Microfinance: Its Role in Alleviating Poverty & Contributing to Education

Written by Alyssa Vandenberg

Microfinance plays a key role in helping those around the world escape poverty. Microfinance is a system in which someone can lend money to another person through a microfinance institution, such as Kiva (kiva.org). With this money, impoverished people can now buy whatever supplies they need to help them earn a sustainable income. For example, if a woman who creates clothing to sell buys a sewing machine with the loan she receives from the microfinance institution, she will then be able to sew clothes faster than before, enabling her to create more clothes to sell and subsequently, earning more money.

With this new financial success, she not only can repay the loan, but also has a sustainable way to create more money than she did previously. Those who loan money through the microfinance institution receive back the money they loaned, and can now choose to re-loan this same money to someone else in need, or simply withdraw the money they loaned. Therefore, microfinance allows people to make a tremendous impact on the lives of others around the world from the comfort of their homes and without spending any money.

Microfinance institutions thus not only help alleviate poverty, but also financially empower those who participate in the system. Not only do those who receive loans now have more money to put towards food, clothing, and general household needs, but those who participate in microfinance programs through receiving loans are more likely to place an importance on education for their children. In poor families, parents are likely to discourage their children from pursuing education, as they neither have the financial means to send their kids to school, nor can afford to lose the labor productivity their children provide. However, once a family starts to earn more money after receiving their loan, education can become more of a priority. Thus, financial empowerment not only leads to families creating a stronger source of livelihood, but also often is the reason that children are able to attend school, and thus break the cycle of poverty.