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Microfinance: A Brief Introduction to Banking for Poor People

A few weeks ago, the world celebrated International Women’s Day. The day focuses on the plight of women and girls around the world. One bit of information that you might not be aware of is that females are more likely than males to live in extreme poverty even beyond their demographic differences.

I care about extreme poverty in part because during a chapel service my freshman year in college, I felt the Lord ask me to commit my life to serve the needs of poor people living in countries where extreme poverty is pervasive. Since that time, my research and vocational work have focused on such areas.

I am grateful to PLNU for providing me with the space to mentor students interested in serving poor people through business as they major or minor in the academic field of International Development. I am also able to help lead poverty alleviation discussions across campus through the work of the Center for International Development.

In my role, I often get asked, “what is the best approach to poverty alleviation?” The answer I give has been fairly consistent over the years–educate and empower women. To provide girls an opportunity to go to school and learn, and to provide women the agency to determine their own choices in life, does more to help reduce poverty and keep kids alive than other government or nonprofit interventions.

So, how can women be empowered? Most of my poverty alleviation work has focused on the area of microfinance, which involves providing small-sized financial services to poor people. Microfinance reaches more women than men and, when designed and led well, can provide affordable and convenient savings, loans and insurance services to those normally excluded from formal financial services.

Over the past twenty years, the microfinance community has had its ups and downs in terms of research, publicity–good and bad–and debates. Through it all, programs continue to grow and serve more people, including millions of women living in poverty.

While I will be the first to tell you that microfinance is not an end-all solution to poverty, I firmly believe it is an important tool in the poverty-alleviation toolbox. Microfinance efforts continue to evolve with variations developed between lending-led and savings-led approaches, using mobile money and even building smartphone apps to enhance services.

Through financial innovation and leveraging group accountability, the cost of serving vast numbers of people can be streamlined, allowing for microfinance programs to replicate and efficiently serve more poor people than most other poverty alleviation efforts.

Research suggests microfinance on average provides participating families with the opportunity to balance out the family’s income and expense flows over time so that when a crisis or emergency hits, a family is less likely to fall off the edge into complete despair.

There are many opportunities to support the education and empowerment of women around the world. We need people willing to learn and promote what is working, and then to gain the skills necessary to continue such good work through their personal vocational pursuits. If microfinance, women’s empowerment or global poverty alleviation interests you or stirs your heart, feel free to engage the Center for International Development to learn more or to gain connections to organizations doing good work.

Dr. Robert Gailey is the director of the Center for International Development and a professor of business at PLNU.


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