The Disruptive Influence of Microfinancing
Ten percent of the world has access to traditional banking. And traditional banks often refuse to finance low-income or unemployed entrepreneurs, no matter how viable their ideas are.
Now, enabled by the spread of mobile technology and wireless internet access, microfinancing organizations are attempting to eradicate this problem through small loans given to impoverished people who need the finances to become self-sufficient.
In the past 30 years, microfinance loans have brought banking to more than half a billion people, and that number is growing even more rapidly today. Startups, nonprofits, big companies—they’re all jumping on the opportunity to alleviate poverty throughout the world with three primary models for microfinancing.
- Collective repayment: The Grameen Bank model originally used group-lending, or microcredit, in which small groups of community members were bound to borrowers by a moral guarantee in lieu of the collateral required by traditional banks. This model of social responsibility worked well in Bangladesh, and many countries localize the model to fit their ethics and needs.
- Micro-banks and microfinance institutions: For-profit models include rural micro-banks that vary depending on the community and location. One example is India’s ICICI Bank, which has subsidiaries in Europe and Asia that provide microcredit and microfinance loans. Micro-banks also exist in the U.S., and have a hard time competing here because of major competition. But in developing countries, they can fare well as the only option. Other microfinance institutions include schools, nonprofits, and agencies.
- Peer-to-peer lending: Nonprofit organizations like Zidisha and Kiva are examples of peer-to-peer lending. Zidisha is a database of borrowers that lenders speak with directly. No one censors the information or requests. Kiva, on the other hand, uses microfinance institutions on the ground to take care of the loan requests, though they have just launched the Zip model, which is more direct. They also censor and edit borrowers’ descriptions on the website for clarity.
Consider the First Source!
When we align our objectives with the Divine will, when we strive for the attainment of a worthy goal, when we begin our work with a well defined plan, and when we have ability to work together with others effectively, we have already achieved the trajectory for success. For we know that “all things work together for good to them that love God, to them who are the called according to his purpose.”