Opinion > January 17, 2008

By Matt Hennessy | Guest columnist

Bill Gates in his 2007 commencement address to Harvard students said, “We can make market forces work better for the poor if we can develop a more creative capitalism – we can stretch the reach of market forces so that more people can make a profit, or at least make a living, serving people who are suffering from the worst inequities.”

Microfinance continues to empower the poor by allowing them to pull themselves out of poverty. By establishing credit with small sized loans, those who previously had little to no opportunity to accrue capital are now proving that, in fact, the poor do know how to pay back.

Extreme poverty continues to infiltrate our world as over one billion people live on the equivalent of $1 a day. That’s absurd. Mind-blowing to the point where the concept is truly difficult to understand for those of us who got that much money for losing a tooth when we were seven. Can one-sixth of the world really be that poor? Yes, and the impecunious of our world are subject to the deadliest diseases of AIDS and Malaria.

As privileged people of the world, we are wont to feel guilty when the opportunity to give back presents itself. But for me, that feeling, even if I was giving back, was never a good one. When someone would ask me donate money, I would go through the motions, begrudgingly empty the change in my pockets, knowing that immediately after it would be swallowed by the “good cause” never to be thought of again.

Then came Muhammad Yunus. This guy decided to open a bank in Bangladesh and issue loans turning just enough profit to offer new products encouraging more individuals to join. In 2006 he won the Nobel Peace Prize for his efforts. The greatest thing about it was it had nothing to do with politics. There was no controversy, no resentment, no Al Gore, and you were definitely not going to see any hackneyed Will Warren cartoons regarding the praise for Dr. Yunus. No liberals, no conservatives, just a banker to the poor.

His model was simple really. He decided to trust the poor by issuing uncollateralized loans to small groups of women. The penalty if you don’t pay back your loan?

Nothing, except for the fact that you won’t get a loan the next time around. Giving loans to people who have no education, no health care and little access to capital seemed like an unequivocally egregious error. Yet his investment paid off, and millions of poor people have the chance to purchase livestock, harvest their crop and pay for their children’s education, because trust has been injected into the place where it seemed least likely to exist.

The idea has taken off as we’ve seen a massive influx of microfinance institutions to developing countries, led by, among others, Wake Forest guest speaker Vikram Akula, Indian founder of SKS Microfinance. Financial powerhouses including JP Morgan and Citigroup have issued AAA-rated bonds geared towards the development of microfinance in these poor countries.

With massive debt accumulation and rampant epidemics in developing countries, microfinance is not the panacea to the world’s poverty crisis, but it is a legitimate revenue generating investment that helps individuals lift themselves out of poverty.

Critics will be quick to note the immorality of making money from the poor by charging high interest rates, but with terrible infrastructure and little technology in these countries, the benefits of microfinance far outweigh the local machete-toting loan shark charging 50 percent interest a week.

Living in Ghana this summer conducting research on the practices of theses microfinance institutions, I was privileged enough to see how these institutions unremittingly pledge to serve the poor. After contracting malaria and witnessing the destruction caused by widespread epidemics, I have felt a certain drive to understand the different methods geared towards empowering the poor.

The student-led group Students Working Against Poverty is dedicated to raising awareness about the various ways in which we can alleviate poverty.

For more information about how to get involved, please contact us at hennmm4@wfu.edu.