Micro-financing: Poverty, Money, and Love

The issue of poverty is known to everybody, but not everybody tries to make things change. Jessica Jackley, a co-founder of Kiva microfinance group and CEO of ProFounder entrepreneur platform, caused a small sensation by her passionate clip “Poverty, money – and love” on TED Talk back in 2010. She confessed that she was scared of poor in her youth, making donations more as if to pay off the debt to her consciousness. After hearing about the microfinance concepts of Muhammad Yunus, the well-known Bangladeshi banker and Nobel Peace Prize winner, Jessica has decided to follow in his steps. She has visited three of the poorest African countries, providing loans to people who wanted to start the entrepreneurship but lacked even small start capital. The loans were rather insignificant by the standards of the industrial world; yet, in a very short time the lives of her borrowers started to change dramatically.

The peoples’ stories are in the center of Jessica’s message. The “love” in her speech refers to what individuals and societies can do if they want to help poor in a more substantial way than giving donations. There is a difference between the impersonal donation and the loan to an individual who perceives this loan as a life-changing opportunity. Unlike the humiliating donation, micro-loans can liberate people from their life-sentence of poverty. However, there is a question about the solution’s universality. Jessica mentions that in three years of Kiva operations the micro-loan audience has grown to represent 200 countries. With all due respect to her very humane and noble intentions, especially after seeing her genuine tears as she spoke, one could argue about the diversity of the micro-financing around the world.

Microloans definitely work in a majority of African states, exactly in a way that Jessica has described in her presentation. However, the African share is small among those 200 countries. Most of them have a well-established social and political structure of the capitalist, socialist, or communist types.

For the purposes of this essay the communist and socialist government systems do not differ much. Both run the countries within the boundaries of a planned economy, both impose strict control over the private entrepreneurship (or prohibit it completely), both tend to monopolize all the state’s financial institutions. Moreover, there are no countries that could be explicitly defined as socialist or communist since they combine features of both systems, sometimes incorporating even some of the capitalist approaches. The last is evidenced by modern China, which is profoundly communist but surreptitiously allows and even encourages the private entrepreneurship.

The micro-financing in a sense of Jessica’s “love” stories is impossible in communist countries. First, they either do not acknowledge the very existence of poor in their “classless” societies or appear to be fighting the poverty by methods that do not encourage micro-financing in any form. Second, the private entrepreneurship is most commonly prohibited in communist countries. Even if the loan is taken, it cannot be used to fund any alternative to the state-owned businesses. Third, the state regulations of any financial activities would make impossible operating the privately-owned microfinance company. In the unlikely case that the license will be issued, total control over the population will make the micro-financing pointless. In a more realistic scenario, communist governments would seize the opportunity to fill the micro-loans niche with some form of a state agency. If the bureaucracy level is reasonable, people could use the microfinance products as a regular bank loans.

Of course, capitalist countries are much more liberal and supportive of the entrepreneurship. Market economy does not need the government to intervene as long as the financial mechanisms work in a self-regulating way. However, the scope of the microfinance operations cannot cover the entrepreneurship funding in the majority of established capitalist countries. The shared economic space implies universally high starting costs that are well beyond the micro-loan volumes. People still can take micro loans in order to survive the temporarily unemployment or pay for some immediate needs. However, the full value of the micro-financing as Jessica has described it is unreachable in the capitalist world too.

The poorest African countries and a number of similar states around the world form the unique group of rapidly developing societies. Whatever their governments name themselves, these countries can be neither communist nor capitalist yet, as they often waver between democracy and totalitarian style of the governance. Such countries are geographically distant from the more developed parts of the world, which makes it easier to maintain the low level of prices and salaries. Obviously, this group of countries can benefit from the microfinance operations most. Potential entrepreneurs will take loans in order to purchase some tools or other commodities necessary to start the business. After the repayment of the initial loan they are likely to borrow again as the business grows.

Therefore, the micro-financing does not constitute the universal “love” formula in a sense suggested by Jessica Jackley. Surely, it is good to believe that you change people’s lives. There are no doubt at all that Jessica has tried sincerely and wholeheartedly to help all poor in the world. However, the micro-finance in essence is yet another commercial product designed to produce the revenue. And let’s face it: there are poor that will never give up hoping for the donation rather than trying to influence their being in some other way. And there are poor that will never ask for the donation, struggling to get away from the poverty. The last should be grateful to Jessica for her genuine help.