What matters most in microfinance is the way that loans impact borrowers, like Lucia Saenz's family. (Photo courtesy of ACCION USA)

Without fear of calling myself out as a newbie, I’ll admit that this is my first post on Social Earth. However, it’s not my first on microfinance, a topic that I’ve covered in-depth for Main Street Microfinance, ACCION USA’s blog.

You should know a couple of things about me to give context to the (hopefully many) posts that will follow: I believe that economic disparity is the root of all worldwide evil. I’m both an idealist and a cynic. But one thing I’m not is an economist—numbers aren’t my thing and to me, microfinance doesn’t boil down to impact stats and dollars disbursed. From my perspective, what matters most are the borrowers—the women and men whose lives are all the better because they received a microloan.

Here’s what else I believe about microfinance:

1. Access to credit should be counted as a basic human right. In the developing world and in lower income communities here in the U.S., not being able to access bank credit traps people in a cycle of high interest rate debt or poverty. Microloans break that cycle, and every person deserves at least that chance.
2. Microfinance isn’t the silver bullet. Microfinance is just one weapon in an arsenal of poverty alleviation and community development tools. It’s often pitched as a panacea and then criticized and then criticized for not contributing to global development to the extent that education and health programs do, which does the industry extreme injustice.
3. Microloans mean nothing without financial education. Borrowers need to be in-tune with their personal and business finances in order for the microloan to have full effect. Mismanaged microloans do borrowers more harm—in the form of decreased credit rating (where formal credit systems exist) and loan default—than good. Effective microfinance organizations incorporate financial education into the loan process, and provide support to borrowers post-loan.
4. Sustainability’s alright. I don’t think you’d be reading Social Earth if you didn’t believe that making money (or at least breaking even) while simultaneously helping others isn’t a first-rate concept. But to me, profitability shouldn’t define the industry. If an MFI has a successful for-profit model, great. If support is still needed from funders and donors, that’s OK too. Just keep sustainability on the horizon in case the dollars run dry.
5. And yes, microfinance works in the United States. And in fact, has been working in the U.S. since the early 1990’s. The need is immense (over 10 million small businesses lack access to formal credit) and results have been shown: organizations like ACCION USA state that the loans they provide support 2.4 jobs each, help keep 98% of businesses open, and increase family incomes by as much as 18% (more impact indicators here). The key to the industry’s success has been adapting the model to work in a formal economy: providing larger loan sizes (around $7,000), focusing on individual lending, and providing credit education.  The media loves to imply that microfinance is a new concept in the U.S., but I’m here to tell you that it’s been alive and well for nearly 30 years.

So what do you believe about microfinance?

Contributor Profile: Laura Kozien

Laura is a microfinance enthusiast and firmly believes that access to fairly priced financial services is critical to community building worldwide, but especially in the United States. Laura currently serves as communications director at U.S. microlender ACCION USA, and co-edits Main Street Microfinance, a domestic microfinance blog.
Twitter: @Laura_Koz

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