Why Does Microfinance Exist?

Microfinance is a tool. It enables an emerging class of consumer access to a broader range of market products and services that they otherwise would be able to afford. A key focus of microfinance traditionally has been financing the launch and operations of sustainable business ventures. In this way, microfinance’s role in development is grassroots—empowering individuals and families. What started as a stop gap individual loan by microfinance pioneer Muhammad Yunus in Bangladesh has evolved into a sophisticated delivery method of capital—pulling in innovative sources of collateral to compensate for the lack of financial insurance lenders are used to. Driven initially to curtail the aggressive service offerings of microfinance’s primary competitor—local loan sharks—over time microfinance has emerged as a highly dependant and lucrative investment class given the regularity of repayment as well as the high interest rates bundled in to microfinance loans when compared to regular debt products. Microfinance should be deemed a human right when splayed against the context of today’s dominant (as deemed by access to resources) cultural framework called “democratic-capitalism.” This is because an enlightened, and realistic, appreciation of inalienable human rights such as life and liberty suggests that systemic constraints are in fact more debilitating than ideological ones given that they hide behind the veil of normalcy. This means that although technically, every citizen within a capitalist democracy is afforded equal representation and rights, this power is limited to the political sphere. The responsibility for economic power or lack thereof is easily assigned to the individual despite the blatant stagnation of entire communities all around the world.

Because economic representation is rapidly eclipsing the relevancy of political representation, credit must be a human right, as it allows all human beings to avoid being wiped out by trivial financial calamities, as well as transition to earning via capital rather than solely labor. Both of these are important steps to ensure a basic level of economic representation similar to a minimal standard of political representation afforded by democratic institutions pioneered in the 18th century.

Microfinance is not a silver bullet (as most metaphors involving silver bullets inevitably end up being). However it is a critical innovation that has popularized a new mindset to development: the grass roots approach. Rather than plowing through bureaucracy and policy to deliver aid, microfinance empowers those who need it with minimal negotiation through traditional channels. With access to well structured capital, a poor family can begin a new revenue-generating activity by applying this capital in existing markets.