Women, with their dedication to repayment and practical investment decisions are the key to the success of the micro-finance field and the future alleviation of world poverty. The 2006 Nobel Peace Prize winner, Muhammad Yunus had the right idea when he decided to conduct business in the opposite manner of traditional banks, “if banks lent to the rich, I lent to the poor” initiating the practice of micro-finance (Hawser, 25). Muhammad Yunus determined the best way to help the poor was to empower them, and results have shown that targeting women provides the most significant outcomes. Not only do the loans best help women, but also women prove to work as the best vestibules for economic encouragement. Micro-finance’s positive effects, evident in Bangladesh, are beginning to show up in other countries around the world. With over $3.66 billion in loans by the Grameen Bank alone, the micro-finance field holds a respected position in the world and many countries have included the practice of micro-loans in their poverty reduction programs. Muhammad Yunus has set the world in the right direction by giving the female-dominated poor, the gift of opportunity through credit. The most realistic approach to tackling world poverty seen yet, helping women to improve their lives and their countries through micro-finance, will hopefully continue ease the pains of world poverty as it grows.

 

Proven to be lower-risk borrowers, women also choose sensible and development-promoting investments for themselves, their children and their country. Recent data in both sociology and economic reports displays the, “greater probability that money in the hands of women is spent on children’s health and education relative to money in the hands of their husbands” (Armendáriz and Morduch, 143). Focusing on women to allocate borrowed money works as a more productive method to increase the living standards in a country. Addressing children’s health lengthens the life span of a child and decreases the likelihood of future problems if proper habits are developed early. Education, often a luxury for those in underdeveloped countries, can become a reality with micro-loans, improving not only the child’s future, but also the future of the country.
With a healthier, more educated population, the growth of aggregate supply continues. 
 

Credit does not only improve living standards through aggregate supply, but also increases women’s empowerment and her overall awareness in a given country. In a study based in Bangladesh examining the effect of micro-credit on women’s autonomy, it was observed that when offered credit, women experience a statistically significant increase in, “the latent empowerment factor associated with finance,” including independence from a husband and ability to freely make financial decisions (Pitt et al., 25). In contrast, “male credit significantly reduced the overall empowerment factor, had a significant negative effect on six of the other empowerment factors and did not have a positive effect on any of them” (Pitt et al., 24). Offering credit and loans to men causes primarily negative effects and makes no developmental progress of any kind, yet another motivation for banks to focus on women as their chief borrowers. Along with this empowerment, women’s autonomy with purchasing, control over economic resources and confidence in their own ability to raise money in case of emergency, all increased. Rarely considered equals of men, women face discrimination and restricted freedom in many developing countries. The study showed, “female credit affects the likelihood that a man will describe his wife as intelligent and the probability that a women will say that she does not view her husband as superior to herself” (Pitt et al., 26). With the opportunity of credit, women’s empowerment increases and slowly equality will spread. Additionally, “female credit positively affects the factor relating to women’s awareness and activism,” including women’s knowledge of divorce options and probability that she will vote (Pitt et al., 26). Such knowledge also increases the human capital of a country, providing better living conditions for the future. By giving women money and in turn, power in their household, not only is the issue of poverty being addressed, but the one of female equality and opportunity as well.

Over the years micro-loans have targeted women, who dominate the poorest populations. Women make prudent investment decisions for themselves, but also ones that improve their children’s lives and contribute to the potential of their country. Offering credit produces a great effect on enhancing the lives of women, whereas it offers few advances to men. Proven to obey more consistent repayment rates, women are labeled as the lowest-risk borrowers. Through its provision of credit focusing on women, micro-finance empowers poor women and helps to alleviate the strongest symptoms of poverty and advance underdeveloped countries.

Today 1 billion people survive on less than $1 a day, the great majority of whom are women. To most effectively tackle the issue of world poverty, those who are most affected must be addressed, meaning women. Even at its inception, the Grameen Foundation sought out women borrowers, but not only does the Grameen foundation target women, 90% of loans in the micro-finance field worldwide are to female borrowers (“Bangladesh”). Women account for somewhere around half of the population in a given country. Without economic independence or power, women can make little or no impact on the economy. Given a loan, a woman can create her own small business and become a contributor not only to her family, but to her country as well. Alex Counts, the CEO of the Grameen Foundation rationalizes, “‘if 110 million people increased their per capita income by $3 a day, every day, that starts to become more meaningful on an aggregate level,’” explaining the great power that issuing just small loans can have (Hawser, 24-5). Loans affect more than just the people they are granted to, but continue to ripple throughout the economy as the money is utilized and spent. Women make up a significant proportion of any population, so having them go from no to even a small amount of income has a considerable impact on the macro economy. Aggregate supply, the only factor that allows a country to grow in the long run, is accounted for by, natural resources, labor, technology, capital and education. If any one of these factors is increased, overall output and therefore GDP can be increased, helping to lift a country out of poverty. Micro-loans help to utilize those previously unused resources in a country such as the unemployed poor and force them to effect the economy in a positive manner. Through micro-loans increase in potential GDP, both the economy and living standards are boosted for current and future generations. Granting women micro-loans amounts to finding an untapped natural resource within a country’s earth.

