| Become a banker to the poor |
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| Written by Tom Clougherty | |
| Wednesday, 10 October 2007 | |
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Back when I was Research Director at the Globalisation Institute , I edited and co-wrote a report
on microfinance – essentially, the provision of financial services to
poor and low-income individuals and households in developing countries.
The difference between microfinance and traditional financial services
is, primarily, the absence of collateral as security for a loan. Money
is instead advanced on the basis of reputation – which is vital given
that much of the developing world does not yet have a formalised system
of property rights. The great thing about microfinance is that it is based on the philosophy of the hand-up rather than the handout. As I wrote for the GI: " Microfinance is not a top-down solution to poverty, it is a bottom-up approach that aims to empower the poor, harnessing their individual aspirations and abilities and creating an environment in which they can realize the true benefits of the market economy." That's why microfinance has been so successful where traditional aid has failed to make an impact. Anyway, a friend emailed me yesterday about Kiva , a non-profit organization that allows you to lend money to a specific entrepreneur in the developing world. So like Professor Muhammad Yunus – the pioneer of microfinance and recent Nobel Prize winner – you too can become a banker to the poor. All it will cost you is some foregone interest, and apparently Kiva's entrepreneurs have a less then one percent default rate. If you're in a giving mood, it might be worth checking out.
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