“To argue that banking cannot be done with the poor because they do not have collateral is the same as arguing that men cannot fly because they do not have wings.” — Muhammad Yunus
It is a popular misconception that the purpose of business is solely for personal benefit, and thus emotions and empathy are hindering factors in the field. In reality, the corporate world brims with philanthropies such as Goldman Sach’s 10,000 women program, and honesty, positive public relations, and equal opportunity are heavily valued. There is a subdivision of the financial industry that truly welds business with philanthropy or Microcredit in Sub-Saharan Africa and Southern Asia which provides loans for impoverished women’s businesses. Microcredit has been embraced in a Mix market, and thus from banks, credit unions, non-bank financial institutions (NPIs), and further for-profit companies such as General Electric’s Microfinance and Citi’s Microfinance. It is also initiated by Non-Government Organizations (NGO’s) such as World Vision, Pro-Muter, Save the Children, Catholic Relief Services, and GREAT, as well as not for profit institutions such as the Women’s Microfinance Initiative and Grameen Bank.
Microcredit is part of the Microfinance sector, which “refers to an array of financial services, including loans, savings, and insurance, available to poor entrepreneurs and small business owners who have no collateral and wouldn’t otherwise qualify for a standard bank loan. Most often, microloans are given to those living in still-developing countries. Microcredit specifically allows recipients to receive loans to start or keep small businesses when they otherwise would be unable to and largely target impoverished females. Interest rates for loans can range greatly but are if higher (20% or more) they are necessary to keep the lender strong financially. For instance, the Grameen Bank charges 20% although this rate declines as time passes and interest is paid honestly, and it is still lower than the government loan rates. This highest rate is only for loans that directly improve income. Housing loans are charged at 8%, student loans 5%, and struggling members or beggars are provided microcredit free of charge. It is important to note that the effects of microcredit for women’s businesses lead to higher rates of education and formal housing, which increases the strength of the microcredit financial institution as well as the economic impact of the woman and her community. Interest is expected to be paid within 6 months to a year on average. The number of estimated potential microcredit borrowers is 1 billion and there is an approximate $250 billion in potential demand for loans, and thus microcredit lenders have great potential for strong profits.
Microfinance holds enormous potential in improving the economy the third world and empowering women. Although because of simple economics providing the poor with capital will likely falter and results in further debt, targeting whole geographic areas and markets greatly increases the likelihood of success and positive financial impact on the community. Women are favorable clients due to their likelihood to utilize increase revenues to develop their family’s futures and good beings, and thus microcredit should remain female oriented. Although microcredit is not particularly lucrative for bank CEOs and founders, it is still an attractive business to partake in as it provides opportunities to those who cannot attain such privileges themselves. It provides the opportunity to mend economies, empower battered women, and to provide impoverished children with educations. Although business and especially banking is thought to be competitive and individual profit driven, micro credit shatters this stereotype by injecting humanity as a necessary part of its banking.