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Microlending Model
The international development community has both praised and vilified microlending as a means of poverty alleviation. Although the microlending model is not the apodictic poverty solution that some once believed, research on its impacts has shown that one should not easily dismiss or affirm it.

The History of Microlending

The modern-day microlending model comes from the Grameen Bank model that Muhammad Yunus created. Yunus won the Nobel Prize in economics in 2006 for his microcredit operations.

While teaching at Chittagong University in Bangladesh, Yunus would visit the impoverished households in Jobra, a neighboring village. Yunus found that those suffering in poverty often could not gain access to even $1 in credit except under unfair terms.

Jonathan Wight, a professor of international economics at the University of Richmond, explained in an interview with The Borgen Project that this barrier to traditional credit markets often pushed the poor into borrowing on the black market or from payday lenders with astronomical interest rates.

Financial markets work through financial intermediaries that loan savings out to investors, such as banks. Investors is a loose term here – it could refer to someone taking out a loan to buy a car. To get access to credit, one must have collateral – assets to forfeit if the debtor becomes unable to pay off the loan.

The poor have little in the way of financial collateral making them unfit as borrowers in the eyes of traditional banks, so Yunus decided to create the Grameen Bank. This bank would require those in poverty to join the bank in self-formed groups. The bank would then give the group a loan with no collateral requirement.

By lending to a group, Yunus capitalized on social capital relying on the groups’ links and relationships as a form of collateral: if one member of the group did not pay the loan back, they risked the loans of the entire group.

This microlending model became fad-like in its popularity in the economic development field. By the 1990s, it became the most highly lauded and generously funded poverty alleviation policy in the international development community.

Critiques of Microlending

In theory, microcredit should boost income-generating activities, but the industry has seen a move toward the support of consumption spending. Rodrigo Peláez, who worked at the BBVA Microfinance Foundation in Spain for six years, explained to The Borgen Project that a lot of harm can occur when MFIs support consumption rather than productivity. Instead of generating income, MFIs can end up making people poorer.

The intention of loans is for people to invest them so that their investment can fund the repayment. For example, when a person takes out a car loan, they are investing in that car with the expectation that they will gain a return. Buying that car may mean that they now have the ability to get a higher paying job in a city where they need to commute.

If a person were to instead spend that loan on a television, they would not get any returns on that expenditure. They would then have to pay back a loan principal that they could not pay before purchase, in addition to interest. This would make the person poorer than when they started out.

This phenomenon has deteriorated the efficacy of the microlending model as a development tool and has caused some to go as far as labeling it an “”anti-developmental” intervention.” Another critique is that even when microcredits create productive investment, the business activities those investments support are not sustainable development drivers nor are they geared toward poverty reduction.

Studies by Abhijit Banerjee and Esther Duflo, the 2019 Nobel Prize winners in economics, have found that microlending is not, in fact, a tool for creating transformative social or economic change in impoverished communities. Furthermore, in some cases, borrowers from MFIs end up saddled with too much debt having taken a loan without the income to sustain repayment or with the expectation of using the loan to create income. These borrowers then have to sell personal property or go further into debt to pay their loans.

Ben Blevins, the director of a developmental organization based in Latin America called the Highland Support Project, described first-hand accounts of exploitative microfinance to The Borgen Project. The microlending model, Blevins said, is a perpetuation of white settler colonialism policies. “The purpose of microlending is about a move to innocence for people in the Global North,” Blevins said. “It is also about extending and conditioning the entire world to the neoliberal model of debt servitude to the capital class.”

The Impact of Microlending

Some have believed that microcredit has numerous positive social, educational and economic outcomes, but empirical studies have shown mixed results. In a study by Banerjee with facilitation from Duflo, researchers found results suggesting that although microcredit does not necessarily lift communities from poverty, it can foster more freedom of choice and the capability for self-reliance. The study did not find sufficient evidence to support either the proponents of microcredit or the adversaries, although, this study and more targeted studies have shown the marginally positive impacts of microcredit in niche scenarios.

