The Art of Microfinancing

As the saying goes, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” Microfinance, referred to as banking for the poor, is used as a means of alliviating poverty which corresponds to this moral. Microfinancing institutions do not directly fuel aid but providing means for a person to become self sufficient. Microfinance institutions educate local communities, provide financial and social services, collect loans, and assist clients.

The Way Things Work

Microfinance institutions grant small loans to borrowers who pay it back with interest gradually and then the loan is loaned again, recycling through the system of borrowers. These loans are camparatively smaller than the average loan. High interest rates act as compensation for these small loan sizes. The repayment rate is from 95 to 98 percent. Unlike the regular banking system, clients are not required to pay collateral. Microfinance institutions support the well being of clients every step of the way, providing center meetings to discuss business ideas and building a mutual relationship between the client and the institution.

Eligibility and Partiality

Microfinancing institutions mainly serve very poor people residing in rural areas who struggle to meet living conditions everyday.  People not within this generaliztion should not get discouraged as countless others are eligible for grants as well. Women statistically are better at managing finance better than men, using their income mainly on family expenses for better living conditions, especially education for their children, and therefore are more inclined to recieving aid.

Your Role

There are many public institutions of which people are able to support borrowers such as http://www.kiva.org/.  Upon transfering money into the system, supporters are able to read client profiles and choose which client they would like to lend money to. Loans are paid back gradually, usually on a monthly basis. Money comes back into your account and is free to be loaned again! Note that sometimes borrowers fail to meet this paying schedule so chooing a client with a reliable reputation is crucial.

Microfinancing is commended for being a highly fruitful endevour for addressing poverty. A 1998 World Bank study showed that, in Bangladesh, Grameen Bank’s clients were escaping poverty at the rate of 10,000 per month. Lenders become part of a recycling system in which they can support countless people with one donation which goes to show “a little bit goes a long way.”