 
Muhammad Yunus, when forming the Grameen foundation, sat down with his colleges and created a list of criteria they believe should be met by all Grameen borrowers. These rules represent a commitment as a Grameen borrower to improving their living standards. Rules range from not living in a dilapidated house and growing vegetables year round to a promise of helping others in difficulty and maintaining discipline, hard work, unity and courage in all aspects of life. (Yunus, 135-6). These rules demonstrate what the Grameen foundation believes are necessary actions in relieving poverty from a community. If these rules could be applied to other poor areas and accomplished, a significant improvement would be made in the living standard of these people.

formula for repayemnt:

- loans last one year

-installments are paid weekly

-repayment starts one week after the loan

-the interest rate is 20%

-repayment amounts to 2% of the loan amount per week for 50 weeks

-interest payments amount to 2 taka per week for every 1,000 taka of the loan amount 
 

Why Microfinance Alleviates Poverty (not just a temporary relief solution)
    With many dying and poverty worsening every day, it is important that action be taken now. Micro-finance offers equal opportunity to the world’s poorest people and countries, working as a realistic solution to alleviating global poverty. Micro-lending makes the previously impossible option of self-employment a reality. With increased opportunities, higher incomes are available. Self-employment is a realistic solution to raising living standards above poverty level because there is endless room for growth. Self-employment is especially sensible method of employment in underdeveloped countries where many have skills to create their own goods and there are rarely licenses or insurance needed to begin such an operation. In a country like the US, expensive licenses and insurance are often impossible hurdles to starting your own business because significant capital is necessary to get started. In underdeveloped countries (like Bangladesh) a micro-loan is all a woman needs to buy the initial capital to create and begin selling baskets (for example).

        What Yunus Saw In Bangladesh and How He Got Started
In 1976 Muhammad Yunus, a Bangladeshi economics professor, felt discouraged by the poverty devastating his home country. Dismayed by the fact that the very principles he taught in the classroom, failed outside the university’s walls, he took to the streets with his students. His economics classes surveyed the local villagers (the unemployed poor) to discover what factors held the villagers at such a low standard of living (Yunus, 34-42). Forced to borrow from village lenders at unfair rates, Yunus found many of these people to be stuck within the negative cycles of debt. Many men in the village could go out and work, but the women were forced to borrow to produce capital such a stools. One village woman explained this phenomenon, “‘the money lender would demand a lot. People who deal with them only get poorer’” (Yunus, 47). But for the village women, borrowing money at the highest rates stood as the only option to obtaining basic staples such as food, clothing, and maybe a roof. A student of Yunus’ complied a list of 42 villagers and the loans they would request if such an opportunity arose. The amount requested totaled less than $27 (Yunus, 49). Yunus made this first loan out of his own pocket, initiating the formation of the Grameen bank and poverty alleviation in Bangladesh.
Concerned for the growing poverty in Bangladesh, Yunus decided the best way to aid the unemployed poor was to give them credit and continue to make loans available to them, which he did this through the formation of the Grameen Bank.
 

Repayment of Loans

One of the major criticisms against the field of micro-finance concerns the repayment of loans. Muhammad Yunus admits to the risk of such investments, “’[borrowers] don’t have collateral, they don’t have guarantees, they don’t have lawyers, nothing. How risky can you get? Still, our money comes back,’” (Parker, 1). Currently Grameen Bank holds a repayment rate of 98%, which is impressive even for a traditional bank (Parker, 1). World wide, “developing countries MFIs report unusually high repayment rates of 95% to 98%, which is higher than the rate for student loans and credit cards in the United States” (Hawser, 25). Yunus contends that these borrowers have no incentive not to repay their loans (they would be sacrificing their only chance) and in turn trusts them with credit. Additional security, provided through the group-loaning method, helps to maintain this impressive repayment rate. Robert Annibale, the global director of  the Citigroup Micro-finance Group comments on the process, “‘most micro-financing of Grameen-inspired MFIs is done through lending to groups of five to 20 women co-guaranteeing one another…so if one of the women has a problem meeting a repayment, other women in the group often help her to make that repayment’” (Hawser, 26).

Micro-lending that targets poverty has enabled higher income generation through a multitude of economic activities. Offering credit to the unemployed poor, works as a powerful method to breaking the cycle of poverty. Stuck within deathly cycles, these people were squashed under the forces of those they worked for or borrowed from. When one has no other choice but to work a full day for a just handful of rice, that is what must be done. Micro-lending offers another option, enabling people to become independent. Micro-loans provide access to credit and finance, training and skills, which lead both lead to better job opportunities, higher incomes, and a decent standard of living (Geodesudbury.com). Micro-lending makes the previously impossible option of self-employment a reality. With increased opportunities, higher incomes are available. Higher incomes do not only benefit the previously unemployed poor, but the country as well. Micro-lending can expand a country’s financial sector, but adding new companies and products. Variety and increased volume are both beneficial, especially to developing countries that may rely heavily on one export. With this expansion of business, the individual’s and country’s economic power grows.