1. An Introduction to 
Micro-Financing
Helping the World’s Poor

2. To start off: Two types of Poverty
 1) Relative Poverty – An individual lacking a certain level of
resources or income compared to the rest of society
 Example: In the US, relative poverty was set in 2011 at a yearly
income of $22,314 (family of four) and $11,139 for an individual*
*CNNMoney

3. And the worse kind...
 2) Absolute Poverty – An individual living on less than $1.25 a
day* and lacks basic human necessities:
 Clean drinking water
 Healthcare
 Nutrition
 Education
 In 2011 there were 1.5 billion people living in absolute poverty
throughout the world**
*World Bank
**United Nations General
Assembly

4. Why do we have absolute poverty?
 Lack of resources
 Political corruption
 Poor are marginalized from society and not given a voice
 Institutions in place benefit the rich, not the poor
 Cutbacks in social services
 Combine most of these together and you get…

5. Modern Day Slavery
 27 million slaves in the world today* with some activists saying as
much as 200 million
 Sufiya from Bangladesh**
 Makes bamboo stools
 5 Taka for supplies
 Borrows it from the paikars (middlemen)
 MUST sell the stools back to them to repay her loan
 Sells it for 5 Taka and 50 poysha
 Makes a profit of 2 cents per stool
 Bonded slave labor
 Situations like this is one of the reasons why the cycle of poverty
continues
*Disposable People
**Banker to the Poor

6. How do we break this cycle?
 All Sufiya needed was 22 cents
 Could buy her own raw material
 Set her own price to sell stools
 Sell to more people
 Make more of a profit  Improve her family’s life (better nutrition,
medicine, shelter, education for children etc.)  Better life means new
opportunities and a way out of poverty
 We need to provide these people with financial resources like credit
“People like Sufiya were poor not because they were stupid or lazy. They worked all day long, doing
complex physical tasks. They were poor because the financial institution in the country did not
help them widen their economic base.” Muhammad Yunus – Banker to the Poor

7. Here’s the problem
 What bank would loan out such a small amount?
 The costs for all the “behind the scenes” tasks like processing
the loan, salary of banker etc. doesn’t equal out to what the
bank makes in interest
 To make money, banks charge absurdly high interest rates on
these small loans
 Banks want collateral to guarantee repayment, which poor
people don’t have
 In the end, existing banking institutions do not help those that
need it most

8. Finally we get to: Micro-Financing
 A general term describing financial services for low-income
individuals.
 Credit
 Savings
 Fund transfers
 Insurance
 The poor need this because they lack access to traditional banking
services
 It (ideally) helps lift low-income individuals out of the vicious cycle of
poverty

9. Micro-Credit
 A term referring to a small amount of money loaned out to low-
income individuals
 How small of a loan?
 Depends on the micro-finance institution (MFI)
 For example: $50 to $2,000*
 Interest rates:
 MFI interest rates range from 4% to as high as 85%**
 Note: High interest rates like the 85% are uncommon and a topic of
heated debate. Some argue that this is excessive and these types of
organizations are exploiting the poor.**
*Hope
International

10. 

11. How does micro-credit work?
 MFI’s have their own way of doing things but generally:
 Loan out small amount of money at low interest rate (say 10%)
 Individual(s) pays back the amount, plus interest at a set time
(every day/week/month)
 Once fully repaid, that individual(s) can take out another, larger
micro-loan
 Some MFI’s like Grameen Bank set up groups of borrowers for
support and an added security measure for loan repayment

12. High Repayment Rates
 98% with Grameen Bank, 98.88% with Kiva and 96% with Hope
International
 Why so successful?
 The poor know this is their only chance to break the cycle of
poverty
 They are so thankful that someone gave them a chance
“Unlike the rich, the poor can’t risk not repaying. This is the only chance they
have.” Muhammad Yunus – Banker to the Poor
*Grameen Bank

13. Women borrowers
“Micro-credit plays a critical role in empowering women, helps deliver newfound
respect, independence, and participation for women in their communities
and in their households.” – Juan Somavia, International Labor
Office, Director-General
 70% of the world’s poor are women
 In 2006, 93 million poorest of the poor took out their first loan, 85%
were women
 Women have higher repayment rates
 Money entering the household through a woman usually benefits the
family as a whole whereas men are more likely to spend the earned
money on themselves
International Labor
Office

14. So does it work?
 There is some debate.
 In Bosnia, micro-enterprises were failing by 50% just after one
year*
 But what support systems were in place? What MFI was operating?
 Critics argue that over time the market becomes saturated and
the people in these poverty stricken areas are using the same skill
sets and selling the same products.*
 Why business 101 skills should be taught so borrowers are
encouraged to think of new business ventures
*Share the World’s
Economic Resources

15. On the up-side
 It helps poor households meet basic human needs: clean
drinking water, healthcare, education, nutrition etc.
 Protects against risks like illnesses and natural disasters
 Helps economic welfare, stability and growth
 With women borrowers it provides empowerment and thus
promotes gender-equality
CGAP

16. Personal Experience in Nicaragua

17. In the end
“Micro-credit is not a miracle sure that can eliminate poverty in one
fell swoop. But it can end poverty for many and reduce its
severity for others. Combined with other innovative programs
that unleash people’s potential, micro-credit is an essential tool
in our search for a poverty-free world.” Muhammad Yunus –
Banker to the Poor

18. References
 Banker to the Poor by Muhammad  Kiva
Yunus
 CGAP  Poverty Rate Rises in America
– CNNMoney
 Disposable People by Kevin Bales
 Share the World’s Resources
 Grameen Bank
 Hope International  United Nations General
Assembly – GA/EF/3313
 International Labor Office – “Small
Change, Big Change. Women and  World Bank
Micro-Finance”

19. Additional Resources
 Ashoka documentary on Muhammad Yunus
 Grameen Foundation: Empowering the World’s Poor