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Jonathan Andrew Wolter

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Microfinance to alleviate global poverty through capitalism?

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Reading time: 3 – 4 minutes

Microfinance in developing nations holds the promise of eradicating poverty through capitalism. Does it work? What is microfinance? Here’s a (biased) video emphasizing microfinance’s benefits.

Mike Murray of Unitus Co-Founder and discusses his initial misconception of the poor in developing countries:

“I thought the poor in developing countries probably lacked work ethic, they didn’t try hard enough. You know if they would just put their shoulder to the wheel, and try a little harder, and maybe wake up a little earlier, and just go for it like we do here in America. Then they’d have a better life. Well shame on me, these people work incredibly hard. They have to, because if they don’t their babies starve and people die. Their life stops! There is no safety net to catch them if they fall.”

Lorene Arey, President of the Clara Fund claims the poor lack opportunity. As opposed to drive or opportunity.

Mana Otero, President and CEO of ACCION International claims there are millions of poor people around the world who have no lack to financial services.

Financial services? Like IRA’s or maybe the new Roth 401(k)? No financial services like loans at reasonable market rates or banks to save their capital.

Enter Microfinance: a method for the poor to help themselves. It came about first in the 1970’s, by giving the poorest people of the world credit. Yup just like mortgages or those credit cards with beefy interest rates that can eat up a person’s income… the power of credit can allow business development in the developing world. Microfinance is explicitly not a gift. It is a loan, repayable at market rates.

Initially organizations would make loans from US$50 to US$150. Recipients would use the loan to buy capital in a small business, then pay it back with interest. It actually works. Today, not in 20 years. Take venture capital and marry it to poverty, you’ll be surprised at the result.

Most surprisingly (if you’re new to microfinance), the repayment rates are exceptionally high (95%). And most of the loans are made to women. They are found to be more responsible with the money, and investing profits from their business into their families. If this interests you, watch at least the first 5 minutes of the video. This video is only 14 minutes.

Has anyone visited a UNITUS funded business? This video is a pitch for their services, anyone have critical reviews on microfinance? Let’s bring about a balanced, critical analysis of this topic. Thanks for finding this link from Ryan, here.

Eric has funded someone through Kiva’s peer-to-peer microlending program. Anyone else?

Unitus is a global microfinance accelerator that acts as a social venture capital investor for the microfinance industry. Unitus identifies the highest-potential microfinance institutions (MFIs) in developing countries and helps accelerate their growth through capital investments and capacity-building consulting, thus empowering them to help exponentially more poor people worldwide. In doing so, Unitus aims to demonstrate that MFIs can be run as profitable, large-scale, poverty-focused businesses with links to local capital markets. As of October 2005, Unitus had seven MFI partners worldwide serving more than 504,000 poor clients.

Written by Jonathan

September 19th, 2006 at 2:49 am

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