In the world of investing and finance, the word microfinance may not come up often. It is however a significant global initiative geared towards improving the lives of the impoverished, particularly in third world countries. “Microfinancing is the practice of providing meaningful economic opportunity to those traditionally without any. It is also about delivering those services through financially self-sufficient, sustainable, and scalable microfinance institutions. Quality microfinance institutions will provide their under-privileged clients with a range of small business training, unsecured credit, convenient savings and affordable insurance services that help the clients build businesses, grow financial assets, and improve their overall security” says Gregory Casagrande, founder and President of SPBD Microfinance Network, the leading microfinance institution in the South Pacific.
In undeveloped third world countries, many people live in remote, small, rural villages where meaningful economic opportunity is non-existent. Most women in these villages would not have had the opportunity to finish a full high school education and even if they did, there is an enormous scarcity of formally waged jobs. Furthermore, even if a poor woman in such a village has significant skills, she would be unable to obtain even modest financing for a small micro-business since she does not have a recurring paycheck or any meaningful assets to secure. And so the equation of a weak education plus scarce job opportunities plus no available credit adds up to an environment of no meaningful economic opportunity. In these settings, microfinance can and has made an enormous positive impact on the lives of millions of families worldwide. For example, according to the United Nations, approximately a quarter of the population in the country of Samoa lives under the poverty line. Until very recently, Samoa had been recognized by the UN as one of the world’s least developed countries, many citizens suffering financially because of a lack of economic opportunity. “People around the world are inspiring in their ingenuity, persistence, and drive to make the lives of their families better overall. Even people from the most modest of backgrounds, given the right drive, can take control of their destinies through entrepreneurship,” says Casagrande, an entrepreneur himself. Believing in opportunity for all and in the inherent dignity of work, Casagrande champions microfinancing in third world countries and began the SPBD Microfinance Network in Samoa in 2000. By 2008, Casagrande was named Samoa’s Person of the Year for his work supporting the development of tens of thousands of micro-entrepreneurs in Samoa.
Helping Launch Small Businesses
In third world countries like Samoa, access to a small loan can make dreams come true. Often, in microfinancing, loans are as small as $400 USD. They can be used to launch business ideas like developing a small piggery, opening a BBQ stand, running a bakery, providing hair salon services, or offering transportation services between villages. These are businesses that are easily understood and for which there is adequate local demand to make a reasonable living. Microfinance institutions can help these entrepreneurs by providing them small loans to jump start these businesses and then providing them ongoing guidance to help grow and sustain the businesses so that the entrepreneur can further invest in both her business and in her family’s home and her children’s education.
“Other services microfinance institutions may offer include financial literacy workshops, basic money management and small business training courses and resources,” says Casagrande. “The better educated clients are about managing money, particularly start-up loans, the better off they will be in converting business ideas into a successful reality.” Seemingly inconsequential luxuries like savings accounts with little or no fees and the knowledge of how to best make them work helps individuals and families below the poverty line pull themselves up. Families can finally grasp a proverbial rung on the economic ladder and begin to work their way up making significant improvements in their overall quality of life. The key, says Casagrande, is providing motivated individuals with the financial opportunity and a support structure. “And that’s what microfinancing is all about,” he says.
Investing in microfinance institutions has led to the creation of the impact investing industry. These investors seek both to deliver an impact by helping micro-entrepreneurs in third world countries as well as earning a modest financial return on their investment. For most, the social benefits are the biggest draw. Globally well over 70% of microloan recipients are women, many of whom live in rural communities where access to education and general independence is almost as hard to come by as financial assistance. So, while it may have grown into a multi-billion-dollar market, it is also an opportunity to do good in the world. For Gregory Casagrande, the serial entrepreneur making improving the lives of others his main business model, that is the biggest reward.