Jordan Jackson, Reginald White

Chapter 3: Role of Microfinance in Promoting Economic Growth, Deelopment, and !"staina#ilit$

%M"ch of the "nderdeeloped world grows and prod"ces agric"lt"ral prod"cts& 'eca"se man$ of these
"nderdeeloped nations hae er$ little political clo"t with the rest of the world, and #eca"se farmers
in wealth$ nations hae lots of political power, the goods from these poorer nations are tariffed and
("ota)d right o"t of the richer nation)s markets&*
+,eith 'rown, -ree .rade / -oreign Polic$: .he 0ndependent 0nstit"te, Ma$ 1, 2333
0ntrod"ction
.he ("ote a#oe proides a er$ nice generali4ation of e5actl$ what we will discoer in this
chapter: the roles of microfinance in promoting economic growth, deelopment, and s"staina#ilit$&
Microfinance can proide e5actl$ what most of the "nderdeeloped world needs: capital to inest in
themseles in order to reach themseles o"t of poert$, th"s creating self s"fficienc$& 6oweer, as Mr&
'rown stated, what microfinance has failed to do 7al#eit it was not designed to do8 is make these poorer
farmers glo#all$ competitie& .he$ cannot #e competitie d"e to larger co"ntries) ina#ilit$ to make the
free market free for all nations, not 9"st those who control most of it& 6oweer, een witho"t making
ma9or strides on the glo#al market, microfinance has done most of e5actl$ what it was designed to do&
0t has #ro"ght most of its participants o"t of a fr"itless f"t"re, one f"ll of dea#ilitating poert$&
.here are man$ statistics o"t on the #ooks a#o"t microfinance)s effect on the poor of the world&
.hro"gho"t the chapter, we will go into f"rther detail on how these statistics reflect the e5act infl"ence
of microfinance on the world, poor and middle class& .he statistics will reflect e5actl$ what has #een
stated in past chapters: microfinance works& 0t isn)t the end+all, #e+all sol"tion to the world)s poert$,
#"t it is a solid start to eradicate it&
:nother topic we will coer in detail is the parado5 #etween economic growth and
s"staina#ilit$, and whether or not the$ are m"t"all$ e5cl"sie& :n article, #rilliantl$ written #$ Dr&
,aren 6iggins of Claremont Grad"ate ;niersit$ in California s"ggests that %limitless economic
growth co"nters s"staina#ilit$*& 0f the econom$ grows too #ig, will we end "p e5ha"sting o"r
reso"rces, th"s act"all$ making the econom$ more short lied<
-"rthermore, we will go in depth on the effects of microfinance on the world, and more
specificall$, deeloped and deeloping nations& .here is a plethora of information on what impact
microfinance has on the world, mostl$ in the form of a poor farmer receiing a loan to #"$ s"pplies in
order to make more prod"ct, so that the farmer)s famil$ can act"all$ lie on as well as sell their stock&
6oweer, there are also stories in which an especiall$ l"ck$ person receies a loan, inests in a good
prod"ct or #"siness, and act"all$ goes from a#9ect poert$ to middle class& !"ch stories will #e told
later on in the chapter&
:s $o" read, keep in mind that, as stated earlier, microfinance will not sole poert$ and all its
ills& Whether $o" are a passionate skeptic or s"pporter of it after reading this #ook, know that there are
man$ more o#stacles in the wa$ of a poert$ free world, those o#stacles incl"ding political corr"ption,
power ine("alities on a glo#al scale, climate change, war and conflict, disease, ed"cation, and
aaila#ilit$ of reso"rces& '$ no means does microfinance seek to sae the world& 0t does not mean to
take the place of charit$ and giing, nor does it mean to take the place of hard work and perseerance&
6oweer, it does hope to make it easier for those who str"ggle amidst hard work, perseerance, and
charit$& 0t means to gie eer$ child a chance to lie and #e ed"cated& 0n a world where nanotechnolog$
and o"ter space trael are taken for granted, wh$ does three ("arters of the world still lie on less than
a dollar da$< While we know that there are man$ answers to that ("estion, we also know for a fact that
microfinance can sole some of those pro#lems&
What is Economic Growth, Deelopment, and !"staina#ilit$<
:ccording to the Center for the :dancement of the !tead$ !tate Econom$ 7C:!!E8, economic
growth is defined as: %&&&&an increase in the prod"ction and cons"mption of goods and serices& 0t
entails increasing pop"lation and=or per capita cons"mption& 0t is indicated #$ increasing gross
