Making their way into the public eye in the 1980’s, micro-loans provide private financing to business owners in small, rural communities all over the world.
Because these communities don’t have access to capital, they often find themselves in cyclical poverty that spans generations. These loans provide a way for communities to break the poverty cycle, improve living conditions and extend educational opportunities for children.
How exactly can micro-loans help save the world?
Unlike volunteer work and generous donations, which only help provide one-time services to a community, these are investments that help establish lasting business growth. Such a business is likely to boost the local economy for years -- and potentially generations -- to come, providing a sustainable solution to end poverty.
Give a man a fish and he will eat for a day; teach a man to fish, and he will eat for a lifetime.
Historically, women are more likely than men to start a business and follow through to repay their loans. Women take advantage of these opportunities more aggressively than men, which helps strengthen equality and opportunity between men and women in rural communities. Women are also more likely to involve others in their businesses so that more people will benefit from its success.
Banks are stringent with their loans and require clients that have a credit history. In many underdeveloped countries, people often rely on barter and trade in order to provide for their families rather than using currency. This means they not only lack credit history but they also rarely have bank accounts. Micro-loans from private lenders help provide the same opportunities a bank might offer, but without the necessity of a credit history.
Provincial communities have poor childhood graduation rates because many families rely on the help of their children to run the family business. This lack of education stands as a major obstacle to upward mobility, dashing hopes of moving beyond a hand-to-mouth existence and perpetuating the cycle of poverty. Micro-loans help create new small businesses and thereby create more jobs in the community so that the children can continue their studies and succeed in school.
Just like any loan, a micro-loan pumps money into the local economy. Whether the money is used to purchase supplies or to hire employees, it trickles down into more households than just that of the business owner. With more money in the community, living conditions naturally improve over time.
A small loan not only provides supplies to a small business, it may also enable the business to hire employees. In this way, the business owner isn’t the only one that benefits from the loan -- people from the community will also have access to newly created jobs, all thanks to the investment put forward.
Many people not only view micro-loans as an economic solution to poverty, but also as a holistically impactful way to save the world.
As a result, more and more individuals--not just mega corporations or wealthy philanthropists--are jumping at the opportunity to provide micro-financing.
By supporting small businesses in underdeveloped areas, micro-loans are improving the lives of entire communities. With their proven track record of improving the livelihood of both individuals and whole populations, these investments are a fresh and creative way to make our world a better place.
Marquis Matson, TEEMA Tea staff writer and freelance blogger, is passionate about food, hiking and Latin America. She currently resides in Ecuador, where she lives as a writer and explorer, after a year-long backpacking trip through Central America.