Magazine article UN Chronicle

Reducing Poverty and Empowering Communities

Magazine article UN Chronicle

Reducing Poverty and Empowering Communities

Article excerpt

Mohammed Yunus, founder of Grameen Bank, one day in 1974 met a woman from a small village in Bangladesh who made bamboo chairs for sale. Despite her endeavour, the woman was left with barely any profit after repaying the middlemen the money for the raw bamboos. He also discovered that some 42 people in the village suffered a similar fate and were in debt for a mere total of $27. Mr. Yunus paid the loan so that they could break free from lenders. He also offered himself as a guarantor for the poor at a local bank. (1) From that day onwards, he embarked on a journey to eradicate poverty and empower people deprived of financial services, especially women, to be self-reliant.

In spite of strong advice from banks and Governments, Mr. Yunus began to issue microcredits and in 1983 formed the Grameen Bank, which gave small loans to entrepreneurs too poor to qualify for traditional bank loans. Since then, the concept of microcredit has come a long way. Many developmental agencies have started to comprehend its essential role in poverty reduction, and financial institutions are realizing immense opportunities in the microcredit domain.

A major reason why people cannot get out of poverty is because they do not have enough credit to invest in small enterprises. The poor do not have access to credit simply because financial institutions consider them a risk, as they often lack an underwriter or security deposit to guarantee repayment of the loan. (2) Nonetheless, these opinions are slowly changing. Microcredit banks, which cater towards the underprivileged, see the poor as credit-worthy.

To raise awareness and draw worldwide support, especially from financial institutions, the United Nations has designated 2005 as the International Year of Microcredit (IYM). Its main objectives are to draw awareness on microcredit in order to eradicate poverty, foster partnerships among financial institutions to provide adequate services for the needy, and assess the role of micro-finance in meeting the Millennium Development Goals (MDGs). Advisors and spokespersons have been appointed to raise understanding and advocate the concept of micro-finance, including the IYM goals and objectives. In addition, the UN General Assembly encourages Member States to create national committees or focal points to commemorate and implement national activities for the Year. So far, there are more than 50 committees.

During the year, many conferences and gatherings are also taking place worldwide to cultivate understanding, mobilize people to support microcredits and draw support from financial establishments that have not tapped into the enormous possibilities of microfinancing. In order to involve more financial institutions in providing services to the underprivileged, for example, the United Nations Capital Development Fund--in collaboration with the Financial Women's Association, Women Advancing Microfinance, Women's Association of Venture and Equity, and Women's Bond Club of New York--organized a panel to celebrate the IYM and raise awareness of the financial community concerning the vast opportunities of microcredit.

The underlying objective of IYM is to ultimately help achieve the MDGs. Microcredit and micro-finance pose vast potential to eradicate poverty by raising the poor from abject poverty to self-sufficiency. Microcredit stimulates the agricultural sector by expanding trade boundaries and enabling it to grow progressively out of subsistence farming to large-scale market production. Access to credit also allows people to select from diverse options, such as starting a business, enrolling children in school and getting access to the health-care system, including various services that constitute a healthy lifestyle.

One proven benefit of microcredit is that it helps reduce the number of people living below the poverty line. As people engage in business, they have the income that allows them further investment to expand and stabilize their businesses or even take more productive endeavours, which ultimately lifts them from poverty. …

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