domestic prod"ct 7GDP8&* 0t goes on to sa$ that %economic growth literall$ refers to an econom$ that is
getting #igger, not necessaril$ one that is getting #etter*& :ccording to '"sinessDictionar$&com,
economic deelopment is defined as progress in the econom$, or a ("alitatie meas"re relating to it& 0t
"s"all$ refers to the adoption of new technologies, the transition of agric"lt"re+#ased to ind"str$+#ased
econom$, and a general improement in liing standards -inall$, according to Wise Geek, economic
s"staina#ilit$ is %the term "sed to identif$ ario"s strategies that make it possi#le to "se aaila#le
reso"rces to their #est adantage*&
!o what do those definitions mean when we appl$ microfinance to them< !impl$ p"t,
microfinance can #e attri#"ted to all three of these things& :s has #een proed since microfinance first
stepped onto the economic scene, microfinance can ca"se economic growth in the simple fact that once
a poor famil$ receies a microloan, the$ can "se it to inest in themseles or their children, th"s
making it possi#le for them to repa$ the loan, and in d"e time 7in most cases8 make a profit that will
allow them to e5pand their propensit$ to cons"me& 0n terms of economic deelopment, microfinance
has also changed the face of #"sinesses, small and large& Poor farmers in the third world can receie a
microloan, and go from haing to perform #ack#reaking la#or to p"rchasing a machine to help them do
it& -inall$, as for economic s"staina#ilit$, microfinance can ass"re that stocks are not going to waste,
and in the case of poor farmers, the$ can act"all$ sell their crops, instead of haing to eat them to sta$
alie&
Gie / .ake: -actors :dding and !"#tracting from
Economic Growth, Deelopment, / !"staina#ilit$
:s m"ch as we wo"ld all loe a straight answer to the ("estion that is poert$ and scarce
reso"rces, we all are aware that s"ch a #ig pro#lem is rooted in more than one thing& 6oweer, we all
know that comple5 pro#lems also hae comple5 sol"tions& Microfinance is one thing that contri#"tes to
economic growth, #"t sometimes, its effect can #e negated and #olstered #$ factors o"t of the control of
those who r"n microfinance firms&
Gender and !e5 0ne("alities
Women in :merica are considered to #e independent& Most women work, hae their own
propert$, and in some cases, een are the heads of their ho"seholds& .he same goes for most of the
deeloped world& .he pro#lem here is that in deeloping nations, women are still, with little hope of
the contrar$, s"#9"gated to men& Women in deeloping nations hae nowhere near the rights as their
deeloped nation co"nterparts do& 0n most Middle Eastern co"ntries, women are still e5pected to wear
eils oer their faces, in accordance with the M"slim religion& -"rthermore, the$ are also e5pected not
to work, #"t to #ear children and take care of home& 0n short, most of the world still has a er$
traditionalist point of iew& .his #eing said, when a woman)s h"s#and dies, or leaes her, what is she to
do other than to stare< 6er children come first, #"t she #arel$ has eno"gh to feed the eight of them
that her h"s#and gae her #efore his passing& Microfinance has helped women gain more e("alit$ to
their h"s#ands and to men in general, #"t the fact of the matter that onl$ when these restricting iews
are a#olished will the chains of poert$ start to come off& >nce women are allowed to make their own
mone$, the$ will #e a#le to feed their children, saing the from maln"trition& .he$ will #e a#le to pa$
for their ed"cation, th"s setting the children "p to make something of themseles& >nce women #ecome
independent, no longer will the$ not #e a#le to lie with a man #$ their side& .he$ will #e a#le, all
things considered, to s"stain their standard of liing witho"t falling into the traps of poert$&
Power .rip: Political Corr"ption
.his mainl$ pertains to :frica and it)s long, dark histor$ of warring nations& Eer since time
#egan, tri#es hae #een fighting in :frica oer land, reso"rces, and mone$, which co"ld all #e
considered the same thing& While the heads of these tri#es and regimes are eating plentif"ll$, their
followers still lie in a#9ect poert$, and are food insec"re& :lso, the$ are d$ing at an alarming rate&
?es, that)s right& 0n some :frican nations, men, women, and children are #r"tall$ m"rdered in the name
