Poverty is a global epidemic. According to the most recent World Bank estimates, 17 percent of people in the developing world live on less than $1.25 a day, which adds up to over a billion people.
Economic theory often brings into question whether charity works. It can be considered a short-term solution to long-term issues. This is especially true in the developing world, where individual contributions oftentimes fail to make a sustainable economic impact.
For most small businesses to succeed, they need the ability to take on credit. However, in developing countries, most multinational banks are unwilling to give small loans to encourage small business growth, as the risk outweighs the minimal financial reward for banks.
However, encouraging microfinance and microcredit is one of the best ways that people in the developed world can advance those in the developing.
To quote microcredit giant Kiva: “Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services.”
In practice, microfinance is investing in the productivity of individuals rather than being bound by the financial. Contrary to many other forms of foreign investment, microfinance provides the ability to be held accountable for funding instead of simply receiving money.
People can use money for whatever reason they propose; it could be anything from investment in a business to home improvement. However, the idea is that they are able to better their situation and eventually repay the loan with a small interest.
Perhaps the most legitimate complaint of the program is that you could create a debt bubble in already destabilized areas. However, this is where the charity portion of microfinance comes into play. Rather than destroying the economic future of a disadvantaged person, the debt can simply hurt their ability to borrow again.
In addition, when investing in these programs, take a hard look at business plans and true profitability of an endeavor in a given area is vital to ensuring the optimal situation for success. While selling trinkets may seem like a good idea on the surface, don’t underestimate the level of economic development in a given area.
As with any form of charity, there does need to be an understanding that money does sometimes get wasted and there will be individuals who run away with the funds. However, don’t be turned off from a beneficial idea by the minority.
Baylor has a wonderful tradition of charity to the needy, but there is question about how successful simply giving basic supplies is to attacking the root of issues.
However, acclimating people to the global economic condition is not only a way to invest in the present, but create adults who can teach their children about how to succeed in the future.
That’s something the entire global market can get behind.