Put Your Faith in Microfinance

On June 1, former Deputy Defense Secretary Paul Wolfowitz became the next head of the World Bank. His mission: to end global poverty. The trouble is, few agree on how to go about it. So Foreign Policy asked five of the world’s leading development experts to offer Wolfowitz some free advice on getting the job done.

Clearly recognized today as the only efficient way to fight poverty, microfinancing provides poor people with badly needed access to credit. Typically, poor people have no property and, hence, no collateral. Without collateral, they have no means to secure a loan. So the entrepreneurial ability and ambition of poor people is blocked by their lack of access to credit. Microfinancing unleashes that entrepreneurial ambition by offering small loansnormally in the hundreds of dollarsas start-up capital at normal interest rates. The global repayment rate for microfinance loans is about 98 percent. These loans allow families to get out of poverty, send children to school, and finance healthcare costs. They also help poor people garner the resources necessary to defend their freedom and democratic rights.

Today, 10,000 microfinance institutions around the world serve some 80 million clients. The potential worldwide market for microfinancing is probably in the neighborhood of 800 million people.

Microfinancing is the most efficient and least expensive instrument for fighting poverty that Wolfowitz and the bank have at their disposal. By providing poor people with a necessary instrument of entrepreneurship, microfinancing is also the best way to foster free markets and democracy in the regions where that system is needed most.

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