of politics and power& .he shamef"l part is that microfinance can)t stop a #"llet&
!o how e5actl$ do we co"nteract the chains of political corr"ption< : microloan ma$ help a
child get an ed"cation, #"t it means nothing if we cannot motiate them to do greater things& J"st think
a#o"t all of the potential :l#ert Einsteins, 'arack >#amas, and Marie C"ries o"t there, growing "p in
:frica& @ow think a#o"t the fact that the$ were either too scared of the politics of goernment or killed
too earl$ to een tr$ and show off their potential&
: main sta$ of the microfinance moement as well as economic deelopment is to make s"re
that eer$ child in the deeloping world is ed"cated with the skills the$ need to make their liing
sit"ation #etter& What p"rpose do :merican doctors sere coming to :frica if the children the$ are
healing neer get the chance to #e great like them< What p"rpose does a microloan sere when it pa$s
for a child)s ed"cation that will onl$ end "p d$ing at the age of 1A from a g"nshot wo"nd< .hese are
the ("estions that skeptics of microfinance need to ask themseles& Witho"t the proper learning
enironment, or the proper enironment in general, a child cannot #e s"ccessf"l #$ conentional
means& .hat goes do"#le for a child whose parents neer had an ed"cation either&
: Deadl$ Detriment to Economic Growth: Disease
?es, a few dollars can get $o" that co"gh medicine that $o" need to get rid of that dastardl$
common cold& : few more dollars, and $o" can get the accine for the fl"& : doctor)s isit is rarel$ too
costl$, #"t 9"st in case $o")re r"nning a reall$ high feer, a call to $o"r ins"rance compan$ can get $o"
to the nearest hospital, where $o" can get ("alit$ care #$ trained doctors that rarel$ hae too man$
patients that the$ can)t attend to $o"r needs& !"ch is the l"5"r$ of liing in the deeloped world& :t
least for the l"ck$ ones& 6oweer, if $o")re that special person who has to choose #etween $o"r
medicine or pa$ing for college t"ition, then this ma$ mean something to $o"&
: h"ge n"m#er of the 9"enile deaths in deeloping nations comes from disease, whether it #e
60B, :0D!, malaria, maln"trition, #irth defects, or een cancer& What)s worse is that in most of these
deeloping nations, the$ don)t hae the l"5"r$ to pa$ for, not to mention the conenience of een #eing
close to a research hospital& Conse("entl$, we are presented with the same pro#lem 0 mentioned #efore&
Children, f"ll of potential and intelligence, dead #efore their time&
Microfinance can onl$ do so m"ch, #"t it can ca"se a domino effect& !a$ $o" aren)t in reach of a
hospital as a poor famil$ in West :frica& ?o" appl$ for a microloan, and inest in $o"r children)s
ed"cation as well as $o"r farm& 0n time, $o"r children go from #ecoming potential 60B infected
children to #eing a#le to work on a c"re for it& >f co"rse, that)s an idealist)s sit"ation, #"t also a
completel$ possi#le one&
.he point here is that disease, altho"gh completel$ nat"ral, is responsi#le for m"ch of the
t"rmoil we see in the deeloping world& 6oweer, food ine("alit$ is a #ig part of this& Most people
don)t reali4e how co"ntries like the ;nited !tates s"ffer from o#esit$ and heart disease while co"ntries
like 0ndonesia s"ffer from malno"rishment and staration, which leads into the ne5t detriment from
economic growth, deelopment, and s"staina#ilit$&
@ominal -M-: -ree Market -reedom
Eer since the introd"ction of the free enterprise s$stem, especiall$ on a glo#al scale, the
intelligent, innoatie, and witt$ people of the world hae amassed fort"nes #e$ond the wildest dreams
of een their middle class co"nterparts in the deeloped world& .he$ hae had the opport"nit$ to #e
themseles and create something that will "ltimatel$ #etter the world, and make a decent fort"ne at the
same time, with certain goernment reg"lations, #"t not too man$ as to limit creatiit$&
!"ch is the same in all the deeloped world& People hae made fort"nes from things that no one
else wo"ld hae made& 6oweer, $o" will notice that most of the !tee Jo#ses, 'ill Gateses, or Mark
C"cker#ergs come from the deeloping world& .he answer to that dilemma is ("ite simple, and it was
the first thing $o" read&
Most #"sinesses in the deeloping world are agric"lt"re #ased instead of ind"str$ #ased&
6oweer, that is all that the$ hae in terms of #"siness& .he$ grow food, and their econom$ depends on
