HOW MICRO-ENTREPRENEURSHIP
CAN HELP THE POOR HELP THEMSELVES!

Micro-finance emerged in the 1970's as a tool of social innovators who offered financial services to the working poor, those who were previously considered unbankable because of their lack of collateral. Once given the opportunity, not only did these budding micro-entrepreneurs expand their businesses and increase their incomes, but also their high repayment rates demonstrated that the poor are capable of transforming their own lives given a little help. This model of lending disproved the conventional wisdom on the subject and micro-finance was born. Since then, micro-finance has become one of the most sustainable and effective tools in the fight against global poverty.

Micro-Finance Institutions (MFIs) exist today in many forms — credit unions, commercial banks, and most often Non-Governmental Organizations (NGOs). Many MFIs use social collateral in the form of peer groups to ensure loan repayment. Micro-entrepreneurs take out loans in groups of five to eight individuals. If a borrower defaults on their loan, the entire group typically is penalized and sometimes barred completely from taking further loans. This peer pressure encourages micro-entrepreneurs to be very selective about their peer group members and to repay loans in full and on time, resulting in repayment rates of higher than 95 percent industry-wide.

Micro-credit loan cycles are usually shorter than traditional commercial loans — typically six months to a year with payments plus interest, due weekly. Shorter loan cycles and weekly payments help the borrowers stay current and not become overwhelmed by large payments.

Poverty is a macro problem with causes as wide as they are deep. Political instability, natural disasters, corruption, socio-economic disparities, prejudice, lack of access to education, and a lack of infrastructure are just a few of the key reasons that people all over the world are poor and remain poor.

While the causes of poverty might be macro, the effects are felt on a micro level, creating hardship for countries, communities, and families.

Poverty's worst attribute is that it breeds poverty; it is virtually impossible to break free from its repetitive cycle. If you cannot afford proper nutrition or health care for your family, your children grow up with greater risk of acquiring life-threatening or disabling diseases. If you cannot afford to educate your children, they will have few avenues for a life different than that of yours. If you cannot afford to buy your own land, home, or livestock, then there are very few opportunities to build assets that will last over time.

Most of the world’s poor are self-employed. Without the security of formal jobs, each day they work from dawn to dusk, whether by raising chickens, selling produce in markets, or weaving baskets. All or most of the money they earn goes toward basic survival. There is little to no money left over to improve the quality of their lives or to expand their businesses. Consequently, living in poverty usually means that the harsh reality of today will repeat itself tomorrow.

There is an old Chinese Proverb that says: Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.

Most humanitarian work is focused on giving the poor a fish for the day. By developing micro-entrepreneurs, we can help the poor to feed themselves for a lifetime.