Microfinance has made a strong impact upon many people’s lives all across the world. More than a hundred million families have been touched by the opportunity for acquiring small yet powerful loans that can provide stepping stones and climbing frames to haul themselves out of the poverty trap cycle.

Left to its own devices, poverty breeds poverty. Families do not have the funds to fully acquire healthy nutritious food, books for school, transport to work and many other luxuries that the First World takes for granted. Families suffer from their disadvantages and, of course, this means that children from poorer families are disadvantaged compared to the children from richer families who are given the tools to thrive.

The cycle of poverty and poverty oppression has existed for hundreds of years. However, now, there is hope. Banks have emerged. And with banks, so has credit and loans. Of course though, the first few banks would not dare to go near anyone with even a hint of impoverishment and due to negative social sentiments towards women at the time, women tended to be denied from these banks as well. They believed that poor people would never ever pay back their loans as they were too poor to do so, that they will just take the money and run for the hills, laughing ecstatically and demonically over the easy trickery they caused over the innocent and trusting banks.

One economist, Muhammad Yunus, realized that this idea was obviously false, and only existed in the minds of traditional and rich bank owners due to their lack of exposure and contact to poorer people. There really was a sense that the ‘rich’ and the ‘poor’ were two separate species, and had their own characteristics and features, and this only sought to heighten discrimination and neglect to the poor from governments, filled to the brim with ‘rich’ men.

After a world-changing and enlightening conversation with a remarkable 21-year old woman selling trinkets in the local market, Yunus realized that action must be made to lift those similar to the woman he met and millions more out of the gutter and into leadership management positions inside enterprises and businesses that they built from scratch. Thus, Yunus created a new breed of bank – a microfinance institution, the Grameen National Bank. This bank’s primary aim was upon handing small and tiny loans to people dulled by the weight of poverty but lit by the fire of ambition for a better life for themselves, their friends and, most importantly, their family.

These loans allowed people with no alternative funds whatsoever to grab hold of machinery such as sewing machines to create clothing or goats to produce milk. Without the loan, they would have never had the funds to purchase these items. Some individuals purchased items in large quantities at stock prices and then sold the item at smaller individual prices. For example, milk powder.

As a consequence of the microcredit then, small enterprises were created and thus profits were generated. These profits could be used to pay back the loan. Further future profits then would be able to continue to sustain the business into the indefinite future and thus allowing the enterprise to lift its owners out of poverty. With good and successful growth, the business owner could then hire others to work for them and build the product. This then creates jobs for the community, lowering unemployment and giving the poor the power to not only provide food, medicine and supplies, but also maybe a toy for their young child or a day having fun in a recreational activity.

Once the loan is paid back, this gives the opportunity for Grameen National Bank to give that loan to another individual who can then begin their enterprise. This begins an eternal cycle that has a domino effect of knocking the disadvantages away one by one to all those within the poverty line who want to succeed and be leaders in the industry that they sell inside.

Ever since the first microfinance bank in Bangladesh, microfinance institutions have tended to see extremely high payback rates, completely contradicting incumbent bank sentiments at the time. The pay back rate was so high not only because individuals felt an inherent necessity to be honest and law-abiding in their actions, but also through the particular system enforced from the beginning of creation. Borrowers from each community were clustered into groups. The microfinance bank would tell them that if at least one of the group did not pay back a loan, then no borrower from the group were able to take out another loan. This created a sense of social responsibility and inflicted great social shame to the borrower who did not pay back. As a result, individuals felt a much more compelling need to pay back than if they were paying for themselves. They are not just paying for themselves, they are returning the loans for other people whom they have a natural care for as well. Even the poorest of us feel compassion for our friends and neighbours.

Nowadays, there are hundreds of different microfinance banks catering to millions of impoverished people across the world. 93% of the beneficiaries are poor women. In poorer countries, women are far more likely to be stuck in poverty than men. This is because of their burden of childcare and also because patriarchal societies sometimes still exist in these areas, enhancing false sentiments that women are less effective and powerful than men.

Microfinance seems a tried and proven method for escaping poverty. Without the helping hand to establish themselves in the market, impoverished people would be stuck scrappling for some kind of stability in a chaotic and unstable environment filled with temporary employment and exploitation. Microenterprises offer a stable income, the ability to send their children to school, to pay for the medicine to feed their sick relative suffering with AIDs, and to be an individual who can help out in desperate situations. Microfinance provides the tools to not only build new products and livelihoods, but also for the community to support itself and live happier and more exciting lives.

Who knows, in the future, the children of microbusiness owners could flourish into powerfully capable individuals thanks to the education and wellbeing given by the microfinance. The effect of microfinance has only been in existence for a few decades. Think of the evolution and butterfly effects those tiny little loans could have. One small loan can cast a gigantic shadow.

Above I have mentioned the rosy perfect picture of microfinance: alleviating poverty and with the power to spread across the world. But, microfinance has its limitations and its simplicity is a dangerous idea. Its ability to capture the fondness of wealthy foreign donors and its charm of providing disadvantaged individuals with the grappling hooks to hinge themselves away from chaotic instability of a poverty lifestyle can often mean that the positives and advantages of microcredit is emphasized and perilously exaggerated. After all, doesn’t what I just described sound so perfect and amazing? Poor people can do everything for themselves, and their lives will be happy and fulfilled! Yay. But is the outcome of microfinance for individuals always a ‘yay’ instead of a nay though?