“Give a man a fish; he’ll eat for a day. Give a woman microcredit, she, her husband, her children and her extended family will eat for a lifetime” – Bono, U2 Singer

How Does it Work?

Microcredit and microfinance are basically small loans (micro loans) provided to poor individuals (who would not qualify for normal bank loans) for income generating activities aimed at improving the borrower's standard of living. In developing nations, a small amount can secure the basic resources to start up a small business that makes a profit and can repay the initial loan over time.

The loans are short term and are not backed by collateral so microfinance programs are sustained by joint liability; networks of up to half a dozen clients make guarantees on each others loans; a default can see the entire group being penalized so everyone has a vested interest to keep each other honest.

With a little loan; the possibilities are endless! For example, a person can borrow as little as US$8-10 via microfinance to buy livestock like goats. Milk can be sold and any profits can be brought to buy, say, chickens. The latter can produce eggs and chicks which can also be sold; more profits and thus improved living standards. The microfinance organization will continue to provide support as the business develops. Further growth means greater employment opportunities arise and soon the whole community can benefit.

The microfinance organization in turn generates revenue from the poor by providing much needed basic financial services, a safe place to save and higher interest rates on the loans. This also works because the poor are used to paying high interest rates to get loans from their local money lender; a microfinance loan provides a much more viable and stable option.

Most of the loans given require repayment. Such is the success of microfinance schemes that repayment rates are above 90 percent!

A large number of borrowers are women. In the developing world, gender inequality means women have limited opportunities. Via microfinance, women are empowered to run their own businesses and gain economic independence. Women are more altruistic and when their income grows, family living standards also improve.

Even the form of a small financial loan can transform and empower lives and whole communities for the better. Microfinance is a way to enable people to make a better life and livelihood a small loan goes a long way when honest people are willing to work for a better life.

Brenda report: NATALIE PORTMAN SPEAKS ABOUT MICRO-CREDIT AT NYU