Inflammation and stories on Microfinance

solutions to global poverty
Nearly half of the world’s population lives at or below the poverty line; out of the 2.2 billion children in the world, one billion of them live in poverty. Though this issue may not be as prevalent or visible in the U.S., it is an issue that affects everyone. Small steps can be taken to better this problem, leading to possible solutions to global poverty.

  1. Properly Identifying Issues
    One of the largest issues involving poverty is the inability to properly identify contributing factors at the micro and macro level. Many organizations assume that local aid alone will better the problem, but it is only with the combined efforts of local, state and national governments that poverty will lessen.
  1. Allocating Proper Time and Resources
    Preventable diseases such as pneumonia claim the lives of nearly two million children per year. Without proper planning, which includes allocating enough time, money and volunteer work, global poverty will continue to exist. Currently, the U.S. spends only about one percent of the federal budget on foreign aid. By creating detailed plans and projects aimed at helping other nations, global poverty will begin to lessen.
  1. Creating organizations and communities to work locally
    Enacting policy is not the only solution to global poverty, as policy often does not affect those suffering directly. As previously stated, efforts must come from both local and federal domains. Essentially, while policy is created to change legislation, local organizations enact the changes, directly helping those in need. On top of that, working with entire communities instead of specific individuals has been proven to be more effective.
  1. Creating Jobs
    Creating jobs in poverty-ridden communities allows individuals to pull themselves out of poverty. This solution to global poverty is arguably one of the most effective. Federal governments can achieve this by rebuilding their infrastructures, developing renewable energy sources, renovating abandoned housing and raising the minimum wage.
    By raising the minimum wage in existing jobs, companies would combat recent inflation in both developed and developing countries. This change in the states (in places such as Seattle and Washington) has been shown to reduce poverty.
  1. Providing Access to Healthcare
    Unpaid medical bills are the leading cause of bankruptcy. Having access to free or affordable healthcare would allow families to allocate the money they would normally spend on healthcare elsewhere.
  1. Empowering Women
    Female empowerment in developing countries often comes from organizations that work to reduce poverty by allowing them to take leadership positions and advance socially and economically.
  1. Microfinancing
    Microfinancing provides improvements to socioeconomic status by providing access to more, larger loans, providing better repayment rates for women, as they are less likely to default on their loans than men and extending education programs for loan-payers’ children. It can also improve health and welfare by providing access to clean water and better sanitation, create new jobs and teach developing countries to be more sustainable.
    Microfinancing continues to prove that even the smallest amounts of credit can be one of the many solutions to global poverty.
  1. Provide paid leave and paid sick days
    Paid maternal and paternal leave allows families to save money after childbirth, as having a child is a leading cause of economic hardship. Furthermore, giving workers paid sick days allows them to properly get over their illness without worrying about missing a paycheck or receiving a paycheck with fewer funds than normal.
  1. Supporting equal pay for men and women
    Closing the wage gap between men and women would reduce 50 percent of poverty experienced by women and their families. This would also add money to the nation’s gross domestic product.

Global poverty has proven to be an unruly, frustrating cycle, but eradicating it is within our means. These solutions to global poverty can and should be implemented to begin the end of poverty.

– Chylene Babb

Photo: Flickr

solidarity lendingFor too long, the plight of the urban poor had monopolized the concerns of those working to eradicate abject poverty. The millions of people in rural poverty have been forced to toil in silence, overshadowed by their urban counterparts and underrepresented by the advocates of economic development. Most are relegated to subsistence agriculture, making the best of what little they have. However, a renewed emphasis on the rural poor has facilitated new and innovative techniques to help, among them solidarity lending.

One such pioneer is SHARE Micro Finance Limited, which offers loans to rural women in India in an attempt to fund entrepreneurship among the rural poor. Recently, a number of studies have been conducted to assess the effectiveness of such programs, with some encouraging results. An article from the Stanford Graduate School of Business tells the story of Vinod Khosla, a venture capitalist from India. Khosla described solidarity lending as a “virtuous pyramid scheme” where groups of women are given modest loans from SHARE. This program differs from individual loans because “the group members are under strong social pressure not to default…and if one person does, the others have to make up for it”.

The program empowers women to invest the money in a stall at the local market or use it to invest in equipment which enables them to produce or transport their items more efficiently. To some, this may seem like only a marginal benefit, but Khosla reports that among nearly 200,000 clients, 77 percent saw reduced poverty.

