Breaking the Cycle of Poverty: Micro-Loans

Many countries in the world have a concerning percentage of poverty in which both food and financial sources are disturbingly limited. Most of the world’s poor have suffered from the deficits of using financial services. Because of a bad credit history or a lack of proof of employment, financial services are most often not accessible for the low income client market. In the western and developing countries, people are being eliminated by the traditional financial system based on the deficiency of guarantees of unaffordable costs to process the loan application, and the lack of data related to their credit history. These factors sometimes lead to borrowing illegally, and neglecting the regulation of lending.

Micro-loaning is designed to break the cycle of poverty by allowing low income residents access to outside funds, which they were previously restricted from. These funds give the opportunity to participate in investments, such as small businesses, and create a steady flow of income. Micro-loaning provides financial services for those who might have low or no income, as well as not having the official documents required when applying for a regular loan. With the goal of low interest and easy application, micro-loaning appears to the most efficient, alternative way of alleviating poverty. To help gain a better understanding of micro-loaning; we will explore the micro-finance history and its organization, poverty and the target subject of this organization, and the benefits and backfires of providing these services.

The origin of microfinance can be observed all the way back to the late 19th century. Friedrich Wilhelm Raiffeisen first conceived the idea of cooperative self-help after observing the suffering of farmers in the gr...

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...hey can provide the borrowers with a constant flow of income that can help them pay off the loan back and become eligible for any kind of banking services. If Micro-finance institutions construct themselves successfully enough to offer more services to the low income client market, and have the financial comfort to offer the appropriate interest per client income, it may be one of the strongest forces in alleviating poverty. If the institutions are constructed well enough to break even, or make a small profit, they become a huge beneficial investment of wealthy businesses and investors. When run as a sister company to other businesses, or by outside lenders on an online site, micro-finance institutions can provide opportunities, education, and a healthy flow of income to poverty stricken individuals for the rest of their lives, and slowly help alleviate poverty.