Conclusion

Conclusion

Microcredit is a step in the right direction for the war against poverty. Microcredit provides small short terms loans to people living in poverty who do not have access to traditional credit. By doing so, it gives these people and their families a chance sustain themselves more comfortably or pull themselves out of poverty. There are weaknesses to the success of Microcredit on both the lending and borrowing sides, but this model has proven it can be effective in decreasing poverty.

The problems with microcredit lies in the sustainability of microfinance institutions (MFIs), ineffectiveness of loans, and in its inability to solve structural poverty problems. On the lending side, many MFIs, like Grameen, rely on subsidies to stay out of the red, as there is a thin profit between transaction costs and revenue. Out of almost 25,000 micro-lenders in Guatemala, 300 have become financially stable. There is a problem with maintaining the steadfast approach of the MFI's. On the borrowing side, loans are not always effective. Loans can be easily misused to buy consumer goods instead of being invested into micro businesses, few people climb out of poverty with the success of their micro businesses, and many borrowers get stuck in debt. In all of these cases, these loans are not effective in pulling people out of poverty. Microcredit also does not solve the problems of structural poverty. The infrastructure problems associated with poverty, access to water and sanitation, are not solved by microcredit. The government needs to build and implement policies that would deal with these infrastructure problems. These are some of the main arguments against the value of microcredit in fighting poverty. They are all worthy points, but there are also signs of microcredit’s success.

Microcredit is not a perfect solution, but it does have success stories. There are 3,133 microcredit institutions who have reached 116 million clients, according to a 2005 statistic from the “Global Micro Credit Summit.” Sustainable MFIs do exist. There are also success stories like Georgina Gutierrez, Susan Wangui, and Nazimunisa. These women were able to pull themselves and their families out of poverty by receiving microcredit loans. A statistic from the Micro Credit Summit claims that 410 million family members have been positively affected through microcredit. These successes stand as testimony that microcredit does help bring families out of poverty.

Microcredit has flaws and strengths. It is definitely not going to solve the problem of poverty, but it is a stepping stone in that direction. While the sustainability of these MFIs is a problem, the main thing that controls its success is how effectively loans are used. Loans are successful when they are invested wisely into micro-enterprises, which then must be run well in order to produce profits. The people, and mainly women, who can put these loans to good use, are going to be able to live more comfortably or rise out of poverty. Microcredit has and is going to help people with the ability to spend money wisely, run a small business well, and have a good market place for their goods. Microcredit falls short by not controlling how the money is spent, enhancing the ability for more families to run successful businesses, creating better marketplaces for goods, or other things of this nature. Its success stories illustrate it is a positive part of the fight against poverty.