by Jeannie Reynard
The purpose of this blog is to introduce readers to the value of microfinance.
A Compelling Vision
“The vision of microfinance is simple and compelling. Small loans—often less than $200—are extended to low-income households to initiate or strengthen entrepreneurial activities, thus helping them access the means to build wealth and advance out of poverty” Michael Schubert (Journal of the American Planning Association, 2002).
Poor clients, many in under-developed countries, find normal routes to loans closed for lack of collateral. Their savings (if they have savings) do not support entrepreneurial activities. Thanks to the structure of microfinance, many of those clients are able to access funding. Lenders opt to donate or finance these small loans for a variety of reasons. Some include the desire to make profit on a risky venture, while others do so for altruistic desires for social justice.
A Personal Motivation
This writer once received a small cash input from a dear friend. Unfortunately, the friend died before pay back, so pay forward was the only available option. In this particular case, “paying forward” amounted to a $25.00 investment for a group of young mothers in Mali. As one of thirteen investments, these small donations allow the group to purchase up community cereal grains, take them to market for sale at a profit, and reinvest (after costs) into the next purchase. At the end of the six-month loan term, each investor will receive back exactly $25.00 return on their investment, maybe. The risks are numerous, including macro-economic variables such as political upheaval, currency devaluation, or war. Perhaps the venture will fail for the reasons that many new entrepreneurs fail. There seems to be little measurable gain in the lender’s efforts, but the internal satisfaction is really beyond measure.
A Possibility
Global poverty levels dwarf these miniscule efforts to affect poverty and social welfare programs. Yet, millions are collected in support of the effort, and impact as many individuals and small groups as possible, in part as an effort to offer hope and possibility to these lucky few who reach upward and make the commitment to eke out a living. Repeat loans offer additional incentive beyond the desire to repay the loans and fulfill the obligations to lenders.
A Method of Measurement
How one measures the success of these microfinance programs is the subject of Mark Schreiner’s 2002 paper, “Aspects of Outreach: A Framework for the Discussion of the Social Benefits of Microfinance” (http://www.microfinance.com/). Schreiner offers a framework for comparison, providing insight into the short-term and long-term ramifications of the program benefits and costs. He suggests that any discussion of outreach utilize the following six measures of success:
• worth to clients
• cost to clients
• depth
• breadth
• length
• scope
An Opportunity for Dialog and Outreach
Whether microfinance is a sustainable option in the long-term and whether the benefits outweigh the costs are the subjects of much debate and analysis. If you are interested in researching the subject further, (http://www.microfinance.com/) offers several articles regarding methods for weighing and managing the risks of microfinance. Many websites offer the opportunity to lend, including http://www.kiva.org/, a non-profit organization that also ranks by risk those entrepreneurs and lending organizations involved in countries around the globe.
Microfinance fills the void for many who would otherwise have little opportunity to strive for even a meager sustenance. “Whether it is a small loan to a farmer in Guatemala to buy seeds in order to maximize benefit from a large irrigation project or credit extended to a group of West African seamstresses to buy new sewing machines, a system needs to be in place to raise capital, deliver loans, and manage repayments” (Journal of the American Planning Association, Spring 2004, Vol. 70, No, 2).
Kiva - Loans that change lives. 04 June 2009 (http://www.kiva.org/).
Microfinance and Microenterprise: Ways to Help the PoorAccumulate Resources. Director: Mark Schreiner. 07 June 2009 (http://www.microfinance.com/).
Schreiner, Mark. "A Framework for the Discussion of the Social Benefits of Microfinance." 5 Sept. 2001. RePEc. Society for Economic Dynamics. Dept of Economics, University of Connecticut, Storrs. 4 June 2009 (http://ideas.repec.org/p/wpa/wuwpdc/0109003.html).
"The Triangle of Microfinance: Financial Sustainability, Outreach, and Impact/Replicating Microfinance in the United States (Book)." Rev. of TRIANGLE of Microfinance: Financial Sustainability, Outreach & Impact, The (Book) by Michael Schubert. Journal of the American Planning Association Spring 2004: 230-31. Academic Search Premier. Ebsco. Regis University, Denver. 4 June 2009 (http://web.ebscohost.com.dml.regis.edu/ehost/detail?vid=1&hid=103&sid=558eb219-b7ff-452f-8a77-4affa874b151%40sessionmgr109&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=aph&AN=13229658).
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