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(I wrote this as report for GeoInformatics course by LI Yan, Fall Semester 2007, Ritsumeikan Asia Pacific University, Japan)
Ms.Word .doc Version: Creating A World Without Poverty
Creating A World Without Poverty
Micro-Lending and the Battle Against World Poverty
Figure 1. Percentage_population_living_on_less_than_1_dollar_day
Proverty and Solidarity Lending
Proverty is a major issue facing much humankind of this age. More than before, economic and social gaps are widening particularly in urban areas. One of a major factor that blocks the poor still being poor is that they have no money to produce money. Being able to live out of the box of poverty is a basic human right. Recently one of many solutions stands out and captured attentions of many of those who are concerned with the welfare of the poor. It is a system of Solidarity Lending. An early pioneer of Solidarity Lending, Dr. Muhammad Yunus of Bangladesh through his microfinance organization, The Grameen Bank were jointly awarded the Nobel Peace Prize in 2006.
What is truly amazing about Solidarity Lending system is how it can alleviates poverty. Like what I mentioned earlier, what blocks many people to live life without poverty is the lack of capital to start up business. To borrow money from banks for business start-up would be very difficult as banks would require thorough complicated procedures and collaterals. Not everybody can afford that, imagine a poor man who has been living his life in rural areas, not only he is deprived of banking knowledge, he does also not have any substantial significant collateral that can be used to make loan deal with banks. Here comes the role of Solidarity Lending banks, lending money to the poor without any need for collateral.
How it Works
How it works is unique of its kind. It works in a system of solidarity lending in form of self help groups. Each borrower must belong to a five-member group however the group is not required to give any guarantee for a loan to its member. This is also beneficial to the Solidarity Lending banks, as there is a fixed cost associated with each loan delivered, bundling individual loans together and permits the group to manage individual relationships can realize substantial savings in administrative and management cost.
The repayment responsibility solely rest on the individual borrower, while the group and the centre oversee that everyone behaves in a responsible way and none gets into repayment problem. However, group members are not responsible to pay on behalf of a defaulting member. (Mohammed Yunus). Dr.Muhammad Yunus of Bangladesh describes the dynamics of lending through solidarity groups this way:
|… Group membership not only creates support and protection but also smoothes out the erratic behavior patterns of individual members, making each borrower more reliable in the process. Subtle and at times not-so-subtle peer pressure keeps each group member in line with the broader objectives of the credit program.…Because the group approves the loan request of each member, the group assumes moral responsibility for the loan. If any member of the group gets into trouble, the group usually comes forward to help.
Payback rates to the bank were also very high, as noted in Grameen’s Bank track record, 98 percent. Solidarity lending levers various types of social capital like peer pressure, mutual support and a healthy culture of repayment. These characteristics make solidarity lending more useful in rural villages than in urban centres where mobility is greater and social capital is weaker.
Grameen bank focus mainly at rural areas yet and it had been proven very successful at the rural areas of Bangladesh. Not only that rural communities can cooperate better in, but also we have to consider that in rural areas, there are very much opportunity and business fields that can be developed for the betterness of the local community. Even if we assume that a certain village is not in poverty line, we can agree that there would still be much to be done for the sake of better life of the people. Somebody would be better starting off electricity accessibility in the village, either it through the hard way of conventional electric line or by using SHS (Solar Home System), utilizing solar panel electricity which is eco-friendly and is more suitable for isolated village areas due to its portability. And from there we can list a lot more businesses that can be generated through the accessibility of electricity in the village. And of course, all of those efforts would require quite a sum of money, which is a big barrier for innovation and improvements.
Figure 2. As can be seen from figure above, people living in rural areas are still of much significance of the population
Modernization of a rural community is not a simple task that each government of each country can handle and take care of. If the process of modernization of rural communities are left up to the hands of government, it would take several more decades to see some significant results. In the contrast, what governments should let the people of rural communities themselves be in primary responsibility of the improvements and modernization of their own area, government would be good playing as supporting and facilitating role in it, particularly by fostering accessability of funds, in which Solidarity Lending system have proved very successful.In deeper analysis, it is not wrong to say that the Solidarity Lending system can be regarded as one of a tool key in promoting prosperity of the whole, both as individual and as a nation. Such system grows the economy of the nation by utilizing rural communities to also take bigger part in it. Production of service and goods can increase more which then provides more opportunity for export and trade, or at least for the nation’s own consumption itself, therefore also in by-effect reducing dependency on other nations, being more independent economically. As earnings increase, taxing would also increase as well as consumption therefore benefiting producers and manufacturers.
So far, we have only been seeing it in scope of rural communities, but as we broadens our view to bigger scope of urban communities, we can be amazed at how much benefit it would be for everybody if this Solidarity Lending system can work out well in such areas. By available accessability of business-start up funds, people would be more encouraged to own business rather than to work for somebody else , entrepreneurship would grow at higher rate which means innovative businesses and sectors would soon to be seen in the areas impacted, resulting in richer life of the general society. More convenience in a more narrow scope of a certain area even if we are to assume that the community lacks the will of entrepreneurship.
What is more important from the point above is how at least people having opportunity to own their own businesses not only reduce unemployment rate by employing themselves as the business owner, but also that the act of opening up businesses provides more job vacancies for many other people. Not only this result in similar economic advantage as analyzed before in case of rural communities (but at much more larger scale), but also it has much beneficial effects in the social point of view, therefore socioeconomic impacts as a whole. As unemployment rate decrease followed by increase in earnings, crime rate, particularly those crimes conducted by the poors would drop, benefiting the society as a whole. Continual increase in personal expenditure of the poor would allow access for better health and reduce illiteracy and increase education rate. Again, the benefits never always only goes to the poor, but impacts the society as a whole in positive ways.
So as we can see from simple analysis above, if we can improve the economy and well-beingness of people in the lowest part of the economy pyramid (the lowest but also the most in number as constituents of the pyramid), the whole pyramid itself would grow in size, therefore it is betterness for all.
World Development Indicators (2007) (http://ddp-ext.worldbank.org) WorldBank. Retrieved on 2007, Nov
Wikipedia (2007). Poverty. (http://en.wikipedia.org/wiki/Poverty)
Wikipedia. Retrieved on 2007, NovWikipedia (2007). Solidarity Lending. (http://en.wikipedia.org/wiki/Solidarity_lending) Wikipedia. Retrieved on 2007, Nov
Wikipedia (2007). Grameen. (http://en.wikipedia.org/wiki/Grameen) Wikipedia. Retrieved on 2007, Nov
Further Reading (Books)
Extra: Get Involved!
(From: http://www.grameenfoundation.org )
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Employment opportunities are ideal for professionals seeking a career in the dynamic field of microfinance.
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