How Micro-Lenders Are Changing The World

Micro-loans (or microcredit) are small amounts of money lent to people--usually poor people in developing countries--at low interest and usually for the purposes of starting or running a business. Very often it is women who access microcredit, including many single mothers, to support children and families. Micro-lending has grown during the 21st century and it has and continues to have a meaningful positive impact on the world. 

 

How Microcredit works

The microcredit model, pioneered by economist Muhammad Yunnus and Grameen Bank, was first established in Bangladesh in 1976 with a group of women borrowing 27 dollars to help capitalize a small local business. The money went into the business, the women repaid the principal and the funds were then lent out again to another similar group of borrowers. This is how microcredit works.

All over the world, there are institutions solely dedicated to microcredit and microloans or which have incorporated them into their lending activities. Many ethical banks look to maximize their social impact and strive to act and do business with social justice in mind, which includes providing credit to those in need and refusing to discriminate based on socioeconomic status. 

 

Microcredit is Building Climate Resilience

One of the inescapable facts of environmental geography is that vulnerable people and communities around the world are the most impacted by climate change. This includes phenomena such as rising sea levels, and unpredictable drought and flooding events. Climate resilience is the ability of people, communities and businesses to bounce back from and absorb these climate shocks and it is largely dependent on capital.

Small and medium-sized businesses in many developing countries often don’t have access to credit at large financial institutions. They have no credit history, collateral, or viable guarantors. Microcredit financing provides these businesses with the means to make the kinds of investments (e.g., purchasing more drought-resistant crops) that are needed to withstand climate shocks. 

 

Poverty Eradication Through the Empowerment of Women

Microcredit is often focused on women and female-led small businesses, and or good reason. Of the roughly 139 million micro-borrowers around the world, 80 percent are women, and women spend 90 percent of their income on supporting their family, compared to only 35 percent by men. When women are empowered to run businesses and support families, educational attainment in children goes up, children have more and better food to eat and the cascading effects of this trickle down from generation to generation. 

 

Microfinance and Sustainable Development

In 1943, psychologist Abraham Maslow proposed what he called a “hierarchy of needs” in human beings, which he arranged into a pyramid structure, with “physiological” needs being the base and foundation. If human beings were unable to satisfy these needs, he contended, all other needs, including the need for a safe and secure environment, were afterthoughts. There is a lot of evidence for this assertion all over the world; poor people are more concerned with surviving than sustainable living. 

 

Microfinance helps satisfy those physiological needs by providing vulnerable people and communities with much-needed capital. Not only does providing people with a viable and sustainable (in the perpetual sense of the word) means of making a living reduce the need to pillage the surrounding environment (especially in global biodiversity hotspots), but many micro creditors have “sustainability” built into the terms of the loan. 

 

Conclusion

To someone from an advanced post-industrial country, it can be hard to imagine the impact that sometimes less than $100 can have on the fortunes and future of a person or even an entire community. Nevertheless, microcredit changes lives. And, in so doing, it changes the lives of future generations which, little by little, make the world a more humane and prosperous place.