There are billions of people around the globe who live below the poverty line. There are dozens of good reasons to help poor countries. Some countries do it for humanitarian reasons; others pursue diplomatic or political goals. The needs of poorer countries seem to be obvious. But one should first investigate the real needs of such countries before making any efforts to get rid of poverty and suffering, in order to implement the most appropriate solutions. Monetary aid is not actually the best way of supporting the destitute.
- First, aid in the amount of millions of dollars often oozes away, not reaching the recipient because of corrupt schemes or poor administration.
- Secondly, most international aid projects turn out to be unsuitable and inefficient for the target country. Agencies often begin large-scale industrial projects, failing sometime after or simply not involving local people. Afterward, the best part of aid often returns to the benefactor, for example, in the form of highly-valued specialized equipment.
How does microlending help communities?
Every day development organizations help billions of people, trying to pull them out of poverty. For many years, local governments received monetary resources intended for the poor. Funds were directed at diverse construction projects. Bridges, dams and roads were constructed with the view of improving living conditions of nations in need, those who appeared to live outside the world formal economy and remained dependent on charity. Lending funds to the lowest strata of society would seem too risky and inexpedient. The lenders could hardly expect the poor having no steady income to pay back the full amount of the loan. However, microlending proved that providing a small loan for starting or expanding businesses can become a push to the virtuous economic cycle. Furthermore, the advantages are beyond the interests of individual borrowers. The borrowers’ businesses generate new workspaces thus rising living standards of their communities. What is certain is that international trade is the obligatory condition to lift a country out of poverty. Trade is the key element for development of a nation. Studies have shown that borrowers typically use microcredit loans for the same variety of small-scale business activities and soon reach a ceiling level of the amount of profit they can gain. At that, microlending has exploded a myth that those on the bottom rungs of the income ladder cannot follow the basic trade rules. Indeed, microlending has proven that those people in poorer countries are capable of running a business on a par with qualified
How do savings services help poor people?
Savings services have been called the “forgotten half” of microfinance. Because of the lack of access to formal deposit services, the majority of poor people fall back on using informal savings mechanisms which tend to be rather risky: cash stuffed in a mattress can be stolen, flocks and herds can get ill. In most cases these kinds of inputs are also illiquid – it’s impossible to sell a cow’s leg to gain some cash. The poor not only encounter the problem of low pay but also cope with unsteady, irregular incomes. To help poor people to manage cash flow and risks, savings facilities deliver tools which can minimize their vulnerability. Savings fit in well when there is a necessity of money accumulation and their subsequent investment, or the meeting of future expenses related to both expected events, including weddings, and unexpected ones, such as sudden illness or funerals. [wpsocialite]