Anyone who participates in microfinance should understand that it is not some panacea or magic bullet that will completely solve poverty. It’s only natural that microfinance, like any other concept, is one that has its pros and cons. But to focus solely on its shortcomings ignores the difference that microfinance has made on the lives of millions. If the field of microfinance continues to develop, it may be able to evolve into something new that even more effectively serves impoverished people around the world.

 

According to the World Bank, more than 500 million people have benefited from microfinance, whether directly or indirectly. On the surface, microfinance allows people to better provide for themselves and their families. In particular, it helps those who are unemployed or have low income or have disabilities — the ones who are often overlooked. With microloans or microcredit, these people (mostly women) are able to address needs like health issues or give them the ability to send their children to school. In many cases, it allows these underserved people to start businesses, giving them the opportunity to lift themselves out of poverty and to become financially secure. 

 

There are many qualms with microlending, particularly with organizations that offer loans with high interest rates, which the founder of microfinance, Muhammed Yunus, claims is akin to predatory loan sharks. There are also disputes over its ability to raise income levels among those in need. But microfinance still provides an immense amount of value.

 

Perhaps the most common use of microfinance is for day-to-day needs. For the impoverished who can live on as little as $2 a day, this credit allows them to handle emergencies, make a big purchase that will improve their lives, or even just for food. For many, it’s the only way they can keep their heads above water, so to speak.

 

But it also provides additional benefits, ones that do have a wider impact. Once basic needs are met and addressed, money that is loaned or earned can be used to continually improve their lives. They can improve sanitation, better health care, and remove the obstacles that stop them from being productive. Adults can work more and children can consistently go to school. These are fundamental for breaking out of the cycle of poverty.

 

And once everything is settled, families can begin to save and build better financial habits. It’s not something that happens quickly, but if a family is able to reach that stage as a result of microloans, it can encourage smart and frugal financial behavior that will benefit them in the long run. 

 

Importantly, microfinance provides a way to educate poor people how to manage money. It essentially provides a banking service and credit options for those who would otherwise not be able to access such resources through normal means. But by providing this version of that system to the impoverished, we give them the opportunity to gain knowledge and develop habits that help lift them out of poverty. Loan meetings and loan officers can do wonders in guiding these people in the right direction, ensuring that they can use their loans to the fullest and begin to fight their way out of the dire situations they live in.

 

Microfinance is about providing knowledge and opportunity. And to me, there’s no doubt that it makes a difference. For the women, families, and communities that desperately seek a better life, microfinance is often their only way out. And that’s why microfinance makes sense.