Microfinance: A solution to poverty?

My good friend, Jaime, sent me an article on Microfinance today from The New Yorker. Millions for Millions by Connie Bruck is long, but definitely worth the read if you are interested a solution to poverty.

Microfinance is the practice of extending small, small loans to the (very) poor, who can't normally qualify for loans. It allows them to start a business or otherwise enrich their lives. I initially learned about it while working at the Mercatus Center at George Mason University, and I have been intrigued ever since and, trust me, I don't typically get too excited about economics. Here's a great excerpt about an organization called Jamii Bora from the article:

Munro started it in 1999, and today it is the fastest-growing microfinance institution in Kenya. Munro is from Sweden and her husband from Canada, but they have lived in Kenya for the past twenty-one years. In 1988, they adopted a boy from the streets. “It was a small seven-year-old boy who more or less adopted us,” she said, chuckling. “And then we later found his two brothers and adopted them. With a situation like that, like in all great love stories, in literature and in real life, you are a helpless victim, you know?” Through her sons, she got to know other street children, and their mothers, who were beggars. She was the head of the African Housing Fund, which works with the homeless. “When I retired from the African Housing Fund, the beggars kept coming to my house and banging on the door, and they said, ‘You can’t abandon us now, Mum, you are our mother.’ So they really challenged me, and I said, ‘O.K., if you want me to do something for you, now you have to do something for yourself.’ I challenged them to save a little bit of money. ‘For every shilling you save, I promise, I will find somebody who will give two shillings, and then you can borrow twice as much as you’ve saved.’ ”

“The unique thing is, then, that it started with trust,” she said—sounding like Pierre Omidyar, her doctrinal opposite. “Also, I thought it was just a small club, a group of women I thought were very special. But, really, it grew like a bushfire! After a few months, we had to formalize it. We decided to call it Jamii Bora—jamii bora means ‘good families’ in Swahili. And that’s what we say—you can be very poor but you’re still a good family, and you still have the talent to get out of poverty.”

Munro started with a group of fifty beggars from the slums of Nairobi, and over the past seven years Jamii Bora has expanded to sixty-one branches, serving about a hundred and thirty thousand members; Munro aims to reach at least five hundred thousand by 2009. She says that she has stuck to the original idea, “that you can borrow twice as much as you’ve saved—which means we have a very strong foundation, because we have a lot of savings, and our members take very small risks.” Jamii Bora has received some grants, but it largely pays for itself. About a third of its borrowers are men. And nearly all of its staff members are former borrowers or their relatives.