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The Miracle of Microfinancing

Updated on January 4, 2010

What is Microfinancing?

By definition, microfinancing is referred to as, "a means of extending credit, usually in the form of small loans with no collateral, to nontraditional borrowers such as the poor in rural or undeveloped areas." - Dictionary.com

But beneath its economic exterior, within its simple workings lies the future to a stronger community, compassionate world, and poverty-free society.

Practiced by several leading organizations throughout the world, microfinancing distributes small loans (ranging from $100-1000) to developing business owners looking to expand their own livelihoods, including: paying off debt, making purchases necessary to the well-being of the family and expanding the commercial range of the business.

Created by Muhammad Yunus, microfinancing is sweeping the world by storm, giving opportunities to those in need.

Microfinancing's Leader

Muhammad Yunus
Muhammad Yunus

Muhammad Yunus

Muhammad Yunus was born June 28th, 1940 in Bangladesh.  During his young adult life, Muhammad was returned to Bangladesh in 1974, from the United States, during a time of social and economic turmoil.  Not as a scholar or researcher, Yunus experienced first hand the effects of poverty on the mind, body and community.

Once an assistant professor at the Middle Tennessee State University, Muhammad decided to dedicate his life to the improvement of Bangladesh from his return on.  Since then, Yunus has succeeded in:

  • becoming a renowned author
  • opening a multitude of businesses, such as:Grameen Bank, Grameen Trust, Grameen Krishi (Agriculture), Grameen Uddog (Enterprise), Grameen Fund, Grameen Motsho O Pashusampad Foundation (Fisheries and Livestock), Grameen Telecom along with 18 other businesses.
  • Defining and opening the first social business, Grameen Danone
  • Defining and implementing a new business incentive system 

With these numerous accomplishments, Yunus also has his "wish list" for the world, defining his visions of a new society with no poverty, and a cohesive, loving community.

Kiva Microfinance Introduction Video

What are the Benefits?

Despite the obvious reasons for why Microfinancing benefits the world, specifically, Microfinancing develops the "family-economics" of society.

Economically, Microfinancing outstrips the capabilities of capitalism, leveling the playing field for those without large corporations or outstanding credit to retrieve them from the depths of poverty. The common phrase used to describe the capitalistic world is the saying, "It's a dog eat dog world," and for the most part, it's true. In a society where money means everything, countless are willing to sacrifice others in order to achieve their goals.  Through the miracle of microfinancing, the less fortunate are able to work within a flexible system in order to satisfy their specific situations, ultimately growing stronger, more compassionate societies.

Not only does Microfinancing allow for this flexible and adjustable system of loans, and not only does it directly benefit its recipient, but microloans also indirectly strengthen a community.  Take for example a business owner who works in the weaving industry.  In order to make fabric, he must purchase his goods from someone who produces string.  The string producer must buy his materials from a cotton producer, who, in turn, must purchase equipment to care for his fields.  As you can see, through this simple example, four people can easily benefit from the loan.  Through the constant interaction and distribution of money throughout the community, this cash flow not only strengthens the business owner, but the entire community as well!

The Beauty

The beauty about microfinancing is that, because of the small amount of money loaned, interest rates remain low, and repayments stay easier for the entrepreneurs. One might ask themselves, "But how is money kept track over? Who makes sure that these business owners are paying back these loans to investors (me)?" The answer to this is that microfinancing organizations, such as Kiva, Accion and Microfinance Gateway, hold distributing stations around the world with supervisors who monitor the weekly/monthly/yearly earnings and their rate of repayment. Investors can create accounts on these websites and monitor their investments, seeing how fast or slow their money is being repaid.

Another excellent feature about these organizations is that an investor can deposit money to any part of the world. From South America to China, microfinancing agencies make it easy for you to invest where you believe your money should go.

So...? Why should I care?

Many people choose to invest in programs involved with the homeless, poor, and those unable to care for themselves. Many others choose to work through direct service to help those barely getting by at food shelters. While both do their part to combat poverty, unlike microfinancing, they only forestall the effects of this economic epidemic.

Microfinancing targets those with a mastered area of expertise, already making money independently. By investing in these types of business owners, not only are investors effecting that immidiate business, but they are also stimulating the local economy.

By investing in those who are looking for new and innovative ways to expand their industries, investors are instilling a sense of independence and self-worth within every man and woman that they contribute to. With every dollar that they are able to pay back, they realize their potential and redouble their efforts.

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