Monday, November 15, 2010

Reflection (Week #12)

I found last class' discussion about poverty and the differences between various philanthropic organizations, specifically the differences between organizations like “World Vision” and “Kiva”, very interesting. Although there was significant discussion regarding the flaws of single-gift donations through organizations such as “World Vision”, there were very few negative comments about micro-finance. I found this strange considering that the effectiveness of micro-finance in severely impoverished areas is strongly debated. Personally, I think all of us, myself included, gave unjust glorification to the idea of micro-financing in class. Although, micro-financing is, in my opinion, more effective than single-gift donations, I think its implications for development are limited.

On the surface, micro-financing appears to be a near perfect idea: provide a small loan to an individual in an impoverished area to help finance the creation of a small business and upon repayment of the loan recycle the money to help another individual lift themselves out of poverty. However, despite the fact that the ten largest micro-finance funds grew an enormous 32% last year alone, micro-finance is no where close to the be-all end-all of philanthropic donations that it appears to be. Apart from the the lack of empirical data on precisely how effective these loans are of lifting individuals out of poverty, the defining idea that enterprises are financed on a specifically individual basis is the intrinsic flaw in the the idea of micro-financing. Financing individuals to create extremely small enterprises often does not lift the individual out of poverty and is not a cost effective way help eliminate poverty within an entire population. Countries that have helped impoverished populations have never done so using micro-financing. It was done through the funding and development of large enterprises, which provided jobs and resources for a significant percentage of the population. For example, funding a garment factory rather than giving a loan to individual entrepreneurs to buy sewing machines is a far more cost effective way to both promote industry and create jobs. Therefore, we should be directing less of our money towards individual development, through either single-gifts our micro-finance, and more towards the development of large job-creating enterprises and general industrialization of impoverished areas.

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