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The Importance of Microfinance

the importance of microfinance

On this, the second day of February, I am 24 days away from departing for my grand adventure of being a Community Economic Development volunteer in Senegal! I finally booked my flight to DC. I leave bright and early on February 26 th. I have orientation on the 27 th and then fly out to Senegal on the 28 th. I’m getting so excited. I’ve been trying to pack and tie up all the loose ends I have. I raided the travel size hygiene products at Wal-Mart. I just can’t pass them up. I also got a day planner (those who know me, know my obsession with the need for a day planner). This day planner, however, also has conversion tables from feet to meters and all that good stuff. I’m excited to have gotten such a great program. I want to dive a little deeper into economic development, starting with microfinance.

Investopedia defines microfinance as, “A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.”

Microfinance is something that has always peaked my interest since learning about it. I believe economic development, including microfinance, is kind of like the last step in development. You must have a stable, safe country with no wars and people who are healthy, educated, and able to work. I believe education is extremely empowering and opens many opportunities, however, after a certain level; education is not worth as much if there is no employment. For example, there is no point spending endless years in medical school if you cannot get a job as a doctor.

This is precisely the problem in many communities, even in America. Children drop out of school to work or take care of younger siblings. In many places this happens at a very young age. These children have to get jobs picking crops or selling things to ensure that their family has enough to eat. They cannot wait for the promise of a higher wage after education; they need it now.

This is where microfinance comes in. Giving families small loans, they are able to grow their business or purchase a cow to sell milk or fertilizer to obtain a better crop yield, allowing their children to stay in school longer, become more educated, and obtain

better jobs.

Another interesting concept I have recently been introduced to is savings groups. I read about these groups in a Peace Corps book where volunteers talk about their experiences and a documentary I recently watched on Netflix called “Living on a Dollar a Day.” The concept is each month all members put in a certain amount of money they have agreed on. Each month, one member gets the lump sum of money. For example, if there are 10 members, each putting in $10, one member each month receives $100. Each member gets a turn getting the money. This money can be used to make an investment in a business, to pay school feels, or to buy things such as a cooking stove or medicine for a family member, or even to upgrade the house. This is extremely important in places where there is very limited access to formal savings opportunities.

Why not just save the $10 yourself each month you ask? When living in poverty, and sometimes only $1 or $2 a day, it can be difficult to save the money each month and not spend it on something. Without the ability to put the money in a formal bank, it has to be saved in the house. This makes the money more accessible and vulnerable to be spent. They may spend it on food or other things needed daily. In some cases, one spouse or the other may spend it on alcohol.

In the United States, especially younger generations, we often take these things for granted and do not realize this is not the norm all around the world. Almost everyone in the States has a bank account and a debit card and many people have credit cards. We have things like direct deposit, where money is directly deposited into our bank accounts. Paper money is used a lot less frequently these days in the United States.

In many countries, even if there were formal banking services available, many years of war and corruption have caused a lack of confidence in the government, its services, and the information they give. In the 1930’s in the United States was in the Great Depression. Many banks failed and there were great bank runs of people attempting to get their money out, which caused an even greater crisis. This lack of confidence in the banks caused them to fail and no longer function. This confidence is essential, and in many countries is the reason why there are no banks.

Category: Payday loans

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