Microfinance: Improving The Standard Of Living In Developing Countries

1090 words - 4 pages

The United Nations has established a list of 8 goals that were to be achieved. These were eradicating poverty and extreme hunger, achieve universal primary education, promote gender equality and empower women, reducing child mortality rates, improving maternal health care, combating HIV/AIDS and other deadly diseases, ensuring environmental stability, and finally to develop a global partnership for development. 

Although these are arduous tasks, several of these goals are being accomplished with the help of great ideas and well executed planning. Microfinance is one of the great ideas that can help in accomplish several of the goals established by the United Nations. 

A brief history on microfinance

Microfinance is the purveying of financial services in the form of credit to low- to no income individuals who lack access to financial services or are considered deliquant clients by financial institutions. Moreover, microfinance is more than a way to lend credit to poor households and communities. Depending on the financier, it is a way to provide insurance, a savings account, and the ability to transfer funds. 

The idea of microfinance has existed for several centuries. However, its formal implementations are fairly recent. One of the earlier and longer-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan Swift. [1]

The concept of microfinance is all encompassing in that it has services that include things such as microcredit, one of the first incarnations of microfinance. 

As previously mentioned, the implementation of microfinance is a formal sense was in the 1970s. In 1974, a lecturer at the University of Chittagong in Bangladesh called Muhammad Yunus lent $27 to poor villagers as a form of credit. The villagers were able to utilize that money and pay back Yunus. The prime recipients of the loans were women as they were more fiscally conservative. As such, that adheres to one of the developmental goals of empowering women. 

Muhammad Yunus founded his Grameen Bank in 1983 to make very small loans – perhaps £15 a time – to the poor and uncreditworthy. Since then it has loaned about £3 billion to more than six million of the very poorest in Bangladesh and across the Asian sub-continent, yet it remains entirely self-financing. Borrowers' deposits cover the costs.[2]

Though there are critics to the system of lending, it is one of the more successful services that allow the poor to increase both income and their standard of living. 

Does microfinance really impact poverty? 

There is anecdotal evidence to show that poverty has been somewhat alleviated by the advent of implementing the microfinance theory, it is most evident in Muhammad Yunus’ home country of Bangladesh. 

In Bangladesh, there are 1,500 MFIs or MicroFinance Institutions. With such a plethora of institutions, one...

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