First Name:
Ivey
Last Name:
Gaskin
Major Department:
Finance
Thesis Director:
Chris McNeil
Date of Thesis:
May 2010
Currently, 1.4 billion, 1 in 4 individuals around the world, live below the internationally defined poverty threshold, set by the World Bank, of $1.25 a day. Non-profit and philanthropic organizations around the world continue to struggle with the complexity and enormity of poverty as they attempt to eradicate it. Within the past thirty years, a movement led by one particular innovator, Muhammad Yunus, has made great strides towards a possible solution known as microfinance. Microfinance offers basic financial services such as loans, savings, and micro insurance to the poor based on accountability instead of collateral.
While working in Bangladesh in 1974, where 80 percent of the population lived in poverty, Yunus realized that a lack of credit was keeping the poor locked in a cycle of indebtedness and poverty. As an act of kindness, he lent a small amount of money to a group of stool makers to assist them in purchasing additional raw materials to make and sell more of their product. He received full repayment from these women in a timely manner, and realized his small favor could be developed into a system of making small loans. In 1983, Yunus chose to found the Grameen Bank to make credit available to those who were deemed "unworthy" for traditional credit. The Grameen bank began gathering individuals into groups to take out loans build their businesses and improve their financial position. Borrowers were required to repay their loan with interest and contribute to savings in order to get another loan. As a result of their achievements, Yunus and Grameen were awarded the 2006 Nobel Peace Prize for "for their efforts to create economic and social development from below."
The eight original Millennium Development Goals (MDGs) were established in 2000 to halve the number of people living in poverty by 2015. The MDGs were approved by 189 nations and are being pursued by the world's leading economic development institutions. According to the 2009 MDG Progress Report, global efforts proved successful from 1990 to 2005 by decreasing the number of people living on less than $1.25 a day decreased from 1.8 billion to 1.4 billion. Microfinance Institutions continue to be used as a catalyst in this effort to improve the standard of living of borrowers for over 30 years. However, the question remains, is microfinance a successful means for poverty reduction in developing countries?