Microcredit is the extension of very small loans (microloans) to those in poverty designed to spur entrepreneurship. These individuals lack collateral, steady employment and a verifiable credit history, and therefore, cannot meet even the most minimal qualifications to gain access to traditional credit. Microcredit is a part of microfinance, which is the provision of a wider range of financial services to the very poor.
Microcredit is a financial innovation that is generally considered to have originated with the Grameen Bank in Bangladesh. In that country, it has successfully enabled extremely impoverished people to engage in self-employment projects that allow them to generate an income and, in many cases, begin to build wealth and exit poverty.
Due to the success of microcredit, many in the traditional banking industry have begun to realize that these microcredit borrowers should more correctly be categorized as pre-bankable; thus, microcredit is increasingly gaining credibility in the mainstream finance industry, and many traditional large finance organizations are contemplating microcredit projects as a source of future growth, even though almost everyone in larger development organizations discounted the likelihood of success of microcredit when it was begun.
Let me explain that this microloans are about the most beneficial way to help people so that it instills self-worth instead of just handing out money or goods and turning them into beggars.
There was a documentary on television last month that spoke of people that were turned into beggars by their families because they have leprosy.
Some of the people with leprosy could not take care of themselves, so they just laid down in the streets and died or turned into beggars. The worse they looked, the more money they were able to get from begging. As a result, some of them burned their feet and hands to make them look badly deformed to get more money.
This scenario was the situation in India when two women put their heads together and came up with a solution. They taught people with leprosy that they could help care for themselves without having to beg because they all have something inside themselves that makes their lives have value.
The two women helped people with leprosy by setting up a fund called microloans. Small loans are made to people who want to start a small business where they can take care of themselves. When they pay back their loans, someone else is able to get a loan.
- One man became a barber
- Another man became an artist and painted beautiful pictures
- A women bought a cow and paid for artificially insemination. Now she makes money off the calves.
- Another women took grain bags and turned them into colorful tote bags.
One of the partners gave money to a man with a hard luck story instead of giving him a microloan. The other partner told her that, if she does it again, their partnership will end.
Why would the partner be so adamantly upset about giving a handout instead of a loan? She said that, when people receive something for free, they will see no value in it and the handout doesn’t change their circumstances–making them much the same as a beggar.
Giving people money returns them to the status of beggar and gets them nowhere. However, when people develop their skills and use them to fill a need in society, they see their worth to the community and value what they have to give. They feel happy, their outlook changes to hope and they are happy.
What’s the difference?
- The women discovered that, when we give people things for free, they are never happy with what they were given and complain about it.
- They would complain that it wasn’t the right color, the other has something better than they do, and they want more and more, never being satisfied.
It sounds like our present society to me, when people are treated as if beggars. They never seem satisfied for what they get and expect or demand more and more.
In contrast, it appears that, when these same people are given the ability to improve their situation with just a little loan and put their skills to work, they fill a need in their community. They see their value to the community and find the hope they need to be happy.
This story is NOT a fairy tale but a real life situation in India. The story was shown in a documentary on one of the inspirational channels of cable television. We need to do the same with people today who need help in our neighborhoods and communities.
People need to be given a chance to change their stars with a small loan and see what they do with it. However, they need to know that they are expected to pay back the loan from proceeds they make with their little business so others can be helped.
Another thing that is learned from microloans is that women are better at using the money for a business and paying it back than men. The women use the money to develop a business so they can feed and cloth their children and improve their education for the future. Men don’t usually have the same goals and commitment, and they are not as good a paying back the loans.
Supposedly, there are some people in the United States that participate in microloans over seas. I am not sure if that sort of system can work in the U.S. because of tax laws and expenses when setting up a business. However, leaving it to the creativity of people, they will find a way to make things work out.