Microfinancing for Mega Impact

Imagine the impact of one light bulb in a dark home. In India, in the state of Bijar, 85

million people live in poverty with no electricity or running water. Most homes are lit at night

by a single kerosene lamp, which can start fires, burn people, and poison families with toxic

fumes. Additionally, the fuel expends 15 to 20% of a family’s monthly income, reducing the

much needed finances for food or water. An electrical engineer who grew up in Bijar thought of

a solution, but required a loan from Acumen Fund to realize his goal, which was the birth of

Husk Power Systems. Started in Bijar, Husk Power Systems uses rice husks to power small

generators, which then supply power to small villages for only $1 per month for a single bulb for

a family. (TED.com) Because of small businesses like this and loan-providing microfinance

institutions, an entire region is able to receive safe light and for a better price and achieve a more

progressive life. In order for microfinance institutions to improve the quality of life across the

world, they need both people familiar and unfamiliar with worldly issues to invest in them.

There are many organizations that offer microfinance services that should be supported.

Microfinancing, according to Steffen, provides banking services including loans, investment, and

savings accounts to impoverished people. This is invaluable because with the ability to receive a

loan, save money in a bank, or invest small amounts of capital and receive a dividend, an

individual’s income increases, and this increases her standard of living. The most common

microfinance organization among these is a microcredit institution, which offers loans of small

amounts to the very poor. Many organizations exist that offer microcredit, such as Kiva and

Acumen Fund. Kiva donors lend a minimum of $25 to partner microfinance institutions that are

already established in areas stricken by poverty. Their interest free loans allow the borrower to

pay back only what they received, with no interest, which allows Kiva to be completely non-

profit. Once a lender’s loan is repaid, he can choose to lend again, or withdraw his cash into his

online banking account.

A great example of the success of a small scale loan is the story of Anne in Nairobi,

Kenya, who was given a life-changing loan from a Christian organization. She transformed her

difficult situation from dependence on begging

and relying on the kindness of other students to

educate her children, to being more independent.

Her sons have stopped roaming the streets and

she sells soap, tea leaves, and other commodities

to her community (cmfi.org). As a woman, her

situation is not unique. Single women trying to support their children are impoverished in most

developing countries. When microfinance loans allow a woman to become self-employed, she

has more leverage in the community and home, and the family does not need to resort to begging

or drastic measures such as prostitution to sustain themselves. Through the use of funds from

donors, microfinance programs and organizations are impacting the lives of millions of self-

employed women around the globe.

Some microfinance organizations choose to lend to businesses on a much larger scale,

focusing on those that need a large amount of capital, ranging from a few hundred thousand

dollar loans to two and a half million dollar loans (Acumen Fund). These loans go to businesses

that will help improve the quality of life for the people that the new company will serve.

Acumen Fund then helps manage the business to ensure its growth and development. This is an

example of microfinance because it serves some of the poorest people in the world and its goal is

to slowly eliminate poverty by allowing individuals to realize their ideal businesses. Consider

the impact that WaterHealth International (WHI) has had in rural India. After a large initial

investment from Acumen Fund, WHI now provides clean water to over 500,000 individuals at

over 480 sites for less than $0.01 per liter (Acumen Fund). Kiva and Acumen Fund are two

examples of very effective organizations that lend on a small scale and a large scale,

respectively. Donating to microfinance institutions such as these should become a higher

priority for those who desire to raise living standards around the world.

In addition to microcredit, microbanking should also be encouraged by governments and

donors. Microbanks provide an option for impoverished people to safeguard small amounts of

capital with them (Steffen). The many benefits of this form of microfinance include a small

addition to an individual’s income in the form of interest, a safety net (albeit small) for a time of

extreme need, and a safe place to store money, instead of keeping cash around the home.

Current technological advances in rural areas where banks are hard to reach have made

microbanking even easier. Instead of going to a physical bank, microbanking can occur over the

internet in an online bank account. (Manila Bulletin) This has allowed more versatility of the

microfinancing idea, and while clearly not every borrower will have access to a computer, this

new system will reach out to those too remote from a bank to receive the benefits of financing

options.

Microfinance is one very helpful tool in eliminating poverty by empowering individuals

with the tools necessary to build their income. However, it is not always the best option. In

some cases, such as nomadic lifestyles, absence of law and order, or other anomalies that inhibit

what is known as a normal business model, microfinance may not be the best option to combat

poverty. Other important factors that help raise standards of living include improving

infrastructure, increasing the availability of schools, and improving laws and governing bodies so

that a positive environment for security and success exists.

A famous Chinese proverb states, “If you give a man a fish you feed him for a day. If you

teach a man to fish you feed him for a lifetime.” In extension, a man may learn how to fish, but

without a fishing rod his knowledge cannot serve him. Microfinance organizations serve the

poor in a similar way by allowing a person to purchase their “fishing rod.” In most cases, the

individual already knows how to buy and sell products for a fair price, but lacks the capital to

start a business. With a loan however, the entrepreneur has the knowledge and the means to

improve their standard of living and raise themselves out of poverty.