Micro crediting is ‘a’ solution to help the poorest of the poor.

The debate was concerned with the effectiveness of micro crediting and how it is a solution to help the poorest of the world break through the spiral of poverty and start building a life for themselves. The ideology behind micro crediting was invented by Professor Muhammad Yunus in 1976. He won the Nobel Peace Prize in 2006 for his contribution on reducing poverty. The order at which our debate speakers gave their argument was: Jan, Benedikt, Albert and Teun.

Muhammad Yunus, a pioneer in micro crediting and micro financing

 

A micro credit is an extremely small loan given to impoverished people to help them become self-employed and handing them support structures to sustain their operations. The benefit of a micro credit is that it involves a low risks for creditors, because if you have 10.000 dollar and you loan it to ten different persons. The chance that you will get at least some of your money back is bigger than when you loan the 10.000 dollar to one person. On the other side the risk for the debtors is way higher, their families depend on the money, so the pressure will be way higher, the only thing that has to be provided is support to sustain their operations.

Women’s status, both in their homes and in their communities, is elevated when they are responsible for managing loans and savings. The ability to generate and control their own income can further empower poor women. Research shows that credit extended to women has a significant impact on their families’ quality of life, especially their children. Poor women also tend to have the best credit ratings. In Bangladesh, for example a study of experience in a project aided by the International Fund for Agricultural Development has found that women involved in microfinance not only change the way they manage household income, they also change their own roles and the roles of others in their families and communities. And women have shown to default on loans far less often than men. This shows that micro financing even helps against discrimination problems that occur around the world.

The creditors lend out money for different reasons. The most appropriate are the MFIs are NGOs as they seek a holistic, sustainable and ethical approach to Micro crediting. For-profit MFIs such as Banks and Hedge funds, on the contrary, have been creating much private debt in recent years that cannot be repaid by borrowers and as a result receive justified criticism. It is true that Microcredits have been misused by some institution in the past, therefor there is the need for safety mechanisms! The following three provide sufficient basis for debtors to lend money in a respons – Smart Campaign to encourage and support responsible practices in microfinance such as: Avoiding over-indebtedness, providing transparent and responsible pricing, ethical staff behavior – Social Performance Management: Serving larger numbers of poor and excluded, improving appropriateness, improving social responsibilities of MFIsible way. – Client Protection Principles, launched just a few months ago. Under the signees were 15 major players of the microfinance sector, such as the Grameen Trust, one of the very entrepreneurs of Microcredits In Bangladesh

Micro crediting cannot eradicate poverty and is also not a universal tool to combat poverty with. It is however a responsible way of aiding the poorest of the world. It also shows that it empowers women in poor countries to take control of their own lives to the beneficial of their entire family including their children. Western countries just providing money to often corrupt governments is mostly a waste and is not as effective as providing someone with a small loan who can start its own business to the beneficial of more than just theirselves.

 

Poverty is the absence of all human rights. The frustrations, hostility and anger generated by abject poverty cannot sustain peace in any society.

Muhammad Yunus

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