How microcredit loans fight poverty

from Homemakers.com

Explore financing programs that empower women and improve lives.

By Heather Buchan

Around the world, more than 1.2 billion people live on less than a dollar a day and 70 per cent of these people are women. In many parts of the world, poor people in rural areas face considerable difficulties finding employment, leaving them with just two options: work for themselves or starve.

But in order to work for themselves, they often need access to resources to start up a small business. However, because these people lack steady employment and collateral, they can't meet the qualifications to gain access to credit and are unable to get the financial loans they need to begin working for themselves. And so, the cycle of poverty continues.

What is a micro-credit loan?
Micro-loans provide unemployed people, and people living in poverty, with small loans to start up income-generating projects and small businesses, enabling them to escape poverty or at least slightly improve their lives.

Micro-credit is a simple idea: a small loan, with an interest rate that is generally on par with commercial rates, is used to help people -- mainly in developing countries -- who can't secure credit, to set up a small business and generate profit. When the loan is repaid, the borrower is eligible for a larger loan to expand their enterprise. The proceeds from the interest increase the pool of funds available to provide loans to more people. The process of selecting loan beneficiaries varies from organization to organization.

The first micro-credit loans were issued in Bangladesh in 1983 by economist, and 2006 Nobel Peace Prize winner, Muhammad Yunus. Today, there are thousands of micro-credit institutions around the world and more than 113 million impoverished people have received micro-credit loans.

The average individual loan is approximately $150US to fund small business projects such as raising chickens to sell eggs, opening small retail businesses, vegetable gardening, livestock-rearing or buying sewing machines to make and repair clothing. But many say that we can't eradicate poverty without empowering women. Traditionally, there have been few opportunities for women to earn money outside the home in developing nations.

The importance of empowering women
Women have become the focus of various micro-credit institutions around the world because, according to the Microcredit Summit Campaign, more people benefit from a loan that's given to a woman. Since women are primarily responsible for the upbringing of children in these communities, they are more likely to invest their income towards the well-being of their family.

Micro-credit for women has been so successful that women now make up more than 80 per cent of loan recipients. Another benefit is that loans to women also raise their socio-economic status in patriarchal countries where traditionally women are viewed as inferior to men. These loans give women responsibility outside of the home as well as self-confidence and independence.

Josee Verner, Canada's Minister of International Co-operation says micro-credit loans are an important tool in fighting poverty. "Micro-finance gives immediate results for their families. When your family is starving, you cannot wait. You must take action. So these loans provide jobs for women so they can then feed their families," she says.

Minister Verner also points out that micro-loans also provide freedom, liberty and security for women. "This is one of the most concrete results we can give," she adds. By providing women in developing nations with micro-loans, Minister Verner says it also allows them to invest in the future and long-term growth of their country as well. "Loans give women a real place in the economic development in their country. For these women, $150 is huge even though it seems like such as small amount to us," she says.

How you can help
There are hundreds of micro-credit organizations around the world. Here are two that focus on women and are global in their reach:

1. CARE is a humanitarian global poverty-fighting organization that focuses on women in areas including Africa, the Middle East, Asia and Latin America, initiates community savings-and-loan programs and provides training to help people start up -- and expand -- small businesses. To donate or learn more about their initiatives, go to www.care.org or call 1-800-521-2273.

2. Women's World Banking is a non-profit organization that supports member organizations which provide micro loans and other financial services to millions of impoverished women in 43 countries around the world. To make a tax-deductible donation or learn more, go to www.swwb.org or call 1-212-768-8513.