A Little Goes a Long Way: How Microfinance Effects Women in Poverty

In 1976, a twenty-seven dollar loan radically changed the lives of forty-two impoverished women in the village of Jobra, Bangladesh. The financier, Dr. Muhammad Yunus, an economics professor at a nearby university, was astonished to find that his meager investment enabled the women to avoid the usurious loans offered by greedy moneylenders and buy enough supplies of bamboo to make and profitably sell stools in their marketplace. Encouraged by the results of this economic experiment, Yunus formed the first microfinance institution, Grameen Bank, based on the idea that the poor could use credit to lift themselves out of poverty. Over the years, the bank has lent more than $900 million in the form of small loans to seven million people and its success is undeniable: 98.4% of loans have been repaid and 64% of borrowers have left the poverty bracket. In 2006, Yunus received the Nobel Peace Price (see photo at right) for his efforts, which have motivated, to date, over 3,000 economic and political institutions worldwide to experiment with microfinance. This trend has even expanded into mainstream investment channels with last week's lauch of MicroPlace, an eBay sponsored website that pairs everyday investors with impoverished individuals. While microfinance is surely not the only viable poverty solution, its use of simple financing principles has helped citizens of developing countries, especially poor women, to take control of their own economic and social situations.

Historically, women in most nations have been excluded from the market economy and forced to work in the home, while cash income was generated by their husbands. Although these gender roles have significantly changed in developed countries during the last century with the expansion of women’s rights and economic power, poorer, less educated nations have not similarly advanced. Of the 1.8 billion people living in extreme poverty, seventy percent are unemployed women who have little hope of finding good work in their male-dominated societies. However, microfinance organizations have begun to attract these jobless women by offering loans that fund self-employment endeavors—currently, 84% of borrowers are women hoping to find financial success in some little market niche. Although the lack of education and the size of the loans often inhibit entrepreneurs from pursuing fancy schemes, home-based businesses and street vending have flourished in informal economies, enabling women to save and invest small amounts of money. For example, Auxiliadora Soza (pictured below), a single mother from Diriamba, Nicaragua, with the help of microfinance organization FUNDESER, was able to start her own cheese stand ten years ago in the local market with a $250 loan. Since then, she has taken out and fully repaid ten different loans and has grown her inventory to include other food items and makeup. With the money earned and saved, she has financed her five children’s educations and today, the two eldest are professionals while the other three are college students.

Soza’s accomplishments are not uncommon in the world of microfinancing. For many women it would have been near impossible to start profitable businesses or educate their children without loans provided by different organizations. However, as much as women are dependent on microfinance institutions for money, the success and longevity of such programs are direct results of women’s responsible financial management. Statistically, women are more likely to save and repay their loans on time than men, and according to Mary Ellen Iskederian, head of the nonprofit organization, Women’s World Banking, “women tend to invest in three things: health, their children’s education, and their home while men, on the other hand, put more back into the business.” Business reinvestment is an intelligent economic decision, but the factors that really work to end the cycle of poverty on a micro level are changes in the home. A greater disposable income increases the ability to purchase more expensive food items such as meat and milk, ensuring better nutrition and longer life expectancies. And, educated children are more likely to enter the professional workforce and make a steady income. The Global Campaign for Education reports that “just one year of schooling increases a woman’s future earning potential by 10 to 20%.” If the profits made from the short-term loans are wisely reinvested in the home, they can provide years of valuable, long-term returns.

Despite its recent success and popularity, not all economic experts are convinced that microfinance is the key to effective poverty eradication. Critics point out its inability to foster broad development, as it focuses on improving community, rather than national, economies. Michael Strong, founder and CEO of pro-entrepreneurial organization FLOW, says that microfinance represents a great effort in improving living standards, but “is often promoted at the expense of multinational and corporate investment” that are needed to expand developing nations’ economies. Studies conducted by the World Bank further indicate that microfinance is not a panacea solution to poverty and that infrastructure development of better roads and bridges is a more effective long-term investment. All these are valid counterarguments, yet they ironically focus too much on the big picture. Of course, world poverty is far too complex of a social problem to merit one solution, but the appeal of microfinance lies in its ability to reach out on an individual level and actually change lives. Each story of personal success echoes this concept and substantiates the use of microfinance in developing nations. And, whether economists admit it or not, providing poor women with access to capital, savings and education, are truly macro results.

