The Solution
Micro-finance emerged in the 1970s as a tool of social innovators, who offered financial services to the working poor, previously considered unbankable because of their lack of collateral. Once given the opportunity, these budding micro-entrepreneurs expanded their businesses and increased their incomes. Furthermore, high loan repayment rates prove that the poor are capable of transforming their own lives given a little help. This lending model disproved the conventional wisdom, 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 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. Typically, if a borrower defaults on the loan, the entire group is penalized and sometimes barred from receiving 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. As a result, repayment rates are 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 borrowers stay current so they do 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 a few of the key reasons that people throughout the world are poor and remain poor.
While the causes of poverty might be macro issues, the effects are felt on a micro level, creating hardships for countries, communities, and families. Poverty's worst attribute is that it breeds poverty. Breaking free from poverty’s repetitive cycle is nearly impossible. If a person cannot afford proper nutrition or health care for his family, his children will have a greater risk of acquiring a life-threatening or disabling disease. If a parent cannot afford to educate her children, her children will have few options to create a life different than her own. Adults who cannot afford to buy their own land, home, or livestock, they will have few opportunities to build assets that last over time.
Most of the world’s poor are self-employed. Without the security of formal jobs, many work each day 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. Living in poverty usually means that the harsh reality of today will repeat itself tomorrow.
An old Chinese Proverb 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.
