Abstract
The inequality of wealth distribution across the globe is no secret. One out of every three people in the world live on less than $3.10 per day. Nearly one in 10 lives in extreme poverty, which according to the World Bank is an income of less than $1.90 per day. The global distribution of poverty is uneven as well, with more than 75% of those living in extreme poverty living in South Asia or Sub-Saharan Africa. This sobering fact has driven various organizations such as the United Nations, World Bank, and many non-governmental organizations, or NGOs, to initiate programs targeted at reducing poverty. Microfinance is just one of many innovative tools in the global effort to shrink the wealth gap.Poverty continues to affect billions of lives across the globe. Microfinance is but one tool of many that strives to alleviate poverty. Specifically, microfinance serves the demand the poor have for financial services. The poor have been traditionally excluded from formal financial services, but through innovative financial products, such as group lending, microfinance institutions have been able to address the challenges in lending to the poor while delivering products—microcredit, microsavings, insurance, and more—that can help clients lift themselves and their families out of poverty.With the help of network organizations, microfinance investment vehicles, donors, and technical support providers, microfinance institutions attempt to reach the underserved and to include them as fully as possible in financial systems around the world. This effort has grown from a handful of organizations serving a few clients to many thousands of microfinance institutions reaching hundreds of millions of low-income people across the globe.The following chapters will take a closer look at poverty, microfinance, the industry, the impact of microfinance on the poor, and the key players that make microfinance possible.
Highlights
The early experiments inspired the creation of new microfinance institutions (MFIs), organizations that offer financial services to the poor
According to World Bank statistics, is the fraction of people living on incomes below $3.10 per day rising or falling globally? What regions have experienced the biggest changes?
The poor can have large families entirely dependent on income from one provider in a dangerous job or on crops that big storms can wipe out. They need life insurance or crop insurance. Another common financial service in demand is remittances, which are money transfers from family members or friends working in cities or abroad in more developed nations back to those living in rural areas
Summary
We begin our exploration where the microfinance industry started, with very small loans. Accion’s staff members in the city of Recife, Brazil wondered: If these small business owners could borrow funds at commercial interest rates, could they start to lift themselves out of poverty? In 1976, in Bangladesh, in the village of Jobra, economist Muhammad Yunus observed that if the poor were given access to credit they could pull themselves out of poverty. His first loan, a total of $27 to a group of villagers, was an early experiment in group lending.
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