When it comes to the global economic recession, it seems no financial institution, interest group or elected official has wasted a second without sounding off their opinion or solution to our present calamity. Everyone from legislators, bankers and ordinary taxpayers to Rick Santelli and his “silent majority” of option traders have made their voices heard.
At this point, I wouldn’t even be surprised to see elementary school kids debating monetary policy and the Phillips curve. However, while the public’s thirst for blood simmers to the tune of $165 million, one of the most marginalized groups remains unheard among the hype of the upcoming G20 meeting. I’m referring to the “bottom billion,” the individuals most marginalized in society and the poorest of the poor. As of late, they are the one group not directly addressed in any fiscal or monetary stimulus, and the least likely to be the recipient of any “bailout” consideration.
In response to the global economic recession, non-governmental agencies, not-for-profits or charities have attempted to expand services and programs to meet government spending shortfalls, even though they have
experienced a sharp decline in donations for the year. This isn’t sustainable; especially since the budget shortfalls may mean life or death for some. However, if the intention of our donations is to aid individuals from the clutches of extreme poverty, I ask you to consider an alternative investment in microfinance, aka microcredit.
Just as financial “innovations” such as mortgage-backed securities have crippled credit markets, a more benevolent financial innovation called micro-finance may be at risk as well. To those unfamiliar with micro-finance, it is the provision of financial services, such as loans, to low- or practically no-income clients; i.e. the no income sort in “real” poverty, not the ones formally selling credit default swaps. Investing in a microfinance institution may be a better investment and direct way to provide real “charity” by allowing individuals the opportunity to start small businesses and work his or her self out of poverty. Ideally, tapping the entrepreneurial spirit of those desperate for opportunity, so that they may “learn to fish.”
Although microfinance has its detractors, including a few at the United Nations who question its ability to fully eradicate poverty, it is impossible to deny the incredible success microfinance has had throughout the developing world.
Since the founding of the Grameen Bank by the Bangladeshi Economist Muhammad Yunus in 1976, microfinance has played a critical role in the fight against the inheritance of poverty. Essentially, microfinance works around the fringes of ordinary or traditional finance by providing loans to low or no income individuals who otherwise wouldn’t be able to attain credit.
By taking out loans ranging mostly from $1 to $100, many with no opportunity or ability to generate income are able to sell crafts or invest in small business that allow them to provide some sustenance to their families. As a result, many of these families are then able to send their children to school and hopefully break the cycle of poverty.
According to the most recent report by the Microcredit Summit Campaign, 3,552 microcredit institutions now serve a total of 154,825,825 clients throughout not only the developing world but the developed as well. However, when I say “growing,” I mean the projected hope that they will continue to receive investment from abroad, especially the United States.
Microfinance during a recession is more necessary than at any other time because many of the services formally offered during boom times in export-driven economies still struggling with poverty may quickly be curtailed