The Poverty Problem

Many of the word’s poor have little access to the financial products and services that those in the developed world use to supply their needs when times are tough. Without life or health insurance, diseases and illness go untreated, and the death of an income earner creates a dramatic hardship for a family.

Without access to loans or credit, shop-owners cannot buy products in bulk. Farmers cannot buy machinery. They may not be able to purchase seeds after a natural disaster or a poor yield during the previous growing season. Without access to savings accounts, many of the poor hide their money in the walls or floorboards where it can be stolen or lost in a flood or fire.

In many cases, local moneylenders are the only available source of capital. They provide loans to smooth incomes during rough times or to help individuals improve their small businesses, but they do so at exorbitant annual interest rates, often between 300 and 3,000 percent. Under this system, nearly all of a micro-entrepreneur’s financial gains are passed directly to the moneylender. These individuals are unable to reap the rewards of their own hard work.

The traditional banking system requires borrowers to have collateral to receive a loan. The world’s poorest people have no such collateral. Furthermore, traditional banks are not generally interested in issuing small loans—$50 to $150—as the interest earned is less than the transaction costs for processing the loans.

Over 70 percent of the world’s poor are women. Women have a higher unemployment rate than men in almost every country and make up the majority of the informal sector of most economies. Additionally, according to a recent World Bank report, societies that discriminate based on gender pay the cost of greater poverty, slower economic growth, weaker governance, and a lower living standard for all members.

However, women are commonly the primary or sole family caretakers in many developing countries. Putting extra income in women’s hands is often the most efficient way to affect an entire family, as women typically put their children’s needs ahead of their own. Consequently giving women access to micro-credit loans generates a multiplier effect that impact and benefits multiple generations through micro-entrepreneurship.

When women become micro-entrepreneurs, they can provide additional daily income, and the condition of their entire household and society is greatly improved. Children are more likely to complete their education and escape the poverty cycle.