Micro Financing Schemes & Foreign Aid

When we think of foreign aid in general, it is easy to assume that most aid comes in forms of money; money that is used to build schools, feed the hungry, or provide water. However, donor governments can provide aid through other ways such funding microfinancing programs.

According to Lee Rhiannon’s Blog, Foreign Aid Needs to Help Them, Not Us, governments such as the Australian government has provided funding to the Micro-enterprise Development Program MEDP which ‘helps’ poor women in rural Nepal gain access to lines of credit. This means that women are able to apply for loans, and use the money according to their own needs.

Who is Actually Benefiting?

Women in particular are thought to be benefiting the most. Lee Rhiannon makes a connection between micro financing and women’s empowerment. According Rhiannon, it has been suggested that micro financing schemes in developing countries provide women with more power and flexibility at home and in their communities. They no longer have to rely on anyone for money, and can instead start their own business and become self sufficient, and at least have poverty eradicated.

Overall, micro-financing is geared help to people gain access to money in hopes of investment into the local economy. This way individuals have money to pay for what they need and at the same time individuals selling products can make profit. However, money does not solve everything. It seems more likely that micro financing will feed into the commercial interest of both the donor and recipient governments.

The Problem

People in developing countries may take out micro-financing loans, but still find themselves in difficult positions. This is because, pouring money into people's hands does not address the underlying issues of poverty. What good is it to give out loans to people that may not be able to pay them back? Not to mention the interest rates that add on to the total balance?

Three possible issues to think about:

1. What good is it to have money for crops if people have no knowledge in agricultural practices?

2. How can people create businesses to get out of poverty if members of the community do not have the means to purchase goods and services?

3. How will business thrived if there is a lack of skilled labour?

4. Will women have access to the tools and partnerships necessary to build a strong business?

World Vision Micro

Still, not all micro loans are bad. Take for example World Vision Micro Finance.

Benefits of World Vision Micro FInance

1. World Vision is a reputable non-profit organization

2. 98% loan repayment rate

3. Microlending Cylcle: One loan can help multiple people. Once the loan is repaid , the micro loan capital remains the the entrepreneurs comunity so that another local entrepreneur can use it.

Unlike regular microfinancing organizations World Visions uses microfinancing to supplement their programs and initiatives. Take for example their World Visions initative to improve farming and agriculture:

Together, microfinancing and aid programs provided by world vision in communites of developing countries can provide individuals wth the means and training to maintain a small agricultural business.

In the end loans are not 100% useless, It all depends on how the organization is using the money. Governments should reconsider their aid partners and instead award money to NGO's that provide people, especially women and children with the tools and education necessary to improve their lives.

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