To test the feasibility of such programs further, a study on solidarity lending was conducted in Mongolia, which compared the results to those of regular lending practices. Research showed that while repayment rates were similar, food consumption increased among group lenders, an encouraging sign to researchers.

Another study on group lending conducted by the African Growth Institute in Kenya revealed that “microcredit is an important entrepreneurial tool in alleviating poverty”. They also found that group lending was a way of achieving greater financial stability.

Because of innovative initiatives like solidarity lending, the rural poor are better equipped to prosper. By providing groups with much-needed access to financial capital, farmers from India to Mongolia to Kenya are no longer overlooked.

– Brendan Wade

Photo: Flickr

credit access in MaliFor many of the poor in developing nations, securing loans is often an unfeasible task. Reforms to credit access in Mali, however, are providing much-needed relief to smallholder farmers endeavoring to improve conditions for themselves and their families.

The Importance of Microfinance in Development

The practice of providing access to financial resources and small loans to those in developing nations, known as microfinance, has become the latest instrument in the effort to alleviate poverty. Too often, the world’s poor are denied access to loans, making it exceedingly difficult to start businesses or make capital investments that would enable them to improve productivity and elevate their incomes. Although microfinance across developing economies has yielded mixed results previously, the capacity remains for well-structured and pragmatically targeted initiatives to succeed.

Credit Access in Mali Denied

When these programs are successful, the implications can be powerful, especially for women and smallholder farmers. In developing economies, women reinvest 90 cents of each dollar they earn into “human resources” like healthcare, nutrition and education, according to a study conducted by the Harvard Business Review. This is substantially more than men and illustrates the impact small investment opportunities can have for the well-being of women and their families.

Despite this, securing loans is harder for women because most do not have property in their names to offer as collateral, typically make lending to them impractical. Furthermore, in Mali, 70 percent of loan applications sought by farmers are rejected because they are deemed risk-prohibitive. Because farmers’ incomes typically fluctuate with seasonal variance in agricultural output, banks are usually hesitant to provide financial backing.

Securing loans is also rare for farmers in Mali because banks focus primarily on commercial lending and often refuse the longer term loans many Malian farmers in the young mango, papaya and cashew nut industries need to get their businesses off the ground. Unstable political institutions in the country, like inconsistent enforcement of contracts, and poorly defined property rights further exacerbate these challenges.

Credit Where Credit is Due

An initiative which began in 2013 is addressing these issues and attempting to increase credit access in Mali. The Agricultural Competitiveness and Diversification Project by the World Bank seeks to “reduce the risk of investing in agricultural endeavors through technical assistance, new technology and greater knowledge of the supply chain and key actors,” according to World Bank Agribusiness Specialist Yeyande Kasse Sangho.

To provide loans, the program relies on the Innovation and Investment Fund (IIF) and the Guarantee Fund. The IIF offers a three-tiered lending system with each tier providing different levels of subsidies based on the size of the enterprise, with smaller enterprises receiving a greater subsidy. The Guarantee Fund, also financed by the World Bank, offers up to 50 percent of the loan guarantee, giving a needed cushion to the two commercial banks in Mali receiving the deposits.

In addition to this World Bank initiative, Mali sought in 2016 to improve access to credit by improving its credit information system regarding the regulations of credit bureaus in the West African Economic and Monetary Union. In 2017, it established another credit bureau, doubling-down on its resolve to ensure its citizens have access to capital.

With initiatives like these, Mali is demonstrating its commitment to making accessible credit the new normal for its people. Further improvement to credit access in Mali will only serve to assist in lifting more people out of poverty.

– Brendan Wade

Photo: Wikimedia Commons

Credit Access in JamaicaEarly in September 2017, the Executive Vice President of the Inter-American Development Bank, Julie Katzman (IDB), and the Minister of Finance and the Public Service, Audley Shaw, signed a pact for a loan of $20 million that will allow for greater credit access in Jamaica for micro, small and medium enterprises.

This initiative seeks to implement limited credit pledges to compensate approved financial institutions to upturn their lending to micro, small and medium enterprises in Jamaica. It will benefit the credit enhancement facility that was formed in 2009 and managed by the Development Bank of Jamaica.

The loan will permit the credit enhancement facility to assure a higher percentage of loans, with up to a maximum of $385,000.

