Microcredit Guide: How Your Money Works to End Povery
Example 1. Mariate Banda runs a small beauty shop in Zambia near the South Luangwa National Park. Visitors to the park flock through her town, but few tourists venture into her shop, as it lacks the modern hair dryers travelers expect. Her small income makes saving difficult. "My life's ambition is to have my own equipment" she says—even one modern hairdryer for tourists (see photo & description of Mariate in the Sept 2005 issue of National Geographic, p. 120).
Using your investment through the growing international microcredit movement, Mariate takes out a microloan of $100—small by western standards, but more than enough to pay for a modern hairdryer in Zambia. With the increased tourist traffic to her shop, Mariate pays back her loan within a year. Once the loan is repaid, she has now greatly increased her income and can afford to keep her children in school, give them good medical care, and build her business further. You pulled this family out of poverty!
Example 2. Working 10 to 12 hours six days a week, 36-year-old Supratno drives a pedicab (bicycle taxi with three wheels) in the suburbs of Jakarta, Indonesia. As over 50% of his daily income goes to pay rental fees to the large syndicate which monopolizes pedicab rentals in Jakarta, he barely ekes out a living for his family of four. His daily income averages about US $4 per day, which is only enough to put rice and vegetables on the table for his family twice a day. He cannot afford to pay the small fees for administration and mandatory school uniforms to send his children to public school.
Taking out a microcredit loan of $200 from money you invested, Supratno buys his own pedicab for the first time in his life. As all income now goes directly to him, his daily income is more than doubled. Within a year, he pays back the $200 loan and can now afford to send his children to school and give them three good meals every day. You pulled this family out of poverty!
The microcredit process is actually a little more involved than described above. Business plans are required to be submitted to a volunteer cooperative and loans are made in increments, but you get the picture. Your loan of $1,000 for one year can literally pull several entire families out of poverty for good in the developing world. The interest you receive on your microcredit investment is low—generally up to four percent—but you have the satisfaction of knowing that for every $1,000 invested, you have helped several families every year to pull out of poverty and live a much better life! I'd say that's a pretty good return on your investment.
When I first heard about microcredit back in 1999, I was very excited. As a part-time interpreter for the US Department of State and a part-time nurse, my work provided no retirement benefits, so I had diligently been investing a percentage of my income in order to be able to retire at a reasonable age. I had saved over $100,000 towards my retirement at the time and was interested in finding better ways to invest this money.