A 2019 working paper for the National Bureau of Economic Research, with authors Banerjee and Duflo, found that “For talented but low-wealth entrepreneurs, short-term access to credit can indeed facilitate escape from a poverty trap.” Meanwhile, a study published in 2019 found that Haitian women who received health education training as part of the microfinance loan program, “were over 50% more likely to use condoms, over 50% more likely to have a recent HIV test, and over 60% less likely to report recent STI symptoms.” The degree of positive impacts from the model seems to depend largely upon the MFI itself and its priorities.

Some MFIs will remain in a village for years nurturing human development through financial management or other training programs, Alejandro Cañadas, associate professor of economics at Mount St. Mary’s University, explained in an interview with The Borgen Project. These institutions aim to create financially savvy citizens, foster economic growth and break poverty traps.

“These microfinance organizations, they have a different way: they go, they train, they show. They bring the training and education, and then they give the money to see it in practice,” Cañadas said. “And then people use what they learn, and they make mistakes and they fix those mistakes.” However, Peláez noted that not all MFIs have a social impact in mind. A lot hinges on the management of the institution and whether that institution cares about its social responsibility and staying true to its mission of poverty alleviation.

There is a thin line to walk between productive and nonproductive loans in the finance sector in general, Peláez said, “But microfinance is much more dangerous because it’s vulnerable people we’re talking about.”

Concluding Thoughts

The microcredit industry has proven over time, with large scandals erupting across the industry, that it holds great potential for exploitative practices.

“We wouldn’t expect that any solution as big as this one ­– microlending – as momentous as this is going to be all beautiful, all perfect,” Wight said. “There are bad apples who get in there and say ‘Hey, this is a chance to make some money. I’m going to prey on the ignorance, lack of education of a poor person. I’m going to get them to sign some contract.’”

The microcredit poverty solution is not all bad or all good. It has proven to have some positive impacts, but there are large failings in this microlending model that people need to address if they are to continue to use it in any form of development work.

– Olivia du Bois
Photo: Flickr

Quotes From Notable Figures About PovertyNotable figures throughout history are oftentimes known for their eloquence. This ability is especially important when it comes to mobilizing others around important issues, such as poverty. Below are nine quotes from notable figures about poverty.

9 Quotes From Notable Figures About Poverty

  1.  “Overcoming poverty is not a task of charity, it is an act of justice.” -Nelson Mandela.

    Nelson Mandela was a philanthropist and social rights activist. Additionally, he was also the former President of South Africa and a spokesman for ending poverty. In 2005, he made a speech at the Make Poverty History rally in London, speaking to a crowd of 22,000 people on the subject.

  2. “When a poor person dies of hunger, it has not happened because God did not take care of him or her. It has happened because neither you nor I wanted to give that person what he or she needed.” -Mother Teresa.

    Mother Teresa was a Roman Catholic nun who devoted her life to serving the poor around the world. In addition, she received a Nobel Peace Prize for her work in overcoming poverty and distress.

  3. “There are people in the world so hungry, that God cannot appear to them except in the form of bread.” -Mahatma Gandhi.

    Mahatma Gandhi traveled around the world and observed the living conditions and causes of poverty. He began his activism in South Africa and later became the leading notable figure in India. Gandhi faced imprisonment several times for undertaking hunger strikes and protesting the oppression of India’s poorest classes.

  4. “Once poverty is gone, we’ll need to build museums to display its horrors to future generations. They’ll wonder why poverty continued so long in human society…” -Muhammad Yunus.

    Muhammad Yunus is a professor from Bangladesh who dedicated his life to becoming actively involved in poverty reduction in Bangladesh after observing the famine of 1974. Then, he went on to develop a number of companies to address the diverse issues of poverty, including a method of banking that provided small loans to the poor to assist them with getting out of poverty.

  5. “Poverty is not a fate, it is a condition; It is not a misfortune, it is an injustice.”-Gustavo Gutierrez.

    Gustavo Gutierrez was a theologian and priest whose beliefs were that it was the Christian duty to aid the poor and the oppressed. Further, Gutierrez dedicated his life to advocating for the poor in Latin America.

  6. Poverty devastates families, communities and nations. It causes instability and political unrest and fuels conflict.” -Kofi Annan.

    Kofi Annan believed in combating poverty, promoting equality and fighting for human rights. As the Secretary-General of the United Nations, Annan’s greatest achievement includes the launching of the U.N. Millenium Development Goals which cut extreme poverty in half.

  7. “The issue of poverty is not a statistical issue. It is a human issue.” – James Wolfensohn.

    As the ninth President of the World Bank Group, James Wolfensohn focused on fighting global poverty and helping the poor forge better lives. His belief was that the Bank should serve the people of the world, particularly the poorest of the poor.

  8. “Poverty is a scourge that must be overcome, and this can only be accomplished through concerted international efforts involving effective partnerships between developed and developing countries and between government, the private sector and civil society.” -Dr. Han Seung-Soo.

    Dr. Han Seung-Soo was the Prime Minister of South Korea and is now the President of the United Nations General Assembly’s 56th session. Further, Seung-Soo dedicated his presidency to emphasizing the consideration of ways to bring Africa into the mainstream through poverty eradication and the generation of sustainable development.

  9. It is our moral failure that we still tolerate poverty.” -Ela Bhatt.

    Ela Bhatt, the founder of the Self Employed Women’s Association, believes poverty is a form of violence. She has been an advocate for the poor, particularly women, in her native country of India.

Na’Keevia Brown
Photo: Flickr

Making Nutrition Attainable
There are roughly 15.2 million children under the age of 5 in Bangladesh, according to the World Health Organization (WHO). Malnutrition affected about half of this population for years. However, there has been some success in lowering this amount by making nutrition attainable. The WHO records that growth stunting reduced from 41 percent in 2011 to 36 percent in 2014. The percentage of underweight children also dropped from 36 percent to 33 percent between 2011 and 2014.

Although Bangladesh’s economy has progressed and the country has experienced a reduction in poverty, food insecurity remains a concern for about 35 percent of its citizens. The International Food Policy Research Institute recommends that children who consume at least four different food groups a day will be 22 percent less likely to experience stunting. In spite of the food insecurity, each day there are more possibilities for making nutrition attainable for poor countries.

Processed Foods

A very common misconception among big companies and corporations is that poor countries would not be able to purchase their food. Therefore, many companies do not venture to sell to these countries in fear of failure. However, in countries like Bangladesh, India and Nigeria, people purchase over 80 percent of the food rather than relying on home-grown. In Bangladesh, 75 to 90 percent of low-income urban consumers and about 40 percent of low-income rural consumers purchase their food. Fifty to 70 percent of the food people purchase in these countries is processed.

Although there are many unhealthy packaged foods, there is also a market for nutritional processed goods. A study in Nepal found that 80 to 90 percent of the country’s children of 6 to 23 months of age ate commercially-produced packaged foods. In Nigeria, people buy 80 million MAGGI bouillon broth cubes every day. These bouillon cubes carry essential nutritional qualities such as iron and other key micronutrients. There is a need for more similarly packaged and processed foods that provide nutritional density and quality.

Making Nutrition Attainable

In an effort to improve the situation, Groupe Danone and Grameen Bank collaborated to make a fortified yogurt factory in Bangladesh. Danone is the world’s largest yogurt maker with more than $21 billion in annual sales. Muhammad Yunus, the Bangladeshi microfinance pioneer and founder of Grameen Bank, first suggested making baby food, however, a yogurt factory became the ultimate choice.

The company is successfully putting enough vitamin A, iron, zinc and iodine into the 60 and 80-gram cups of yogurt to meet 30 percent of a child’s daily needed diet. Overall, the local children who are often poor and malnourished benefit from the yogurts the factory produces. There is still a lot of work to do. The consumer demand increasing in the U.S. leads many businesses to cut sugar out of their products by at least 20 percent. However, for countries in Africa and Asia, there has yet to be this kind of motion.

