Tuesday, October 5, 2010

Capitalism and A Brief Introduction to Microfinance

I appreciated Professor Burton's comment during our class period on Tuesday, "We are trying to get you to step outside the ideologies you readily accept and look at them for what they are." Though I am a capitalism enthusiast, I must admit and acknowledge that the system does have its many shortcomings. I like the statement, "capitalism is to an economic system as democracy it to a system of governance: a decent, if flawed option, out of many worse alternatives." To illustrate:  1.2 billion individuals struggle to survive on less than a dollar a day. Another 1.3 billion live on less than $2 a day. These are the world's “hyper-poor”, equaling over a third of the planet's people (just so you know, I am not suggesting that capitalism is solely to blame for this). 
This is a difficult statistic to comprehend, let alone internalize. Hearing statistics about poverty is one thing, living, breathing, and tasting poverty is another. In this light, I suggest that one of the biggest problems with capitalism in today's globalized economy, is the lack of capital and financing available among the Earth's hyper poor. Perhaps a brief anecdote may illustrate: 

I knew a woman in Sierra Leone who was a remarkable sales woman. Friendly, genial, and well known for her goodness, Baby Swarray sold more rice than perhaps any other women in her local marketplace. However, Baby barely makes a subsistence living to feed herself and her family. Why can Baby not make a decent sustainable living? Because she sells rice that is not her own. Every day, Baby "rents" the rice that she sells from a local rice baron at a high premium. This business model creates a perpetual cycle of dependency. Baby is never able to amass wealth or capital because the markup on the sale of rented rice is barely enough to sustain her and her children. If Baby were able to get a mere $50, she would be able to dramatically improve her situation and break this cycle of crippling dependency.

This is where microfinancing comes in. Imagine if Baby were to receive a small, low interest loan that would allow her to purchase her own rice. This would allow her to experience returns that she has never before experienced. If managed properly, Baby could begin to amass capital and expand her small rice-selling enterprise. Eventually, this would have the potential to significantly improve her family’s standard of living. And that is, in its simplest terms, what microfinance is: the giving of small, low-interest, loans to help lift the world’s impoverished out of abject poverty through microenterprise. In a way, it is simply....microcapitilism.

Microfinance is a relatively new institution with lofty goals. Initially, it experienced a harsh wave of skepticism because of its simplicity. Then, as it gained momentum, it began to ride a wave of near ubiquitous acceptance as the panacea for all world poverty. Now, it is seen as an effective, yet improvable tool with great potential to do good that still faces many challenges in its implementation. 

Consider these links if you are interested in learning more about microfinance: