Microfinance in America

Microfinance of America... WHOA!

One of the greatest social issues of the world is that of poverty.

So, with the United States as the world's dominate nation (slowly falling), why doesn't our focus turn within?  The reason is because we are too busy spending excessively large amounts of money without simple and effective planning.  Instead, our government is using its bureaucratic methods to try and manipulate all productive actions in order to achieve political ends.

While our economy needs to be stimulated, another top priority should be eliminating the poverty rate, as with the eradication of this social issue will dawn the new middle class.  With this new class, our society will be able to deliver better education to a larger percent of our adolescent population while also allowing for more opportunities.


Be Clearer

While this may seem vague, the underlying message of this post is that through the correct variation of the microfinance method to accommodate the United States, more jobs will naturally manifest, and our economy will take a turn for the better at a faster rate.

Within America's microfinance sector, there are several problems, including the:

  • type of loans
  • amount loaned
  • rules

If the U.S. is able to change the way it approaches these three aspects of Microfinance, the nation will soon be on its way to financial recovery within the less wealthy sectors.

Type of Loans

The first aspect that must change is the type of loans that are given out to applicants.  A problem that I have witnessed developing within the American Microfinance businesses is that they are all approaching the situation as if America was Bangladesh (the country that initially started the social movement).  Obviously, as demonstrated by the recent world poverty standings with the United States at 12 and Bangladesh at 36, there is a drastic difference between the two nations.  Therefore, I ask, "Shouldn't there be a drastic difference between the way that Microfinancing companies approach businesses here as opposed to Bangladesh?"

Based upon this question, I believe that instead of giving loans out to small businesses to enhance their methods of transportation/distribution/acquirement of goods, they should immediately use the capital to pay off any debt.  As debt tends to build up much faster within the States, with the widespread use of credit cards, refinanced property and other loans, paying off debt and not having to worry about 2-3 hundred dollars worth of bills will definitely improve the social situation many are facing today as it will certainly ease the financial pressure that lendees feel everyday.

Of course, social contracts and rules would still remain in place, and security would have to tighten in order to ensure the payment of specific bills (phones, homes, cars, water, electricity, heating...), but with this change will result in the elimination of debt, and with the elimination of debt will begin the slow recovery and advancement of the poor to the middle class.

Amount Loaned

The second aspect of American Microfinance that must be changed is that amount loaned out. Whereas in India, $1 goes a long way (roughly about 46 Rupees), a dollar is only a dollar in America. (Weird right?) Therefore, because of this change, loan amounts must be drastically higher instead of the $20 loans being distributed around the globe.

While financial compensation has been made towards this aspect of American economics, loans are still to small. Currently loaning at an average of $2200, I believe that the current market should account for up to $4000 of expenses. Not just a random number, $4000 accounts for 2 years worth of meals for about 30 days (about $125/month *the average food stamp allotment is $100) along with an extra $1000 for other living expenses.

As a large amount of time will be given to each "unit" to repay the money, during the early months of the loan, the goal of lendees should be to work as hard and efficient as possible.  During this time period, advancements and expenses for individual businesses would be made, deducted from their own income, while using the loans as fall back money to pay for living expenses.  Through this method, rising entrepreneurs will feel more responsible for how they allot the money lended to them while also taking further pride in their businesses.

Rules

While one of the three aspects that I find almost acceptable, the rules dealing with American Microfinance also need to find the right balance in order to sustain order and timely repayment.  

The method currently used must first be examined.  This system allows for the:

  • development of a stronger community
  • dependence on one another to support the group
  • growing sense of responsibility to help maintain a group
  • provide valuable input/criticism on business ideas and potential improvements
What I believe is flawed within the system of rules is the method by which money is collected.  While only a minor problem, the time periods during which money is collected between members of a group is much to small.  Usually held at one week intervals, borrowers are pressed to make money fast in order to continue to receive funding.  While this method does serve a purpose to help eliminate those unable to make payments, it also eliminates a large percentage of people, who like everyone else applying for loans, want to improve their social standing.  By lengthening the time period between payment dates, every 2-2.5 weeks, this allows for larger amounts to be collected while also giving members more time to do business.

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