The Danone and Grameen Factory Help People

The Danone and Grameen factory’s main goal is not to make large revenue, but rather to provide nutrition and education. Professor Muhammad Yunus of Grameen Bank hopes to share a lesson in manufacturing, business and humanitarian efforts for the developing world and the West. He believes that in starting this project, “You don’t see the money-making aspect, but how you can help people.” The project has employed the rural community through its links with the farmers which serve the factory. The yogurt company pays the local workers and farmers more than any customer does. Many employees are earning $60 a week, a substantial amount for rural Bangladesh.

Many private sector companies are hesitant to step into this effort because of the misinformation that affordable nutrition cannot be profitable. Professor Yunus hopes to educate these companies by challenging them to begin thinking about running their businesses in a different manner. For Danone, this project provides a clearer understanding of marketing food in South Asia and entering in a more profitable market in India.

The Impact

Danone and organizations like Feed the Future strive to make nutrition attainable in Bangladesh. As of January 2018, the U.S. Government selected Bangladesh as one of the 12 Feed the Future target countries. Feed the Future, under the U.S. Government Global Food Security Strategy, is a global hunger and food security initiative. It has established a strategy for making nutrition attainable. Feed the Future aims to intensify production while diversifying agriculture. It uses high-value, multi-nutrient products. Feed the Future’s target beneficiaries include rice farmers, the landless poor who are net purchasers of rice, small and medium-size farmers who can diversify production, agricultural-based enterprises and people employed in the fishing and aquaculture sector. In poor countries, companies such as Danone make nutrition attainable by placing more importance on those in need than on the profit it makes. Government organizations like Feed the Future also help in providing food security to poor countries like Bangladesh.

– Francisco Benitez
Photo: USAID

books about poverty
Despite tremendous progress over the past few decades in eradicating global poverty, nearly a fifth of the world still lives on less than $1.25 a day. In recent years, a number of economists, academics, and political analysts have published books providing insight into the causes, effects, and solutions to global poverty. Here are some top books about global poverty that particularly stand out:

The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It (2007)

By Paul Collier

“Economist and Africa expert Collier analyzes why a group of 50 nations, home to the poorest one billion people, are failing. Considering issues such as civil war, dependence on extractive industries, and bad governance, he argues that the strongest industrialized countries must enact a plan to help with international policies and standards.” – Amy Lockwood, Stanford Social Innovation Review

Creating a World Without Poverty (2007)

By Muhammad Yunus

“As founder of Grameen Bank, Yunus pioneered microcredit, the innovative banking program that provides poor people mainly women with small loans they use to launch businesses and lift their families out of poverty. Now, in Creating a World Without Poverty, Yunus goes beyond microcredit to pioneer the idea of social business – a completely new way to use the creative vibrancy of business to tackle social problems from poverty and pollution to inadequate health care and lack of education.” – Yunus Centre

The Beautiful Tree: A Personal Journey into How the World’s Poorest People Are Educating Themselves (2009)

By James Tooley

The Beautiful Tree “tells the remarkable story of author James Tooley’s travels travels from Africa to Asia, and of the children, parents, teachers, and others who showed him how the poor are building their own schools and learning to save themselves.” –The Cato Institute

The End of Poverty: Economic Possibilities for Our Time (2006)

By Jeffrey Sachs

“Sachs outlines a detailed plan to help the poorest of the poor reach the first rung on the ladder of economic development. By increasing aid significantly to provide the basic infrastructure and human capital for markets to work effectively, Sachs argues such investment is not only economically sound but a moral imperative.” – Amy Lockwood, Stanford Social Innovation Review

The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good (2006)

