By Erin Nealer
Microfinance was the trendiest new player in economic development for the first decade of the 2000s. In 2004 Vinod Khosla, founder and CEO of Sun Microsystems, called microfinance “one of the most important economic phenomena since the advent of capitalism.” In 2006 Muhammad Yunus, founder of the Bangladesh-based Grameen Bank, was awarded the Nobel Peace Prize for his work in establishing micro-loans for entrepreneurs struggling to rise out of poverty. Microlending programs such as Kiva, World Vision Micro, and Zidisha have sprung up to take advantage of the internet, creating peer-to-peer lending programs where individuals can supply small loans or pool funds for larger loans for entrepreneurs all over the world. The ability of microfinance institutions (MFIs) to reach those experiencing the greatest need and to provide long-term solutions for extreme poverty, however, remains uncertain.
The term “microfinance” refers to a broad umbrella of economic opportunities with one common objective: increasing access to financial services for those who are unable to access traditional banks. The theory is that small loans, savings accounts, insurance programs, and other basic financial services will provide the structure necessary for low-income individuals to lift themselves out of poverty, begin businesses, and provide for their families. MFIs that focus on underserved populations – particularly women, those living with HIV/AIDS, and populations in inaccessible rural areas – have the potential to enact great change in the lives of individuals, enabling them to participate in the local and global economy.
Women submit applications for microloans in Ghana. While microfinance is a popular and relatively new vehicle for increasing access to financial services, the lasting impact of microloans on business profits and overall income is negligible. Photo by Rachel Strohm via Flickr.
