Most of the people living below the poverty line in many parts of the world do not have access to essential banking services to assist them in administering their basic assets. Effective management of even the most fundamental possessions like livestock can be vital for such individuals, who live in substandard conditions, lack adequate income and food. In order to break the vicious cycle of poverty and hunger, they need to have access to credit facilities, be able to save a portion of their earnings and invest this amount. However, as they have no collateral, traditional financial institutions are reluctant to offer them loans. In such circumstances, microfinance institutions play a vital role in extending loans to this vulnerable section of society to enhance their financial and living standards.
Microfinance Loans – A means to fight poverty
Joe Johnson Mercy Foundation is popular non-profit organization in the United States that works in association with other charitable institutions to eradicate poverty in developing countries. The foundation offers financial assistance in the form of microloans to the economically vulnerable sections of society in these parts of the work to become self-sufficient. Unlike similar organizations, it does not raise the money it needs to carry out such activities from public donations. On the other, the members of this foundation approach corporate enterprises and persuade them to sell their commercial properties that they cannot utilize effectively to generate revenue. The price for the transaction both parties agree to is normally less than the fair market value of such real estate. This enables these companies can claim the difference as a tax deduction rather than being liable to pay huge capital gains tax if the sell such assets under the normal course.
The managerial personnel of this foundation say microfinance institutes play a critical role in combating poverty and enhance the economic standards of the poorest of the poor. They go on to explain that such financial organizations benefit developing nations in the following important ways:
- Allow individuals to provide better facilities to their families
The credit facilities that microfinance institutes provides to people living below the poverty line give them the buoyancy to start entrepreneurial ventures. Through the efforts of their commercial activities within their communities, they have the ability to overcome any adverse economic circumstances.
- Empowers the vulnerable sections of society
In most developing countries, a vast majority of the people receiving credit facilities from microfinance institutions are women, people with no employment and disabilities. This helps these vulnerable sections of society take control of their lives by giving them a chance to become self-sufficient.
- Provides an opportunity for children to receive an education
Children who grow up in poverty often miss the opportunity to go to school because they have to help their parents earn a livelihood. However, by offering microfinance loans to people in such circumstances, give them some sort of funding where they can improve their economic situation. This enables them to help to give their children an education.
- Creates job opportunities
Microfinance loans help small entrepreneurs and businesspersons create opportunities for other vulnerable members of their community to find work and earn a living.
The members of the Joe Johnson Mercy Foundation explain that efforts of microfinance institutions benefit developing countries in their fight against poverty due to the above factors