What Is Microfinance?
Microfinance is an approach to fighting poverty that is based on the idea that many peopleliving in poverty around the world have many of the resources that they need to get out of it: ideas, skills, drive. A major problem is that because of the way our financial systems are set up, people living in poverty often do not have access to the basic financial services, like access to credit, that they need to take advantage of the ideas and skills that they have, and that so many of us take for granted.
By solving this problem, and correcting this imbalance in the financial system, microfinance can help people get themselves out of poverty.
The modern microfinance movement was catalyzed in the 1970s in Bangladesh by Muhammad Yunus and his Grameen Bank, and has since grown into a worldwide movement that includes many different kinds of financial services, from credit to savings to insurance. Yunus and the Grameen Bank won the Nobel Peace Prize in 2006 for their work.
A micro-credit loan is typically a small loan of between $25 US to $1000 US, loaned to entrepreneurs to help them start or grow their small businesses. Many microfinance organizations also offer further support to their borrowers, including health education, training in financial literacy, business planning and other services.
The stories of En Vía´s borrowers illustrate the power that even a tiny loan can have.
Guadalupe is a weaver in the town of Teotitlán who has been weaving beautiful rugs all of her life, and who depends on the rugs she weaves to support her six children. Up until last year, to weave a rug, she needed to use the yarn provided by one of the ¨casas grandes¨, the big rug houses in town that re-sell rugs to tourists. When she used their yarn, she was obligated to sell the rug she made to the casa grande, and was paid 600 pesos for the size rug she typically made.
When she received her first En Vía loan, Guadalupe was able to purchase her own yarn. With that yarn, she wove her own rugs, which she then shopped around to different casas grandes until she got the best price for it - often 1200 pesos, giving her close to twice the profit that she would have gotten before.
With a loan of just 1300 pesos (approximately $100 US) Guadalupe was able to gain independence from the casas grandes and start her own weaving business.