Blog 5: Microfinancing

Question 1

In their book Poor Economics, Banerjee and Duflo explain the arguments for and against Micro-credits. Micro-credits are defined as credits, savings, and insurance opportunities that are targeted at low-income people.

In the argument supporting micro-credits as beneficial, the authors give the example of Mohammad Yunus, the founder of the micro-finance organization Grameen Bank in Bangladesh. The bank gave the poor the opportunity to become entrepreneurs. The key word here is opportunity because many of the poor have the ability, just like any other human being, to become a successful entrepreneur. However, one of the main ingredients the poor are missing when it comes to success is opportunity.

The micro-finance organizations provide the ingredients to opportunity by providing cattle for farmers or providing literacy classes. From these tiny investments, the poor are able to end up with more business assets and more money. In my opinion, this would coincide with the poverty trap argument and that microfinance organizations are helping these people out of the “trap”.

On the opposing side of micro-credits, however, are two issues: the problems that many of the businesses operated by the poor are tiny and that they do not make that much money. The overall issue from this is that microfinancing might not be sustainable.  For example, the small business might look successful when it is in a small village, but it looks unsuccessful when every small village in a 5-mile radius has an identical business.

This thought leads to discouragement and only a short-run benefit. The truth is that the poor only own small businesses and it would be nearly impossible to see a mass exit of poverty from microfinancing.

Question 2

The micro credits in Malawi are mainly reserved for women. It is all about access in Malawi, and the microcredits give access to the country’s bank for the poor. The organization has satellite destinations in remote villages throughout the country so that access to loan repayment is made easy.

I think directing majority of the microcredits towards women is a great idea. In every single country in the world, women have less opportunity than men. This is true especially with impoverished communities. I think women raise and empower the next generation, they do not get nearly as much credit as they deserve. I think giving opportunity to the most vulnerable populations can be really beneficial. It is all about giving people a chance.

(source: http://www.thp.org/our-work/where-we-work/africa/malawi/microfinance-economic-activity-malawi/)

Question 3

Many of the microcredits are being used to fight hunger in Malawi. They are being invested in irrigation projects so that when the droughts come, there will not be a famine to come with it. Additionally, other projects using micro-financing are ones involving

livestock and petty trade.

(Source: http://www.thp.org/our-work/where-we-work/africa/malawi/microfinance-economic-activity-malawi/)

 

Question 4

Although countries like China and India have made tremendous progress in recent years, it is shocking to me how many countries are falling far behind the 1^st SDG goal of  ending extreme global poverty. The severely off track countries (SOTC) are mainly found in sub-Saharan Africa. I think the reason for them falling so far behind is because the countries are not getting the help they need.

In these SOTC countries, neither the top-down nor the bottom-up methods are working. What I mean by this is that the government bureaucracies are weak and corrupt (top-down) and most of the countries’ market systems run off of private markets (bottom-up). Therefore, those who want to help cannot do it by the same way western societies do: either changing the government bureaucracies or stimulating the market.

(source: https://www.brookings.edu/blog/future-development/2018/02/13/the-road-to-ending-poverty-runs-through-31-severely-off-track-countries/)

This, in my opinion, is where the problem lays. I think developed countries want to help, but don’t know how and developing countries want help, but struggle in figuring out how to use the help. In the SOTC countries, there needs to be a way to help that caters to the individual needs of each village/country. Otherwise, I think trying to go from the bottom-up or the top-down will lead to the SOTC countries to keep falling father and farther behind.

Question 5

According to the World Bank, digital technology is being used in Africa to transform Africa’s food system. Digital technology entails anything that uses the internet or code, so, for example, it would be telephones, computers, machines,etc.

Digital technology is helping with agriculture in three ways

1. Helping farmer’s access to capital: They can now rent equipment by using their phones
2. It opens a new ecommerce platform: it allows the smaller players in agriculture to become integrated with the larger scale farmers.
3. It helps with food sustainability: Digital technology helps with providing information on land, soils and other resources so that they will be able to treat the land appropriately.

With hunger being a major issue in Africa, digital technology is making strides that could not be made before.

(Source:  http://blogs.worldbank.org/ic4d/how-can-digital-technology-help-transform-africa-s-food-system)