Success stories are plenty about how micro credit is helping alleviate poverty in developing countries. It is a proved fact that small and medium sized enterprises are the engines that drive growth and development in emerging markets. Therefore, governments that focus attention on safeguarding the stability of these vehicles of economic development are on the right track towards attaining complete economic independence.
Micro finance institutions lend to small and medium enterprises who under normal circumstances would not qualify loans from the traditional banking institution because they are regarded as ‘poor’. Through micro financing, small businesses have access to other basic financial services such as money transfers and savings. This is a crucial starting point in a journey that leads to financial freedom.
In Africa it is amazing how a loan (sometimes as little as $500) can go a long way in changing people’s lives. However, gaining access to such an amount can prove to be a mammoth task. Apart from the bureaucracy that is inherent in all financial institutions, small loans are very costly in terms of interests and collateral requirements. The good news is that unlike banks and other traditional financial institutions, micro financing institutions are not driven by the profit motive. They are therefore able to lower their lending rates significantly. Poverty-focused micro-financing institutions are financed by donors and philanthropists. They are therefore very attractive to the poor who might be having great ideas and only need a little financing to ignite them and turn their dreams into reality. Eventually, thanks to these cheap loans, many poor people in Africa have crossed the poverty line. Some have turned into overnight millionaires in classical rags to riches fashion.
The micro financing wave is really making ripples across the continent. Stories about criminals turned entrepreneurs, almost with a wave of the proverbial magical wad, are now very common. It can only leave you wondering what lies in store when this initiative is fully utilized. Poverty is not a situation that anyone should be condemned to. If micro financing projects are given the support that they require, by the host governments and also by rich nations, then even beggars could soon be constricted to history books.
One way that micro financing has been able to reach many of the people who need financing most, is through the cooperative movement. For instance in Kenya, micro financing institutions encourage lending to groups of entrepreneurs with common interests. Through this, they enlarge the target groups and also strengthen the purpose of the enterprise. People, who have never handled any form of business before, are assigned qualified assistants who guide them through the initial stages and offer technical support for growth and long term survival. They offer free training services and valuable advice to ensure that the business takes off achieves stability.
Finally, it is important to note that poverty alleviation in Africa and other under-developed countries can only succeed if the people (mainly the poor) are empowered to fight poverty on their own. Micro financing is a step in the right direction because it is a source of hope for those who want to catch their own fish and break their over dependence on other people for the same.