These partial credit guarantees provided by the credit enhancement facility are anticipated to reimburse micro, small and medium enterprises that are incapable of meeting insurance requirements. As a result, the credit enhancement facility is acknowledging one of the major issues that limit an enterprise’s access to finance. Katzman pointed out that this will be the blueprint for an improved inclination and capability to loan to the micro, small and medium enterprises in the long run.

Such loans will enable relationship-building efforts among financial institutions and the enterprises, along with supporting the growth of the skill-set to measure credit earnestness. Credit access in Jamaica has become widely acknowledged, with enterprise owners becoming aware of the opportunity to obtain loans.

Since creditors have established greater credit access in Jamaica, the island’s central bank updated its reports noting that there was a collapse in new non-performing loans (NPLs). The collapse accounted for more than $1 billion from 2014 to the end of last December.

Securities institutions have, as a result, provided better credit underwriting and supervision for all commercial banks, building societies and merchant banks. These advances validate the banks’ commitment to managing the credit risks inherent in their portfolios, especially in a context where borrowers have demonstrated an increased appetite for debt.

Over the last two years, the Bank of Jamaica has stated that it has approved longer-tenured loans that back the facilitation of credit terms to revamp borrowers’ servicing of loans.

– Jalil Perry

Photo: Flickr

Credit Access in Pakistan: Focusing on Agricultural ProductionPositive news was received in May 2017 that improved credit access in Pakistan. The Asian Development Bank (ADB) recently agreed on providing a $20 million loan to help Pakistan’s Khushhali Microfinance Bank (KMBL), with the goal of expanding access to credit for agriculture, focused on related borrowers and small businesses.

Before this major loan, only 24 percent of the adult population was in possession of a bank account with a formal financial institution, while microfinance enterprises lacked the financing from the banking sector. Therefore, this loan will be of major help for KMBL – Pakistan’s largest microfinance bank – as it will finally provide the necessary financial services to micro, small, medium-sized enterprises and ultimately increase credit access in Pakistan. ADP’s goal is to increase the provision of financial services from 5,700 today to over 30,000 by 2020.

This loan will mostly focus on expanding agricultural credit as it represents the largest economy in Pakistan, accounting for 26 percent of its gross domestic product (GDP). By providing farmers with credit, they are able to improve agricultural production and come up with innovative agricultural technologies. It will also improve the standard of living of the rural poor agricultural society as a whole, by increasing crop production and therefore, farmers’ revenues.

One of the major challenges faced by farmers concerns the input expenditure per hectare that requires farmers to provide proof of credit, despite their level of assets in comparison with the credit they are seeking. This means that high input spending can be linked to higher productivity and growth.

For developing countries like Pakistan, agricultural production is low and therefore, there is not enough income being generated by farmers. Credit agencies, such as ADB, are therefore crucial for improving agricultural practices, by allowing credit access in Pakistan for farmers that need to make use of their working capital, fixed capital and consumer goods.

Ghalib Nishtar, the President of KMBL, said that finally having better credit access in Pakistan will “deepen the market penetration of KMBL into the rural economy” and increase openings of small businesses that are important for economic growth and prosperity.

– Sarah Soutoul

Photo: Flickr

 

Innovation: Islamic Microfinance in Sudan Helping to Reduce PovertyMicrofinance has become a crucial poverty-alleviating tool over the years, as it provides small loans to impoverished people lacking access to traditional financial services. Across the globe, microfinance institutions work towards tackling poverty and aiding poor people to develop their small businesses, which later can provide them with a regular income and give them the ability to sustain themselves. Those financial services are meant to target poor borrowers who have no collateral and would not otherwise qualify for a standard bank loan.

However, one of the challenges faced by Microfinance institutions is providing Microfinance services to Muslim countries under sharia or Islamic law, which limits the amount of interest that can be charged on loans. Therefore, a vast majority of Muslims refuse using traditional microfinance services because they are not sharia-compliant, meaning they are not in line with sharia law. This has led to the creation of Islamic microfinance, which is slowly gaining recognition among Muslim communities for reducing poverty and promoting business development.

Islamic microfinance in Sudan has become a government-mandated rule, due to their banking system being fully Islamic. Some of the applied sharia principles include risk-sharing, leasing and interest-free “loans.” Since 2006, the Sudanese banking sector has experienced the implementation of 10 microfinance institutions, the establishment of microfinance “windows” in 12 banks and the creation of “micro” products available for poor clients in five insurance companies. All of these new innovations have led to positive outcomes within the Islamic economy.

One of the positive effects of Islamic microfinance is improving financial inclusion for small farmers in Sudan. In 2010, the World Food Program partnered with microfinance institutions to launch an initiative that linked 3,000 farmers to markets and sources of financing in three Sudanese states. Two years later, this program has increased its influence to nine states, which has helped a total of 150,000 farmers.

Islamic microfinance in Sudan has led to many successes for the Sudanese community and Muslim states in general. Some of the benefits include economic growth, poverty reduction and better financial inclusion for those deprived of financial services. Not only does it enable the development of small businesses for the poor, but it also helps meet the needs of Muslim communities who refuse to use conventional financial services for religious reasons. Islamic microfinance still has a long way to go, as it has not yet reached enough Muslim communities. For example, in Sudan, only eight percent of the total population – estimated at 7.2 million – is benefiting from sharia-compliant financial services. However, since it increased its reach dramatically in such a short span of time, this brings hope for the improved success of Islamic microfinance in the near future.

– Sarah Soutoul

Photo: Flickr

Positive PlanetAccording to the World Bank, more than 2.5 billion people do not have a bank account and many of those people make up the world’s poor. So, it should not be surprising that just within the past decade, microfinance has become an increasingly popular form of business in many countries. Microfinance, or micro-lending, essentially refers to lending small amounts to individuals who do not have access to typical financial institutions.

Because this service goes to low-income individuals, it is popular among many nonprofits and private businesses to help people start enterprises around the world. Many microfinance institutions lend to women, young people and others who have been historically kept out of finance.

One organization, in particular, strives to alleviate poverty by empowering marginalized populations.

Since its founding in 1988, Positive Planet has set out to provide microloans to women who want to start their own businesses. The nonprofit aims to provide the chance to start a viable, sustainable business to women without resources. The organization also follows some of the intuition behind the Sustainable Development Goals, especially the goals of gender equality, decent work and economic growth.

The organization, based in France, manages projects through different locations that provide assistance to people in different countries. Positive Planet’s reach extends all over the world to 35 countries. Its projects span from helping refugee businesses in the Middle East to inspiring young people in West Africa.

Since its beginning, the organization has touched more than 40,000 people through nearly 40 projects. Just one of these projects helps microfinance groups provide women with financial education. The project aimed to help further develop the infrastructure in place for microfinance in China and also support women’s finance training. Through a partnership with Diageo and the Huimin Microcredit Company, the project was able to directly impact more than 7,000 people.

Another project assisted low-income women in Brazil with entering the labor market and learning the basics of entrepreneurship. The program attempted to benefit vulnerable women through individual support. By partnering with Gerando Vida, a local NGO, the program was able to directly impact the women and their families.

By helping vulnerable women around the world, this organization takes a staunch position against global poverty. This organization and its results demonstrate the importance of empowering women entrepreneurs.

Selasi Amoani

Photo: Flickr

Virtual MicrofinanceFounded in 2009 by Julia Kurnia, Zidisha is a virtual microfinance platform that seeks to combat poverty in developing countries by directly connecting lenders to entrepreneurs. To date, Zidisha has raised more than $10 million in microloans.

Zidisha, which means “grow” or “expand” in Swahili, is the first virtual microfinance service to eliminate the use of local intermediaries to disburse loans to companies in need. The Virginia-based nonprofit follows a platform similar to that of eBay, in which entrepreneurs post public loan requests for lenders across the world to access. This streamlined process is both cost-effective and convenient for emerging entrepreneurs who seek capital to accelerate their businesses.

Zidisha is not the pioneer of virtual microfinance. However, its distinctive feature is its commitment to lower fees and rates for entrepreneurs. Similar organizations such as Kiva make use of “field partners” who often distribute loans at interest rates of more than 35 percent to pay for administrative costs. Zidisha’s flat interest rate of five percent means that borrowers can retain more money to reinvest in their ventures.

The nonprofit has been a highly successful means of growing businesses in 11 developing nations. According to its website, lenders on Zidisha have fully funded more than 70,000 unique projects.

Developing countries are quickly adopting recent technological advances and joining an increasingly interdependent world. According to a Pew Research study, 54 percent of adults in emerging and developing nations described themselves as “Internet users” in 2015, a rise from 45 percent in 2013. However, in the same countries, formal job markets are inadequate and local banks are seldom financially helpful.

Thus, the use of cheap and effective microfinance is critical to spurring economic growth in emerging countries. Developing economies inevitably benefit from microfinance because entrepreneurs can use loans to pay for expansions, renovations, inventory and, most importantly, new employees.