selling the food to prosper& .he cr"el iron$ is that the$ hae #een "nceremonio"sl$ taken o"t of the free
market econom$ to sell their goods to richer nations& .ariffs and ("otas hae done their 9o# well,
making selling goods on the world market a process that makes p"lling teeth look like the easiest thing
in the world&
.he free market has #een that wa$ in name onl$& .he realit$ is that onl$ those who control most
of the free market are act"all$ free in it& J"st think if an :frican co"ntr$ like !ierra Deone traded
fre("entl$ with the ;,< !ierra Deoneans wo"ld hae more mone$ than the$ co"ld spend on a reg"lar
#asis& 6oweer, the ;, has so man$ trade #arriers set "p that !ierra Doeneans cannot afford to trade
with them, th"s forcing them to trade locall$, and limiting their earning potential&
Wh$ wo"ld the ;! and their allies do something like this< Most so"rces sa$ sec"rit$& .rading
with :frican nations, especiall$ in the midst of political t"rmoil co"ld lead to another world war& :lso,
:frican nations are not e5actl$ ho"sehold names& -or e5ample, $o" will "s"all$ #"$ a p"rse made of
0talian leather instead of leather made in !o"th :frica& .he #iggest motie is mone$, #"t what richer
nations don)t reali4e is that trading with :frican nations can act"all$ alleiate some of the pro#lems that
the$ face& When $o" hae an a#"ndance of land and reso"rces, $o" no longer hae a need to fight, and
conflicts can #e soled diplomaticall$, more or less&
Microfinance can)t swa$ the decision of a co"ntr$ that has #een doing something a certain wa$
for oer a cent"r$& '"t what it can do is proide a deeloping co"ntr$ with not onl$ the mone$ to #e
a#le to afford to trade, #"t the power to take control of their own lies, instead of #eing p"shed #ack
and forth into poert$ #ased on the decisions of a few, powerf"l nations&
0t :ll !tarts 6ere: Ed"cation and Microfinance
0f $o" are reading this #ook, then $o" alread$ know the al"e of a ("alit$ ed"cation& ?o" know
for a fact that witho"t one, $o" can #e st"ck in a sit"ation with no hope of getting o"t of it& Ed"cation,
or #etter $et, and a#"ndance of it, can onl$ add to o"r econom$&
;nfort"natel$, not eer$one has access to the same ("alit$ ed"cation& Een in deeloped
nations, we can see that certain nations hae an edge oer others, and th"s the more ed"cated $o" are,
the #etter standard of liing $o" can en9o$&
.ake :merica, for e5ample& : high school diploma is m"ch more ed"cation than $o" can get in
a deeloping nation, #"t in :merica, the mean salar$ for a high school grad"ate onl$ is 3EF less than
the mean salar$ for a college grad"ate, from a st"d$ done #$ the Department of Ed"cation)s @ational
Center for Ed"cation !tatistics& :ccordingl$, #ased on a st"d$ done #$ the ;! '"rea" of Da#or
!tatistics, there was an "nemplo$ment rate of 1G&GF among those with onl$ a high school diploma&
:mong those with a college a degree, the "nemplo$ment rate was H&IF& .he iron$ is that een with a
college degree, in :merica, we still rank #elow co"ntries like @orwa$, !weden, and Japan in terms of
ed"cation, and accordingl$, we hae a lower standard of liing& .he lower $o" go down the ladder, the
worse the standard of liing gets&
Det)s take a co"ntr$ like Ethiopia& Ethiopia is a third world co"ntr$ on the east coast of :frica,
and it is needless to sa$ that the$ are in need of a #etter ed"cational s$stem, #"t for the sake of proof,
here are some facts& 0n the $ears 233H+2311, a st"d$ from ;@0CE- showed that E2&AF of Ethiopian
children who were of age attended primar$ school& 0n those same $ears, the same st"d$ showed onl$
1IF of Ethiopian children of age attended secondar$ school& .ranslation: onl$ 1IF of Ethiopian
children went past the si5th grade&
.he preio"s section was aimed at what we need to get rid of in order to promote economic
growth, deelopment, and s"staina#ilit$& @ow we foc"s on what dries those things& Ed"cation is the
onl$ one worth noting, #eca"se the others are onl$ possi#le when things like disease and political
corr"ption and nominal freedom are no more& While it is not e("al among nations, it is to #e noted that
ed"cational competition sparked o"ter space trael, one of man)s greatest innoations, #ack when the
;nited !tated and the former ;!!R were in competition& Ma$#e that same fire with ed"cation will
spark a race to end poert$ once and for all&