Microfinancing 101

Kiva, the world’s leading microfinance organization, defines microfinance as such: Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services.

In today’s socially stratified world, it is becoming increasingly difficult for one born in poverty to lift his or herself out of poverty. A hardworking individual with a spirit of entrepreneurship can do very little without starting capital, yet without any assets they cannot borrow from traditional banks or financial institutions. That’s where microfinancing comes in.

In June of 2004, the G8 (France, Germany, Italy, Japan, the United Kingdom, the United States, Canada, and Russia) endorsed what is known as the Consultative Group to Assist the Poor. The group places a strong emphasis on microfinancing as the future of financial aid for the poor. It lays out the following basic tenets:

1. Poor people need not just loans but also savings, insurance and money transfer services.
2. Microfinance must be useful to poor households: helping them raise income, build up assets and/or cushion themselves against external shocks.
3. “Microfinance can pay for itself.” Subsidies from donors and government are scarce and uncertain, and so to reach large numbers of poor people, microfinance must pay for itself.
4. Microfinance means building permanent local institutions.
5. Microfinance also means integrating the financial needs of poor people into a country’s mainstream financial system.
6. “The job of government is to enable financial services, not to provide them.”
7. “Donor funds should complement private capital, not compete with it.”
8. “The key bottleneck is the shortage of strong institutions and managers.” Donors should focus on capacity building.
9. Interest rate ceilings hurt poor people by preventing microfinance institutions from covering their costs, which chokes off the supply of credit.
10. Microfinance institutions should measure and disclose their performance – both financially and socially.

I believe in microfinancing because, in its very basic principals, it makes sense. Microfinancing is a way to end poverty and to lift good, hardworking people out of difficult life situations they were born into. It gives opportunities to those who had none, and all for small loans that are hardly a setback for the donor. I believe that microfinancing will play an important role in the future of the fight against poverty, and I believe that it will change the world for the better.

Read more about microfinance at Kiva and at CGAP.

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Maquiladoras 101

The Maquiladora system as we know it was born in 1965, when the Mexican government instituted what it called the “Border Industrialization Program.” Instituted in response to the vacuum created by the termination fo the Bracero Program, the BIP offered huge incentives to foreign corporations that built factories in the border areas of northern Mexico. The intentions were not bad, for the program was designed to alleviate the high unemployment rates in the region. However the situation quickly turned sour.

Maquiladoras spew pollution into New River between Mexicali and California, which is said to be the most polluted river in the world. Most maquiladoras lack proper waste management facilities, and therefore dispose of toxic chemicals illegally. Mexican law does nto require industries to publish environmental data, so the maquiladoras can continue their operations with impunity.

The environment aside, maquiladoras project a sad and difficult life for the people of northern Mexico, as well. Today, over 1 million workers – the majority of whom are young women – labor long hours in over 3,000 maquiladoras along the United States-Mexican border. They work for $1-2 an hour, which is barely a living wage in the relatively high-cost towns of northern Mexico. The job situation is highly unstable, and women are often forced to take birth control; if they get pregnant, they are fired.

Sadly, there does not appear to be any movement for reform in the near future. Maquiladoras account for over 40% of Mexico’s exports, and provide US corporations with labor for 75% cheaper than they would pay in the United States. While the 1994 adoption of the North Atlantic Free Trade Agreement by Mexico, the United States, and Canada has to some extent increased labor standards in the maquiladoras, it also created a stronger relationship between the border economies of the United States and Mexico – in effect, giving strength to the maquiladora program itself.

Without the public’s interest, the maquiladora program is not going alter itself for the better. Legislation is difficult, and corporations are unwilling to change their practices. However, by uniting behind a common cause, we can make a difference – one laborer at a time.

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Getting Started

While I do not intend to actually implement the proposed CSR Microloans program at this time, it is something I plan to look into in the future. I do believe that it is a feasible – albeit ambitious – endeavor. If and  when I to begin the program, I know exactly where I would start: with the progressive ambition and sheer force of number of the American youth.

College campuses around America are filled with young, visionary students willing and ready to make a difference. The main impetus for CSR Microloans would be clubs and student organizations on college campuses across the country. In order to create the program, I will follow a few relatively straightforward steps.

1. Find a group of reliable friends and fellow Boston University students with an interest in microfinancing, maquiladora issues, or human/labor rights in general.
2. Brainstorm. The founding members would create a mission statement, a constitution, and a plan of action. Additionally, research would be done to find out which American corporations engage in the maquiladora industry.
3. Register as a club with the Student Activities Office.
4. Spread the word, through Facebook, fliers, and events. Begin recruiting new members and raising money.
5. With CSR Microloans firmly established at Boston University, spread the word at other schools. Use Facebook or pre-existing connections to find leaders interested in starting their own chapters of CSR Microloans.
6. When CSR Microloans has a strong presence in an assortment of colleges and universities, register CSR Microloans as a recognized non-profit organization by following the rules listed here.
7. Contact Kiva, or existing microfinancing programs. Find out what works in terms of field workers and loan application assessment. Create criterion for loan applicants, and if possible hire experienced field workers to help start off the process.
8. Begin contacting corporations involved in the maquiladora industry, emphasizing the CSR benefits of the program as well as the broad backing by college students around the nation.

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