Other virtual microfinance platforms could follow Zidisha’s cost-effective system of lending. If these platforms truly value charity and philanthropy through the form of financial support, they should recognize that the use of third parties to disburse loans poses a financial burden on emerging companies that cannot afford to accumulate thousands of dollars in unpaid interest.

People in developed nations should embrace the unique power of virtual microfinance. It is a viable, even profitable, form of philanthropy that has tangible effects on the crisis of world poverty. Using microfinance as a means of alleviating global economic distress will directly result in more jobs, profit and prosperity for those in need.

Henry Emanuel

Photo: Flickr

Islamic Microfinance
While poverty is a global phenomenon, the Muslim world is disproportionately affected. According to Iran’s Mehr News Agency, 46 percent of the world’s poor live in countries where Islam is the dominant religion. Since Islamic microfinance responds to the needs and preferences of Muslims, it can play a vital role in reducing poverty in the Muslim world.

Many Muslims avoid traditional finance because Islam prohibits usury, also known as Riba. While usury generally refers to unreasonably high interest rates that unfairly benefit lenders, some argue that the term covers any interest charged on loans.

This aversion towards non-concessional loans is what Islamic financial products can circumvent. At this year’s International Conference on Best Practices in Rural and Agricultural Finance in Kigali, Rwanda, Muhammad Zubair Mughal, CEO of the Al-Huda Center of Islamic Banking and Economics (CIBE), highlighted the utility of Islamic microfinance in agriculture and manufacturing.

“Islamic finance has specialized financial solutions for each segment of rural poverty,” according to Mughal. Riba-free contracts, such as Bai Salam and Modarabas, can provide funding to farmers to purchase seed and equipment, Mughal said.

Non-Muslim majority countries can also benefit from Islamic microfinance. Uganda, where only 14 percent of the population is Muslim, may begin making small loans compliant with Islamic law in 2017, according to a Bloomberg article from July 25, 2016. The loans form part of an initiative by Uganda’s Microfinance Support Center to increase employment and income in the country’s rural regions.

To alleviate poverty, Muslims have also begun raising money in other innovative ways. August saw the launch of WaqfWorld, the world’s first Islamic crowdfunding platform. The organization will use new technology to improve the flow of waqfs, donations of money or property in Islamic law, to charities with the goal of promoting community and economic development.

“Financial inclusion” is the central theme of the 6th Global Islamic Microfinance Forum, which is taking place in Nairobi, Kenya from Nov. 8 to 9. The poverty-reducing potential of Islamic financial products cannot be understated, and one of its primary advantages is that it benefits those excluded from traditional aid on account of their religion.

Philip Katz

Photo: Flickr

Whole foods market
Whole Food Market’s 2016 annual Prosperity Campaign for the Whole Planet Foundation raised $3.26 million to improve global poverty. All of the funds raised by Whole Foods Market will help support the foundation’s work to fund microcredit for poverty relief in 68 countries.

Philip Sansone, president and executive director for Whole Planet Foundation, shared that the “Whole Planet Foundation will be able to give an additional 91,100 people the chance to lift themselves out of poverty through microcredit and change their own lives” because of shoppers’ generosity.

The Prosperity Campaign encourages Whole Food Market supplier sponsors, customers, team members and online donors to donate to the Whole Planet Foundation, a nonprofit organization founded by Whole Foods Market. The foundation provides grants to microfinance institutions in Asia, Africa, the Middle East and the U.S. These countries then develop and offer microloans to the self-employed poor.

Microloans are small loans of usually less than $300 with no contract or warranty. The loans are used to help the world’s poorest create or expand businesses and make an income for their families. The average first loan size in poor countries is $184, but each microloan helps at least five people invest in their families.

Whole Foods Market covers 100 percent of Whole Planet Foundation’s operating expenses to ensure that all donations benefit microcredit clients. Since 2006, the foundation has distributed over $53 million in microloans across the world, giving 7.8 million people a chance at a better life.

In communities without many jobs, credit serves as a direct means for the poor to improve their family’s lives. Without jobs, the poor are left to their own devices to provide for their families. While microcredit loans alone will not end poverty, it will help provide better nutrition, healthcare, housing, education and schooling to families living in poverty. Whole Planet Foundation is committed to supporting life-saving opportunities to help global poverty.

Jackie Venuti

Photo: Flickr