Micro-financing combats poverty
By Erik Hesla
As Santa Clara students, we are constantly urged to be men and women working toward a more socially just world. However, I wonder how exactly I can make a difference, especially in the face of horrific global problems such as the AIDS epidemic, incessant wars and corrupt governments. Beyond these issues, I think the toughest problem we face is the menacing persistence of global poverty. Ironically, poverty has been the focal point of immense effort, but nearly all attempts to reduce it seem to fail.
Most plans developed to end global poverty culminate in some form of direct aid to the afflicted region. Direct aid certainly does have some short-term successes, but it has not eliminated or significantly reduced poverty. It neither fosters an economically sustainable environment nor encourages individual entrepreneurship and fiscal responsibility. Direct aid filters to those in power, while leaving the poor penniless.
Another common solution revolves around the fallacious idea that economic isolationism and heavy economic regulation will generate prosperity. Consider the former Soviet Union, North Korea and most African nations to assess how poorly this plan has worked. Free markets are the only consistent way to bring countries out of poverty. However, they're difficult to implement because they require widespread institutionalized governmental and economic policy changes.
Amidst the seemingly hopeless trap between the continuing failed policy of direct aid and economic restrictions and the hard-to-enact solution of a free market, it's easy to become cynical. But there may be reason to hope. Muhammad Yunus, the 2006 Nobel Peace Prize winner, found a possible way to drastically reduce poverty and create financial independence using micro-financing, a way of providing financial services to poorer people. A lecture at Santa Clara a few months ago illustrated its profound potential.
By studying the poverty stricken country of Bangladesh, Yunus discovered that most of the poor were fairly skilled but simply didn't have adequate capital to start and expand small businesses. Due to their interpretation of the laws of Islam, which forbid usury and can restrict the rights of women, there was a dire shortage of capital. Yunus began to make small "micro-loans" to women in the villages, and, amazingly, the loans were repaid with interest, and wealth began to grow.
Yunus kept at this process, and eventually founded the Grameen bank, which offers similar loans to greater numbers of people in poverty. According to the official Web site, the Grameen bank currently maintains a staggering 2,283 branches with 6.83 million borrowers across nearly 88 percent of all villages in Bangladesh. Admittedly, much of Yunus' success is due to generous loans from the U.N. and various governments, so this effort is not yet self-sufficient. Now, with the help of the Web site www.kiva.org, a simple click can enable individuals with Internet access to participate in micro-lending investments. Perhaps, this Web site will be the catalyst needed to free Grameen institutions from bureaucratic aid.
Yunus has succeeded in providing an immense opportunity for the poorest of the poor. The micro-loans seem to ensure financial responsibility while still helping those most in need. Furthermore, the loans attempt to loosen the draconian laws against women and the economic restrictions that plague the third world. At the very least, micro-financing is a noble way to donate money to the poor. But, hopefully, micro-lending will go even further and provide a crucial step forward in the quest to eradicate global poverty.
Erik Hesla is a sophomore economics and philosophy double major.