History Repeats Itself: Why Slavery Still Exists in Today's World

In 1807 the transatlantic slave trade was abolished, terminating the forcible shipment of millions of Africans to the United States and Caribbean to work on sugar and cotton plantations. Now, two hundred years later, many regard slavery as an institution of the past, a product of a bygone era of unspeakable injustice and racism. True, long gone are the days of legal enslavement and masters of southern mansions; however slavery has managed to escape the confines of history and still shockingly exists today in the form of human trafficking. Essentially, trafficking occurs when men, women or children are illegally transported to other countries often upon the promise of a job or better life, and coerced into labor or sexual exploitation. From Uzbeks sold as compulsory laborers in Russia to Nepalese women and girls forced into a life of prostitution in India, modern-day slavery is present internationally (see map at left) and has been reported in over 100 countries. While human trafficking has undoubtedly developed into a complex, global issue with major political and social implications, it is predominantly instigated by economic problems in developing countries that create a steady supply of potential victims.

In terms of supply, poverty is often referred to as the major contributing or push factor that leads victims to accept the fraudulent offers from traffickers or sell family members into slavery for meager amounts of money. While both are unthinkable options, the underprivileged rarely have much choice in the matter. In rapidly developing nations such as India “seventy-seven percent of Indians—about 836 million people—live on less than fifty cents per day,” which is well under the extreme poverty limit of one dollar per day set by the World Bank. Furthermore, according to the International Labor Organization (ILO), this situation is caused by low wages rather than unemployment. The ILO maintains that the most common misconception about poverty is that the poor do not work and cites regional rates of unemployment as evidence. South Asia, for example, is one of the poorest areas in world, yet its unemployment rate is only 4.8 percent while in comparison,the United States' is 5.1 percent. Clearly, employment in developing countries is not the problem—compensation is. The prospect of a well-paying job in another country is enough to lead the naïve straight into the trafficking trap.

Moreover, in these poor countries, the poverty situation is often aggravated by wars, natural disasters or civil unrest which inflates the supply of economically vulnerable people. The U.S. Department of State’s Trafficking in Persons Report describes dramatic increases in rape, sexual abuse, kidnapping and trafficking in the countries devastated by the 2004 Indian Ocean tsunami. In the aftermath of the disaster, “thousands of orphaned children were vulnerable to exploitation by criminal elements seeking profit from their misery.” A similar effect is presently occurring in war-torn Darfur where thousands of women and children, in hopes of escaping the violent conflict, have found themselves victims of horrendous trafficking by virtually all armed groups involved in the Sudanese civil war. The Lord’s Resistance Army, one of the rebel organizations, is “estimated to have abducted over 16,000 children,” and forced them to work as servants, cooks and even soldiers (see photo at right) in the neighboring countries of Uganda and the Democratic Republic of the Congo. Evidently, these kinds of political and environmental calamities that plague developing nations have increased the number of impoverished people and facilitated human trafficking.

However, the aforementioned supply factors that cause poverty are not the only economic instigators in the trafficking issue. As any elementary course in economics would teach, a market for a good is created from supply and demand for the product, and is perpetuated if the product is profitable. The market for human slaves is no exception to the rule. The criminals who run the trafficking rings would not be involved in the business if there was no demand for the products they offer and no profit potential, but clearly this is not the case. Demand for cheap labor and prostitution remain high in developed nations such as the U.S. and the E.U., where labor costs are a company’s greatest expense and paying for sex is outlawed. To meet these needs, 600,000 to 800,000 people are annually trafficked across national borders creating a lucrative $32 billion dollar black-market industry. Still, trafficking could not exist without the supply push factors from developing nations. If the economic situations in these countries were desirable, fewer people would be baited by the false promise of a better life or job elsewhere and the industry would dwindle without a pool of victims. In order to reach the point where trafficking is no longer a threat, world leaders and organizations must work with struggling nations to create better domestic job markets, ensure higher wages and educate citizens about the dangers of trafficking. These endeavors will not only work to eliminate the supply, but will help to finally create the slave-free world that was envisioned in the early 1800s.

