The Benefits of Microfinance

In the 21st century it’s easy every now and then to slip into thinking “we’re all right”. Maybe it’s a sunny day, you check your iPhone for a nearby supermarket, pick up some supplies and have a nice picnic in the park and then browse the high street – maybe buying a new tie or a DVD or two. But in the grand scheme of things we’re not all right. Sure, the 21st century offers some terrific delights for first-world countries and first-world people, but, even in the most developed of areas, poverty and depression is rife. So just imagine what it’s like in parts of the world where it’s not as well developed. In some places it’s worse than ever. Not only are basic human rights a commodity, such as clean water, but these places can often be a financial mess. Good luck finding a decent paying job if you can’t even get water. A lot of unfortunate communities suffer poverty on multiple core levels, not just the ones you would immediately associate them with like the water shortage or illness – money is also a big factor too. It’s not just about donating £2 a month to a charity, either. That’s a great help in the short-term, but it’s not really targeting the economy.

Whether you think it’s right or not it is true that money does make the world go round. A good economic backbone is vital for any community to be allowed to thrive – and thus a good economy and a good state of finance is a basic human right, as without it the basics are unattainable. But economies are a big job to fix, right? Just ask the US, EU, Japan, or just about any country. But the economy doesn’t have to be made into Wall St. in the late 80s. Microfinance can help communities living in poverty get back on their feet, and give them a decent economic backbone to use in order to keep those feet there, and in a small, focused, and targeted way.

Essentially microfinance is financing in a small way, hence the “micro” prefix. Services included in the term are generally understood to be loans, savings, insurance and other basic financial services. Generally microfinance is the same as the financial services offered by banks that we are used to, and only really differ in its aim and scale. Banking is not something readily available to all people, so the aim of microfinancing is to be something that is available to all. Basic financial services can be a big help to a lot of people, so they should be available by all.

One of the key reasons why microfinance can be effective is the difference in perspective between first-world countries and impoverished countries. A difference in perspective of the economies. If you only have $40 to your name in the US, you’re pretty much broke. But for some people $40 can make a mind-blowing difference to your financial state. $40 can be enough to set up a business of some sort, and give you that little bit of a leg-up into a position where you make a little bit more money, and get a decent position sorted out for yourself. For only around $40. That is an incredibly small amount to most people, but microfinancing like that for some is just that little push they need. As with any loan, they will have to pay it back, but the small interest on the small loans makes it quite manageable.

The simple reality is that a regular bank simply won’t give out a loan to people with next to nothing to their name. And also standard banks don’t typically engage with loans of the scale that microfinancing does. A $40 loan is not something that would really fly with a bank – that’s just not the kind of thing banks do. By allowing people in poverty to access even a small amount of financing it can give some people the leg-up to get out of a bad circle of poverty. It can stop people being too poor to get money by giving them some money in the first place.

And the great thing about injecting small amounts of money into the individuals of communities is that the community can grow as a whole into something more positive. For example, if people can set up their own small businesses, services or other communal fixture then everyone is benefiting – these can even lead to things such as improved water facilities, better general sanitation and delicious cafés.

You see, in developing countries where poverty is rife loans that are micro in nature can make a pretty big difference. As mentioned earlier, in economies like this only a small amount of money can be required to start up a business. And then that business can bolster the economy and be beneficial not only for the individual, but also for the economy of the community. Individual-wise, income generated from a small business can relieve immediate financial worries, such as education for children or simply putting food on the table. More widely though, not only can more businesses and services increase community variety and quality, but it can also stimulate the economy of a community directly by both increasing the amount of jobs but also because money generated by a local business usually goes back into that local community. All of this from a small microfinance loan. Microfinancing can be the bolt-cutters to cut the looped chain of poverty – especially large scale poverty within communities and countries.

The benefits of microfinance are quite widespread. Microfinance is a seed – a seed that once planted has the opportunity to grow into something magnificent, no matter the quality of the soil. Financing on small scale does not necessarily have to have small effects. In a world where only the smallest advantage is needed for one to thrive, microfinancing is just the thing to provide the small benefits that everyone needs and that everyone is entitled to as a basic human right.
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