduch, 2004; Hermes and Lensink, 2011), and emerged merely with the objective of alleviating poverty, especially in developing countries (Brau, Hiatt, & Woodworth, 2009; Daley-Harris, 2006).

Girls and women understand the immediate problems facing the society. They are in direct contact with the societal issues and problems. The history of microfinance and how it was founded is a clear indication that women have a lot of influence on development. Microfinance was founded in Bangladesh and the main player was the women (Sparke, 2013). Women were expected to get loans at small interest and use it to initiate fight poverty. The women, during that time they did a wonderful job. It is not until 2005 when the greedy multinational such as World Bank and IMF intruded into microfinance and turned it into profit-generating enterprise (Sparke, 2013). Since then, microfinance started losing its value.

Within the segment, small enterprises led the demand for financing: around Indian rupees 6.42 trillion ($116 billion), approximately 74 percent of the total requirement. This was mostly due to unmet working capital and investment finance needs. Micro enterprises with a requirement of Indian rupees 2.05 trillion ($37 billion), accounted for 24 percent. Most of this requirement was largely focused around working capital needs. Women-owned medium-scale enterprises, which account for 0.01 percent of the total MSME sector had finance requirements of around Indian rupees 0.21 trillion ($4 billion), about 2 percent of the total requirement. Microfinance loans for seed capital allow women borrowers build credit habits and become more bankable. Thus, microfinance plays a key role in expanding access to finance for low-income women aspiring

This chapter reviews some of the studies and literatures on the role of Micro-finance and women empowerment to help get grasp of their experience, challenges and to find out measures put in place to deal with the various huddles. The chapter is presented as follows: