Microfinance 101 - part 4 (final): why microloans are better than a donation, or charity | Milaap

Microfinance 101 - part 4 (final): why microloans are better than a donation, or charity

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This week, we will be talking about why microloans are better than donations. While we believe that microlending is a better option than donation, we are not saying that microlending is the best and only way to go. Charity certainly has its place, given its proper implementation and management. So, the purpose of this post is not to create an absolute argument. We are more than happy to receive different perspectives.

Let me just share with you our two perspectives on why we believe that microlending is a better option.

The borrower’s perspective:

There is a famous quote, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a life time”.

Giving a donation to a person is like giving him a fish. You will feed him for a day but he will never learn how to fish. On the contrary, microlending teaches a man how to fish. After he has decided to make a loan, he needs to repay his loan by the due date. To do so, he needs to generate more money from his loan by starting his own business, or sometimes, saves up to repay his loan. Once his loan has been repaid, he will have established a positive credit history. He can then borrow again to expand his business further as well as borrow a larger sum of money. In the long run, he learns to be self sufficient. He may also set a positive example for other villagers whereby they will be influenced.

As such, microlending has not only feed the man, it has also taught him and his community the skills they need to catch more (and bigger) fishes!

The lender’s perspective:

Imagine this, one day you are approached to make a donation. You were told that your money is going to help somebody in a village in India. Out of goodwill, you donated some money. But you are not sure how much of the money went to the end beneficiary, or even who the end beneficiary is.

Now, you are approached to make a microloan. You were told that your money is going to the same village in India. This time, your money will get back to you because you are lending, and not donating. The organization gets back to you constantly to update you on the repayment progress as well as telling you how your loans have been used.

Which organization would you rather trust your money with?

We have shared with you our two perspectives.

Now, tell us your perspectives?

 

This week, we have come to the last post for our Microfinance 101 series. Thanks for reading!