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Micro Finance, Macro Changes

2/12/2010

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Wendell Brock - Friday, February 12, 2010

When Mohammed Yunus and Grameen Bank won a Nobel Peace Prize in 2006, micro lending became a household term. Yunus had been giving micro credit for decades, though, making his first loan to Bangladeshi basket weavers in 1974.

The United Nations beat the Nobel Prize committee to the issue by a year, designating 2005 the InternationalYear of Microcredit.

But for any global issue, one year is hardly enough.

The Year of Microcredit’s website says, “The Year will be successful if 2005 is considered one pivotal chapter in the promotion and development of inclusive financial sectors. Considerable follow-up at all levels after the close of the Year will help sustain the momentum achieved by the Year observance.”

While we must have reasonable expectations, the momentum’s still here in 2010. A quick Google search finds that, just this year, micro credit companies have popped up in Kyrgyzstan, the Philippines, and Indonesia. As well as in the United States, there are several micro finance companies - many are operated as non-profits, likeAccion Texas and the PLAN Fund.

Micro Lending Primer
While terms vary, there are a few guidelines that most lenders follow
  • Loans are based on trust rather than collateral
  • Loans are paid back in very frequent installments
  • Borrowers must join a borrowers’ group for support, advice, and accountability
  • Micro lending helps people help themselves.
First-responder Lending
A current Newsweek article sheds light on Fonkoze, Haiti’s largest micro financier. Not only does it assist people in ordinary times, but it is also making disaster-specific loans following the January 12 earthquake.

While Haiti’s traditional banks were (and still are) in ruins, Fonkoze began lending money two weeks after the earthquake.

Because micro finance units know the specific needs of their customers—this is how they do business, with small loans to individuals—they’re better equipped to handle disasters that hit their customers. The Newsweek article asks, “Could microcredit be the new Red Cross?” While it can’t completely replace disaster aid, it can play a part.

“Chemen Lavi Miyo”
Fonkoze’s primary program—which means “the Road to a Better Life”—is micro lending in non-disaster times. A video on their website tells the stories of several women who’ve received micro loans.

A mother of four children says that, before Fonkoze’s loan, “I didn’t even have a chicken. Now I have 18 ducks and chickens and eight goats. I have standing in this community. … For the first time in my life, I have the resources and knowledge to grow food and earn money.”

Micro financing has done much to help the poor improve their lives, but much more still needs to be done.

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