Extreme poverty

There are approximately 847 million people living in extreme poverty – defined as living on less than $3 a day by the World Bank. Extreme poverty is an inability to meet even the barest of basic needs, typically characterized by food insecurity, having few or no assets, lacking access to education, and suffering from poor health. Often chronic and intergenerational, extreme poverty creates a trap that is incredibly difficult to escape.

Ending extreme poverty

Eradicating poverty is the first United Nations Sustainable Development goal. While there are many approaches to eradicate poverty, one particularly successful approach is to provide the very poor with access to capital.

Across the world, people living in extreme poverty are disproportionately excluded from access to formal financial systems and meaningful financial capital. These “unbanked” people have no checking, savings or mobile money provider accounts, no access to financial products like insurance, loans or mortgages, and no protection for their money from theft or loss.

Good news

The good news is that over the last decade, global financial account ownership has risen from 51% of adults in 2011 to 79% today — representing hundreds of millions of people newly brought into the formal financial system, with mobile money playing a transformative role. Financial inclusion — providing access to savings, credit, and insurance to underserved populations — can help people manage risk and invest in their families. Evidence shows microfinance contributes meaningfully to poverty reduction at the macroeconomic level, though the path out of poverty is rarely as direct as simply starting or expanding a business.

Yet, even with this decade of success, the demand for capital can not yet be met by the existing banking systems. This is where microfinance organizations such as WorldWise Microfinance can make a huge difference.

Muhammad Yunus and microfinance

In 2006, Muhammad Yunus won the Nobel Prize for his practice of providing small loans to the very poor. He founded the Grameen Bank to develop this area of “microfinance” and created a microfinance banking model used by organizations across the world, including WorldWise. The Grameen Bank model utilizes three important aspects that ensure success:

1. Loaning to women

The vast majority of households suffering from extreme poverty are headed by women. Women are often marginalized by society and lack opportunities to improve their family’s quality of life. The Grameen Bank targets women for three reasons.

Women more typically engage in the type of economic activities that microcredit institutions invest in;
Women are more likely to reinvest their loans to better their entire family;
Finally, women are more reliable borrowers and they are more likely to use their loans productively and repay them promptly.

2. Group lending

Lending groups are used in place of collateral (because most loan recipients lack collateral for a loan). Lending groups create both support in the development of the business and peer pressure to pay a loan back. No member of a lending group may receive a subsequent loan unless all members have paid back their previous loans.

3. Loan support

Borrowers are provided support and education by our local partners on how to become financially responsible, make repayments, and successfully establish and grow a business. Repayment rates are very high because of the instruction provided to loan recipients by our local partners. All of our partners have previously established themselves as credible organizations within the communities, and thus loan recipients accept direction and instruction from them.

Microfinance Theory