December 20, 2009

Benefits of Microfinance

The preceding post, "Microfinance 101," provided a brief overview of microfinance. In addition to discussing the componenets of microfinance during my presentation to the Japanese Students Business Association (JSBA) at Bellevue College in Bellevue, Washington on December 2, 2009, I outlined the benefits of the scheme that offers poor people access to basic financial services. The benefits include increasing access to capital for individuals, increasing personal income and reducing poverty, enabling people to build assets, reducing vulnerability to economic stress, and development of basic life skills (e.g., literacy, personal health care, and financial education).

Unitus, a Seattle, Washington-based international nonprofit organization dedicated to advancing innovative, market-based solutions to global poverty, highlights several individuals whom have benefited from microfinance. Susan Wangui, 30, is a single woman living in Nairobi, Kenya with her son and daughter who are 13 and 9 years old, respectively. Susan, who is HIV-positive, was working as a prostitute when her husband left her when he learned about his wife's medical condition. (Photo of Susan Wangui courtesy of Unitus)

Susan "learned about Jamii Bora, a Nairobi-based microfinance institution, from neighbors in her slum. She completed their business training, which improved her business skills and gave her the confidence to begin her clothes mending and sales business. Jamii Bora's microfinance services enabled her to quit prostitution and move her family from a shack in their crime-and disease-ridden slum into a safer house."

With each increasing loan, Susan, "buys more raw materials in bulk at lower costs, thus increasing her business's profitability. She is convinced she would not be alive without Jamii Bora’s medical insurance and access to HIV medication, and can't imagine what would become of her children, as there is no one else to care for them. Susan has savings for the first time and is striving to earn enough to ensure her children's educations so they can break free from the chains of poverty."

Another example Unitus provides is Bayamma Neerudi, 49, of Medak, India, a married woman with seven children. Bayamma worked "as a seasonal agricultural laborer, earning 32 cents per day for only 150 days each year. Her husband was a mechanic in the nearby town of Jogipet, earning only 50 cents per day. One of her sons also worked as an agricultural laborer, while her other son was sold into bonded labor, often working 13 hours or more each day. For much of the year, Bayamma’s family survived on starch as their only food source." (Photo of Bayamma Neerudi courtesy of Unitus)

Bayamma's first loan of $150 was used to purchase a buffalo. "By selling milk and other dairy products from the buffalo, she was able to save an average of $2.75 each week after paying her loan installment and buying feed for the buffalo. She used subsequent loans of $64 and $128 to pay for a buffalo and to have cart made, which she rented out to transport sugarcane and other produce from the fields to the factories. With this income, Bayamma was finally able to release her son from bonded labor, whose wages are now added to the family's income. She recently received her third loan of $150, with which she has leased six acres of land for growing rice."

Unitus' website explains that "Bayamma is happy now that she and her family have stable sources of income. Her family eats more nutritious food that includes milk, rice, vegetables and, occasionally, meat. With her future loans, Bayamma hopes to begin repairing houses and also plans to purchase irrigation equipment to increase her crop yield."

Seattle, Washington-based Global Partnerships, a nonprofit organization that expands opportunities for people living in poverty by supporting microfinance and other sustainable solutions in Latin America, provides another success story. Gregorio Francisco Perez of Ocotal, Nicaragua, a married man with two sons, is a street vendor selling enchiladas, taquitos and fresh fruit juice from his pushcart. "Gregorio's business is funded by microloans provided by Global Partnerships microfinance partner” FundaciĆ³n para el Desarrollo de Nueva Segovia (FUNDENUSE), "and the income from it supports his entire family. The business itself is a family affair. Gregorio staffs the cart selling the product, his wife of 14 years cooks the food and prepares the juice at home, and their older son brings fresh supplies to restock Gregorio when he runs out. Together they prepare and sell more than 350 enchiladas every day." With the earnings from his business, Gregorio and his wife are able to pay for their boys' school uniforms and books. (Photo of Gregorio Francisco Perez is courtesy of Global Partnerships)

The three examples above illustrate the benefits of microfinance and while I do not want to diminish the impact microfinance has made on the lives of Susan, Bayamma or Gregorio, there are significant problems within the microfinance mechanism that prevents maximizing the benefits for a greater number of people living in poverty worldwide. I will discuss these challenges in a December 22, 2009 blog entry.

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