By William Easterly

“Easterly, a celebrated economist, presents one side in what has become an ongoing debate with fellow star-economist Jeffrey Sachs about the role of international aid in global poverty. Easterly argues that existing aid strategies have not and will not reduce poverty, because they don’t seriously take into account feedback from those who need the aid and because they perpetuate western colonial tendencies.” – Amy Lockwood, Stanford Social Innovation Review

The Wealth and Poverty of Nations (1998)

By David Landes

“The Wealth and Poverty of Nations is David S. Landes’s acclaimed, best-selling exploration of one of the most contentious and hotly debated questions of our time: Why do some nations achieve economic success while others remain mired in poverty? The answer, as Landes definitively illustrates, is a complex interplay of cultural mores and historical circumstance.” – W.W. Norton & Company, Inc

Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits (2006)

By C.K Pralahad

“Explaining that the world’s five billion poor make up the the fastest growing market in the world, Prahalad shows how this segment has vast untapped buying power, and represents an enormous potential for companies who learn how to serve this market by providing the poor with that they need.” – Amazon

Out of Poverty: What Works When Traditional Approaches Fail (2009)

By Paul Polak

“Polak, a psychiatrist, has applied a behavioral and anthropological approach to alleviating poverty, developed by studying people in their natural surroundings. He argues that there are three mythic solutions to poverty eradication: donations, national economic growth, and big businesses. Instead, he advocates helping the poor earn money through their own efforts of developing low-cost tools that are effective and profitable.” – Amy Lockwood, Stanford Social Innovation Review

Dead Aid: Why Aid is Not Working and How There Is a Better Way for Africa (2009)

By Dambisa Moyo

“Moyo, a Zambia-born economist, asserts that aid is not only ineffective—it’s harmful. Her argument packs a strong punch because she was born and raised in Africa. Moyo believes aid money promotes the corruption of governments and the dependence of citizens, and advocates that an investment approach will do more to help reduce poverty than aid ever could.” – Amy Lockwood, Stanford Social Innovation Review

– Katrina Beedy

Sources: Stanford Social Innovation Review, Flavor Wire, Muhammad Yunus, WW Norton, Amazon
Photo: Cheryl Ann Skolnicki

 

poverty quotes and sayings

 

“Poverty is relatively cheap to address and incredibly expensive to ignore.”

– Clint Borgen, President of The Borgen Project

 

 

In June of 1998, all heads of the U.N. agencies signed a statement defining the term “poverty.” The statement read,“Fundamentally, poverty is a denial of choices and opportunities, a violation of human dignity…It means not having enough to feed and clothe a family, not having a school or clinic to go to…It means insecurity, powerlessness and exclusion of individuals, households and communities. It means susceptibility to violence, and it often implies living on marginal or fragile environments, without access to clean water or sanitation.”

After the World Summit on Social Development in Copenhagen in 1995, the U.N. recognized the need to reduce “overall” poverty, as 117 member-states adopted a declaration and program of action dedicated to this cause.

What is significant about this concept of overall poverty is the idea that the U.N. considers it present in all countries, whether it exists as “mass poverty in many developing countries,” “pockets of poverty amid wealth in developed countries” or “the utter destitution of people who fall outside of family support systems, social institutions and safety nets.

Poverty has made itself a presence in everyone’s lives, whether it is in the form of a classmate, colleague, a friend in the neighborhood or a friend in a neighboring country. Below are several quotes on poverty from past and present prominent leaders, defining what poverty looks like to them.

 

Best Poverty Quotes

 

