Can microcrediting be a more effective way to eliminate poverty?
October 29, 2020
Microcrediting can be a more efficient and effective solution to combating poverty in the world. Approximately, a quarter of the world’s population lives in poverty. One way that poverty can be eliminated is by helping one family at a time through microcredting.
Microcrediting is the granting of very small loans, also known as microloans, to spur entrepreneurship. Microloans are typically given to women in third world countries, where traditional financing is not available, to help them start small businesses. The small businesses often started with these loans are weaving, selling rice, farming, and selling crafts.
Microloans are small loans that are issued by individuals rather than banks or credit unions. These loans can be issued by a single individual or aggregated across a number of individuals who each contribute a portion of the total amount. Lenders receive interest on their loans and repayment of principal once the loan has matured.
These loans are usually for women as there is an understanding that the money will put to good use to support the impoverished family. Mothers can use the money earned from the business to give their children an education, provide food for the family, and expand their business. The women that run the business gain respect in their society and family, have greater financial stability, and are able to become independent. Benefits to this extent usually cannot be seen when they are given a handout instead.
Companies like Kiva and SHARE administer microlending for these humanitarian purposes. It matches entrepreneurs to people wanting to lend money. The borrowers in these countries will describe the type of business they wish to start, how it will operate, and present a business plan outlining day-to-day operations. The lenders are free to choose which family they would like to support and then invest as little as $100 if they wish.
The lender receives updates on the progress of the business they have invested in, and is also able to communicate online with the receiver.
When the loan is repaid, the entrepreneur is free to invest the cash somewhere else or withdraw. The repayment rate is 96% (subject to change).
Microcrediting is a solution that improves the standard of living which cannot necessarily be achieved through a handout. There are more long term benefits using this as a solution to poverty.
King students and staff looking to invest their money can consider the microcrediting. They can invest and be helping others around the world, serving the school’s motto well: We care, we strive, we serve.