Prosperity

Here’s How Micro-Loans Are Helping Some Of The World’s Most Vulnerable Communities

November 2, 2021 By César Albarrán Torres

Micro-loans are small loans with low interest rates that are given to new and small businesses and entrepreneurs. Even though this financial product is well-established within the banking and federal government systems of countries such as the United States (through the U.S. Small Business Administration), initiatives in developing nations have empowered disadvantaged populations such as Indigenous groups and women. 

Micro-financing can help individuals, who because of their life circumstances, have been left out of the traditional banking system. Through various organizations, disadvantaged groups such as Indigenous women (who suffer stigmatization and also are left out of productive life due to gender dynamics) have access to funds that can aid them in gaining personal sustainability and financial independence. 

Micro-financing goes global! 

There are many success stories of micro-finance in action from across Latin America.

The micro-loan revolution has expanded worldwide and replicas of the Grameen Bank have sprouted in more than 100 countries. Latin America is one of the global epicenters of micro-finance initiatives, but also one of the most unequal regions in the world. According to the Inter-American Development Bank, “From the first experiments of providing tiny loans to poor women in the early 1970s, micro-finance has grown to become a sophisticated industry. In Latin America and the Caribbean alone, some 600 micro-finance institutions have lent around $12 billion to more than 10 million low-income clients.”

These figures tell us that micro-finance has had a significant impact in terms of empowering individuals that want to escape the cycle of socioeconomic disadvantage. Behind these figures there are human stories of personal growth. In Guatemala, for example, a country long ravaged by civil war, Fair Trade Quilts & Crafts is run for and by Indigenous women who sell pillow cases, blankets, and other products that are then shipped worldwide. This cooperative also operates in Southeast Asia, which evidences the global reach of micro-financing.

Mexico, the land of micro-financing?

In Mexico, micro-financing is being adopted at all levels of the financial sector, which is espeically importnat since women are far too often left out of the economy, either because of gender roles at home or lack of opportunities.

Banks have long been offering loans, with special programs for women, in places like the Northern state of Sonora, where women are being helped in opening their own businesses. There are even programs that offer loans from $5,000 to $70,000 Mexican pesos to a group of a minimum of ten female entrepreneurs.

Other organizations focus on particular crops and products, such as Unión de Crédito Estatal de Productores de Café de Oaxaca (UCEPCO), which works together with coffee bean producers in one of the most impoverished states in Mexico. 

There is a need for an organic and organized micro-finance sector.

The micro-finance industry faces its own challenges, and ill-managed micro-financing can actually worsen the life conditions of some. As the New York Times reports, there are instances in which circumstances make it impossible for people to pay the loan back.

In countries like Jordan, for example, women “take out micro-loans to tackle unemployment and poverty, then become trapped in a system that was supposed to help them.” There are hundreds of so-called banks that thrive in an unregulated market, making the situation prone to abuse. This is why there needs to be programs that provide financial education to individuals and cooperatives entering into debt. 

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