The Chinese Export Crisis: Consumer Demand for Cheap Imports Backfires

Barbie Dolls, Polly Pockets and Hot Wheels will probably not be filling up children’s stockings this holiday season. Last month, Mattel, international toy company and producer of the aforementioned playthings, was forced to recall millions of toys manufactured in China that contained lead paint and hazardously small magnets that children could swallow (see picture at right). This announcement came at an inopportune time for Mattel, which consequently released a dismal third quarter forecast, and more so for Chinese manufacturers who have been chastised all year for their faulty, unsafe products. From toxic shrimp to contaminated toothpaste, one scandal after another has besieged China’s export-based economy, leaving American consumers both worried and incensed. In fact, a Reuter’s poll, released September 19th, reported that “around 78 percent of Americans worry about the safety of Chinese imports, and a quarter have stopped buying food from China.” While these fears are well founded, most customers are too occupied with blaming the U.S. and Chinese corporations to realize that, ironically, consumer demand for inexpensive products is a significant part of the problem.

The development of outsourcing to meet demand for cheap goods, has greatly contributed to the import issue. By employing inexpensive overseas labor, large corporations such as Mattel, General Motors and Safeway have been able to reduce overhead costs and pass off these savings to their customers in the form of cheaper items. In fact, according to the latest U.S. Bureau of Labor Statistics report, the average Chinese wage is $0.57 per hour—or $104 per month—which is about three percent of the average U.S. manufacturing worker's wage. While these figures may be good for U.S. companies’ bottom lines, the blatant disparity illustrates China’s alarming lack of enforced labor laws. Chinese employers have hardly any repercussions if employees are mistreated or underpaid and sadly, more often than not, U.S. companies choose to overlook this fact in the pursuit of profits. Peter Morici, a former chief economist at the U.S. International Trade Commission, claims that China’s "tilted trade balance" with the U.S. has allowed Chinese manufacturers to act undisciplined. “Beijing,” he says, is "letting manufacturers do whatever they want without regulation to the point that it borders on atrocities." The absense of accountability allows Chinese businesses, which are strapped for cash, to cut the corners in their manufacturing processes in order to fulfill the demands of their U.S. employers. Often, this ultimately results in a shipment of faulty, unsafe goods.

Furthermore, once these imports land on American soil, entities like the United States Food and Drug Administration (FDA) are responsible for inspecting the items. This, however, has become nearly impossible due to the sheer number of products entering the country. Currently, the U.S. trade deficit is absurdly high at $59.2 billion dollars (see graph at left), but this figure is solely the difference between imports and exports. The actual amount of goods and services coming into the country is close to $2 trillion per year. Thus, it comes as no surprise that the FDA or the U.S. Consumer Product Safety Commission can only regulate two percent of all imported products, and it is unlikely that this figure will increase anytime soon—hundreds of new agencies would have to be formed requiring unrealistic amounts of personnel to complete the inspections. Consequently, deficient goods often pass through the substandard checkpoints, make their way onto store shelves, and ultimately land in the hands of unassuming shoppers. It often takes a tragedy to remind consumers that the cheap goods they regularly purchase are sub-par.

Of course not all inexpensive imports are of poor quality and consumer demand is not the only reason that inferior products exist—the manufacturers that produce the goods make the ultimate decision of what materials to use and should be held legally accountable if something goes awry. However, demand dictates supply in all capitalistic economic situations. If low prices are requested, companies will surely comply. For years, American consumers have enjoyed falling prices for goods made in China thanks to relentless cost-cutting by retailers such as Wal-Mart and Target. Often times, the majority of these products are acceptable and can even be considered beneficial to the economy because low prices increase individuals' disposable income. However, buyers must be aware that the cheap goods they appreciate are hardly ever produced without paying the price elsewhere. Perhaps a seven-dollar Barbie seems like a steal initially, but when it comes at the cost of human rights in China or the compromise of child safety, is the bargain really worth it?

Climate Change Policy: World Leaders Discuss the Future of Global Warming

Global Warming is on everyone’s radar these days. Scientists throughout the world continuously warn that human activity is adding an alarming amount of pollution to the earth’s atmosphere causing catastrophic shifts in weather patterns. Photographs prove the steady melting of the Alps (see picture at left) and polar icecaps while studies are released daily, citing findings such as: “The average number of Category 4 and Category 5 hurricanes worldwide has nearly doubled over the past 35 years.” Clearly, global warming can no longer be disputed. It is happening at a frightening rate and has finally captured the population’s attention.

