Fighting Poverty with Microfinance

Lately, one of my friends, who is a business major with a compassionate heart, was very happy to find out that I am also supporting microfinance (or microcredit). He thought this is a great idea and approach, and he shared with me his involvement with microcredit institutions, such as the African Millennium Foundation (AMF). AMF has a partnership program with our school USC, to promote and bring public awareness to microfinance.

So what is this brilliant idea of microfinance, and why has it been proven highly effective in combating poverty? Before microfinance came out, in the past the poor was trapped in a vicious cycle. Poverty leads to nonexistent or poor credit history which prevents them from getting loans from regular banks. As a result, it is very hard for them to build their own business to support themselves financially, and this, in turn, leads to poverty.

It is Muhammad Yunus, the 2006 Novel Peace Prize Winner, that first came up with this great idea of microfinance. His Grameen Bank is a pioneer in this field, a model for many follow-up microcredit banks. They lend small amount of money -- sufficient enough to grow small business in many developing countries, though -- to people who would not be qualified for loans from a regular bank. This has helped numerous people to live independently and with dignity.

One excellent example of such microcredit banks is Kiva, which my wife and I are actively supporting. The best thing about Kiva, to me, is its loan-based approach rather than donation-based. This means that you loan an amount as little as $25 to someone in need, and you will get paid back in the future. I love the idea because it is an example of giving fishing rod rather than fish. We have lent money to three borrowers, and they are all in the payback phase now. They are, respectively, in food, service and health business, all in different countries.

If you are interested in knowing more about microfinance as I am, you may check out Muhammad Yunus's book, Banker to the Poor: Micro-Lending and the Battle Against World Poverty.

Muhammad Yunus's idea is brilliant, and his story is inspiring. It involved immense commitment and brave determination. He is well deserved the Novel Peace Prize. If you are interested in learning his personal story, and how the idea of microfinance was came up, try to look online or check out his autobiography book.