  1. “We think sometimes that poverty is only being hungry, naked and homeless. The poverty of being unwanted, unloved and uncared for is the greatest poverty. We must start in our own homes to remedy this kind of poverty.” — Mother Teresa, Missionary and Saint.
  2. “These days there is a lot of poverty in the world, and that’s a scandal when we have so many riches and resources to give to everyone. We all have to think about how we can become a little poorer.” — Pope Francis, current Head of the Catholic Church.
  3. “Wars of nations are fought to change maps. But wars of poverty are fought to map change.” — Muhammad Ali, Professional Boxer.
  4. “People…were poor not because they were stupid or lazy. They worked all day long, doing complex physical tasks. They were poor because the financial institution in the country did not help them widen their economic base.” — Muhammad Yunus, Author of “Banker to the Poor: Micro-Lending and the Battle against World Poverty.”
  5. “Where you live should not determine whether you live, or whether you die.” — Bono, Singer and Philanthropist.
  6. “If human beings are perceived as potentials rather than problems, as possessing strengths instead of weaknesses, as unlimited rather than dull and unresponsive, then they thrive and grow to their capabilities.” — Barbara Bush, former First Lady of the U.S.
  7. “Overcoming poverty is not a gesture of charity. It is an act of justice. It is the protection of a fundamental human right, the right to dignity and a decent life.” — Nelson Mandela, former President of South Africa.
  8. “Just because a child’s parents are poor or uneducated is no reason to deprive the child of basic human rights to health care, education and proper nutrition.” — Marian Wright Edelman, Founder and President of the Children’s Defense Fund.
  9. “If poverty is a disease that infects the entire community in the form of unemployment and violence, failing schools and broken homes, then we can’t just treat those symptoms in isolation. We have to heal that entire community.” — President Barack Obama, 44th and current President of the U.S.
  10. “Poverty is not only about income poverty, it is about the deprivation of economic and social rights, insecurity, discrimination, exclusion and powerlessness. That is why human rights must not be ignored but given even greater prominence in times of economic crisis.” — Irene Khan, former Secretary-General of Amnesty International, 2010.

– Blythe Riggan

Sources: BBC, Brainy Quote 1, Brainy Quote 2, Goodreads, OHCHR, Standford, The Book of the Poor
Photo: Bio

microloans
A new pilot program from microlending organization, Kiva, is providing small loans to entrepreneurs in the United States in order for them to start their own businesses.

The concept of offering low- or no-interest microloans to individuals in order for them to have the start-up capital available to create their own businesses–subsequently lifting them out of poverty–is not a new idea for those living in the developing world, but applying that model domestically is innovative.

Kiva’s new program, Kiva Zip, helps connect potential borrowers with local trustees that vouch for the borrower so that they have the opportunity to receive microloans. Once the borrower has been accepted for a loan, the funds must be raised. At this point, lenders from all over the world can log on to their Kiva Zip accounts, scroll through the various loans, learn about the businesses and the people behind them, and ultimately make a small loan.

Crowdfunding the loans in this manner is critical in order to find lenders for the loans. A lender in South Africa might fund a loan in Los Angeles, while a lender in Chicago might want to fund a loan locally. Connecting people who want to give back, with people that have the entrepreneurial spirit to lift themselves out of poverty, is what Kiva Zip is all about.

All Kiva Zip loans are repaid on a decided upon time schedule. The lenders receive their money back to either make another loan or withdraw their funds. The hope is that lenders continually reinvest their funds into new loans–making the model self-sufficient.

Kiva Zip’s guiding principles are clear:

1) Expand financial opportunities and access for borrowers who otherwise lack them
2) Reduce the cost of capital for borrowers who need it
3) Enhance the connectedness between lenders and borrowers

The Kiva Zip model differs from the Kiva model in two important ways. First, Kiva Zip disburses loans directly to the borrowers, while the Kiva model sends the funds to a third-party organization, usually a non-profit or NGO, who then disburses the loan amount to the borrower.

Secondly, because of the direct disbursement of loans to the borrowers, Kiva Zip loans are riskier than Kiva loans. The default rate on Kiva loans are very small–only one to two percent. The default rate on Kiva Zip loans are expected to be quite a bit higher, but as the model becomes more efficient, the default rate should decline.

Applying a proven principle, like microloans, to economic woes domestically makes all the sense in the world. After all, Muhammad Yunus, father of microfinancing, said it best, “Poverty is unnecessary.”

– Aaron Faust

Sources: Kiva, Noble Prize
Photo: Komo News