The preceding post, "Microfinance 101," provided a brief overview of microfinance. In addition to discussing the componenets of microfinance during my presentation to the Japanese Students Business Association (JSBA) at Bellevue College in Bellevue, Washington on December 2, 2009, I outlined the benefits of the scheme that offers poor people access to basic financial services. The benefits include increasing access to capital for individuals, increasing personal income and reducing poverty, enabling people to build assets, reducing vulnerability to economic stress, and development of basic life skills (e.g., literacy, personal health care, and financial education).
Susan "learned about Jamii Bora, a Nairobi-based microfinance institution, from neighbors in her slum. She completed their business training, which improved her business skills and gave her the confidence to begin her clothes mending and sales business. Jamii Bora's microfinance services enabled her to quit prostitution and move her family from a shack in their crime-and disease-ridden slum into a safer house."
With each increasing loan, Susan, "buys more raw materials in bulk at lower costs, thus increasing her business's profitability. She is convinced she would not be alive without Jamii Bora’s medical insurance and access to HIV medication, and can't imagine what would become of her children, as there is no one else to care for them. Susan has savings for the first time and is striving to earn enough to ensure her children's educations so they can break free from the chains of poverty."
Bayamma's first loan of $150 was used to purchase a buffalo. "By selling milk and other dairy products from the buffalo, she was able to save an average of $2.75 each week after paying her loan installment and buying feed for the buffalo. She used subsequent loans of $64 and $128 to pay for a buffalo and to have cart made, which she rented out to transport sugarcane and other produce from the fields to the factories. With this income, Bayamma was finally able to release her son from bonded labor, whose wages are now added to the family's income. She recently received her third loan of $150, with which she has leased six acres of land for growing rice."
Unitus' website explains that "Bayamma is happy now that she and her family have stable sources of income. Her family eats more nutritious food that includes milk, rice, vegetables and, occasionally, meat. With her future loans, Bayamma hopes to begin repairing houses and also plans to purchase irrigation equipment to increase her crop yield."
The three examples above illustrate the benefits of microfinance and while I do not want to diminish the impact microfinance has made on the lives of Susan, Bayamma or Gregorio, there are significant problems within the microfinance mechanism that prevents maximizing the benefits for a greater number of people living in poverty worldwide. I will discuss these challenges in a December 22, 2009 blog entry.