In light of these growing concerns, world leaders have met extensively over the past year to discuss what can be done on political and economic levels. Last week’s United Nation and United States talks focused on creating a new climate change agreement to replace the soon-to-expire 1997 Kyoto Protocol. The United State’s participation represents a significant change in the Bush Administration’s stance on global warming. Historically, President Bush has been skeptical over the seriousness of climate change however, during the September 28 meeting, he finally admitted that it is imperative that nations reduce their pollution levels. Still, Bush and the UN disagree over the methods that should be used to reach this goal. UN leaders maintain that mandatory binding emissions targets will be most effective while the Bush Administration insists that a voluntary-based approach, in which individual countries set their own goals and use new technology to achieve them, would be better. Although the administration has finally demonstrated its willingness to negotiate about climate change, the disaggregated approach it suggests will be ineffective in the long run.

Bush’s proposed national plan recommends the use of “aspirational goals” rather than binding measures to reduce global greenhouse emissions. He suggests a framework that allows, “each nation [to] decide for itself the right mix of tools…to achieve results that are measurable and environmentally effective”, yet this proposition is extremely unspecific. Although the U.S. may be able to create its own effective national solution, there is no guarantee that other countries, without concrete guidelines, will act in a way that is most supportive of a global effort. Bush’s lackluster proposal frustrated critics such as Mogens Peter Carl, the EU’s director general for the environment, who have been advocating the need for “specific targets for emissions reductions, rather than broad goals.” If the past is any indicator of the future, all should heed Carl’s advice. Since the mid 1990s, international leaders have instated broad goals under the Kyoto Treaty in the hopes of reducing climate change, but these have been largely ineffective. Most industrialized countries’ levels of emissions remain unacceptably high and trends indicate that they will continue to rise unless something drastic is done (see graph at right). The UN’s strategy will potentially fill this need by holding states legally accountable to a set of global standards and penalizing those who don’t adhere.

Furthermore, Bush’s national approach is inadequate because it fails to address the time constraints of the issue. If countries are obligated to create and implement their own climate change goals, this could take years of extra planning. According to many global warming experts, however, time is a resource we don’t have. “There is no more time for longwinded talks about unenforceable long-term goals,” said David Doniger, climate policy director for the Natural Resources Defense Council. “We need to get a serious commitment to cut emissions now.” In support of Doniger’s claims, the Intergovernmental Panel on Climate Change released a report earlier this year indicating that global warming effects will happen faster than we expected: “Hundreds of millions of Africans and tens of millions of Latin Americans who now have water will be short of it in less than 20 years. By 2050, more than one billion people in Asia could face water shortages.” These disappointing statistics prove the need for an immediate plan. Fortunately, the UN’s proposal calls for the creation of one set of standard global rules which can be implemented far more quickly than almost two hundred national programs.

Despite the aforementioned shortcomings of the U.S. plan, Bush does wisely point out the need for an economy that is receptive to new, environmentally-safe technology. If both sectors don’t work together, reducing fossil fuel emissions will be near impossible. However, Bush wants to tackle this on a national rather than global level, and allow countries to individually decide how to implement technology into their economy. While this level of freedom may be manageable for rich states, many poor or developing nations don’t have the stable economy or infrastructure needed to support such an endeavor. It is hard to imagine Ghana or Ecuador investing in global warming technology while simultaneously trying to battle poverty, hunger and corruption. However, under the UN proposal, poorer nations won’t be given the same strict targets that will be allocated to the developed world. Ban Ki-Moon, UN secretary-general, said during the UN meeting that these nations should be given, “incentives to act without sacrificing economic growth or poverty reduction.”
Although this may leave some developed countries disgruntled about having to cover the costs for those who can’t fund environmental action alone, the time has come to stop pointing fingers at one another a recognize the severity of climate change. Perhaps a global binding agreement will initially put strain on the developed nations’ economies but when it comes to the perpetuation of the planet, money should be no issue. And, ironically, if we do nothing to prevent global warming, the economic damage caused by climate change disasters will far outweigh the economic strain created by stricter emission laws. Maybe investing billions of dollars in prevention technology seems excessive now, but when another hurricane like Katrina hits, causing $200 billion in damages(see photo at left) and taking over 1,300 lives, that initial sum will surely seem insignificant.