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Povety Alleviation

Microfinance and Poverty Alleviation

Partial Fulfillment of the Requirements Of The 2005 Independent Study On Microfinance

By Tessie Swope May 2005

Table of Contents
Abstract Introduction

Section One: What is a Microfinance Institution?
Section 1.1 Village Banks Section 1.2 Trust and Group Lending Section 1.3 Focus on Women Section 1.4 High Interest Rates, Subsidy, and Financial Sustainability Section 1.5 Qualified Leadership Section 1.6 Types of MFIs

Section Two: Criticisms of Microfinance
Section 2.1 Does Not Reach the Poorest Section 2.2 Not Financially Sustainable Section 2.3 Potentially Harmful to Women Section 2.4 Creates Large Debt Section 2.5 Not Universal in Application

Section Three: Microfinance and Poverty Alleviation
Section 3.1 Increase in Income Section 3.2 Better Nutrition Section 3.3 Higher School Attendance Section 3.4 Women’s Empowerment Section 3.5 Lifts Poor Out of Poverty Section 3.6 Integrated Programs

Conclusion References

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Abstract

Microfinance, banking to the poor, is a recent global phenomenon introduced by Nobel Prize winner Dr. Mohammed Yunus of Bangladesh in the 1970’s. Before Dr. Yunus, the poor were not allowed access to credit and loans due to the widespread belief that the poor could not repay loans. Dr. Yunus’ project, Grameen Bank, began with loans of less than $50 to poor basket weavers in Bangladesh. In the past 30 years Grameen has grown to over 3.7 million borrowers worldwide with a 98% repayment rate, higher than any commercial bank. Dr. Yunus has proven that the poor are indeed responsible enough to manage credit and repay loans. There are several unique traits of microfinance: village banks, group lending, social collateral, and focus on women. Village banks are small lending institutions located in poor villages that dispatch employees called loans officers to disperse and receive money. Clients of microfinance form groups of five and if one member defaults on a loan, the other members...