Microfinance, now three decades old, is still a relatively new phenomenon in the developing world that seeks to advance the economic status of poor individuals (especially women) through the allocation of small loans for business and educational purposes. The theory behind this is that people with an incentive to earn money will do just that. Microfinance steers away from the traditional NGO / humanitarian aid industry by operating much like the classic banking and loan market works. While policies vary, the majority of microfinance institutions provide small manageable size loans to impoverished individuals to invest and later pay back (often with added interest).

 

The UN General Assembly declared 2005 the International Year of Microcredit. During the year, the UN set several goals:

• To increase the public's awareness and understanding of microcredit and microfinance, and thus contribute to the alleviation of poverty - one of the UN's key Millennium Development Goals;

• To develop strategies to position microcredit and microfinance as an integral part of financial systems;

• To enable microcredit and microfinance organizations to become more effective providers to the poor and strengthen the capacity of donors and Governments to support these organizations;

• To expand the reach of microcredit and microfinance organizations by encouraging partnerships among Governments, the United Nations, the private and public sectors, and non-governmental institutions.

 

Today microfinance continues to affect the lives of individuals worldwide by providing economic stability and development in keeping with the Millennium Development Goals.

 

Some Questions to Consider

1. Does your country have/ endorse microfinance institutions?
2. What impacts has microfinance had on your country and its economic development?
3. How can the UN better promote microfinance and the benefits of microcredit institutions?

 

Useful sources

Brochure on International Year of Microcredit - http://www.un.org/issues/inf/documents/2005brochure.pdf

FINCA International Website - http://www.villagebanking.org

Kiva Website - http://www.kiva.org/