Microcredit: Micro-miracles for the World’s Poor

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Geeta’s parents died when she was three years old. She was raised by her older sister until she was forced to marry her alcoholic uncle as a teenager. She never had the opportunity to go to the local Indian school to learn how to read or write. What is making it possible for this 32-year-old to rise above her circumstances, pay off her debts and become a successful small-businesswoman? She would answer with one word: microcredit.

In the nearby town of Suryapet, Lakshmi Bandaru, a single mother of three, borrowed $225 from a microlender to start a used clothing trade. As her business grew, she took out another loan to buy cloth so that she could start designing her own line of garments. Now she has a monthly income exceeding $600, which allows her to provide for her family.

Success stories like those of Geeta and Lakshmi show how women in poor circumstances have been empowered to achieve their potential by the spread of microfinance. In this essay, I will argue that microloans (small loans given to impoverished entrepreneurs) improve social conditions for poor in developing nations, especially women.

Microlending gained widespread notoriety in 2006 when Mohammed Yunus and the Grameen Bank were awarded the Nobel Peace Prize for their efforts to spur economic and social development through microlending in Bangladesh. Economist Shahidur Khandker analyzed the success of the microfinance experiment in Bangladesh in 2005 and came to the conclusion that microcredit was responsible for 40% of the entire reduction of moderate poverty in rural areas of the country. Since then, the world has observed the powerful liberating force that microcredit wields in other developing nations, especially those where women are chained to repressive social and economic conditions.

India is one such nation. In the states of Karnataka and Andhra Pradesh, devadasi sex slavery is commonplace. More than 23,000 young women, known as devadasis, are forced to take part in quasi-religious prostitution because they are considered "untouchable" by the majority of society. However, the availability of microfinance lending has helped many of these women escape, allowing them to become educated, pursue other vocations and create a different destiny for their children. Microlending also teaches the poor smart business practices. Comprehensive studies on the impact of microfinance, conducted by the Bangladesh Institute of Development Studies and the World Bank, “find strong evidence that programs help the poor through consumption smoothing and asset building."

Microlending provides an opportunity for Western investors to engage the developing world in a way that benefits both sides. In addition to helping the needy poor transform their lives, microloans promise an incredible rate of return on investment. According to research at Madras University, “Studies covering India, Kenya, and the Philippines found that the average annual return on investments by microbusinesses ranged from 117 to 847 percent." These profitable returns on investment can be very attractive for foreign lenders from more developed nations.

Western investment in small business ultimately promotes democratic ideals in transforming nations across the globe. We know from experience that democracy cannot achieve its full potential until different classes and genders can participate in the political process with an equal footing. As the Nobel Prize Committee remarked in 2006, “Lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights.”

When Shakespeare warned “neither a borrower nor a lender be,” he hadn’t witnessed the look of joy on Geeta’s face when she paid off her first debt with microfinance. I encourage you to invest in the world's poor, as I have, through a reputable microfinance institution like the Spandada Foundation. Investors can make these micro-miracles possible in what is truly a win-win situation for borrowers and lenders. As vast numbers of poor in the underdeveloped world begin to break out of poverty through business creation made possible with microlending, human rights and political equality can truly begin to emerge on a global scale.
OpinionJosh Craddock