How do we know it will work?

By providing the poor credit, microfinance helps empower families to work their way out of poverty. Research shows that access to small amounts of credit - with reasonable interest rates instead of the exorbitant rates charged by traditional moneylenders - helps the poor to create or grow their own self-employment projects, which in turn helps them to build their income.

United States Public Law 106-309, passed by Congress and signed into law in 2000, entitled the `Microenterprise for Self-Reliance Act of 2000', begins with the following findings and declarations:

  • "According to the World Bank, more than 1,200,000,000 people in the developing world, or one-fifth of the world's population, subsist on less than $1 a day. Over 32,000 of their children die each day from largely preventable malnutrition and disease."
  • "Directly aiding the poorest of the poor, especially women, in the developing world has a positive effect not only on family incomes, but also on child nutrition, health and education, as women in particular reinvest income in their families."
  • "The poor in the developing world ... generally lack stable employment and social safety nets. Many turn to self-employment to generate a substantial portion of their livelihood. "
  • "These poor entrepreneurs are often trapped in poverty because they cannot obtain credit at reasonable rates to build their asset base or expand their otherwise viable self-employment activities. Many of the poor are forced to pay interest rates as high as 10 percent per day to money lenders."
  • "The poor are able to expand their incomes and their businesses dramatically when they can access loans at reasonable interest rates."
  • "Through the development of self-sustaining microfinance programs, poor people themselves can lead the fight against hunger and poverty."
  • "Nongovernmental organizations, such as those that comprise the Microenterprise Coalition (such as the Grameen Bank (Bangladesh), K-REP (Kenya), and networks such as Accion International, the Foundation for International Community Assistance (FINCA), and the credit union movement) are successful in lending directly to the very poor."
  • "Microenterprise institutions not only reduce poverty, but also reduce the dependency on foreign assistance"
  • "Interest income on the credit portfolio is used to pay recurring institutional costs, assuring the long-term sustainability of development assistance."
  • "In the efforts of the United States to lead the development of a new global financial architecture, microenterprise should play a vital role."

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