This office seeks to serve in the field of microfinance, a tool for lifting people out of poverty and into the world of trade. In 1976, economist Muhammad Yunus made a $27.00 personal loan to a group of forty-two Bangladeshi women so they could purchase bamboo to make stools. Their business took off, and the women repaid the money with interest. This event was one of the “pilots” for a revolution to come, and in 2006, Yunus and the groundbreaking microcredit bank he founded, Grameen Bank, received the Nobel Peace Prize.
Microlenders grant modest loans to otherwise “unbanked” people. Microborrowers are typically people mainstream banks will not take as customers because they have no credit history or collateral. However, thanks to a variety of unique methods microcredit uses, borrowers repay quickly, reliably, and at a higher interest rate than that of conventional loans.
Microfinance (and its slightly bigger sibling “inclusive finance”) is receiving unprecedented support from governments, private investors and foundations, and the international community. The United Nations Secretary General established a Special Advocate of Inclusive Finance (a former Wall Street banker who is now the princess of the Netherlands), and UNCITRAL resolved to study the related international trade law issues. Colleges and law schools are beginning to incorporate related classes, programs, and clinics. And while Third World residents have been the traditional recipients of microloans, the United States is now using this tool to help those right here work their way out of financial distress.
Charities, nonprofit government organizations (NGOs), and advocacy groups have been filling this gap left by traditional financial institutions. However, as microfinance broadens to include services such as savings accounts, insurance, and money transfers, many providers are transforming into fully regulated entities as local law requires. In fact, current research demonstrates that the ability to save money may be more influential than any other economic tool for those in poverty, and taking deposits from people generally requires providers to comply with substantially greater regulation.
The movement is being commercialized and sophisticated with all that entails. Growing pains include controversy, philosophical debates, and the occasional corruption. An increasing number of market investors are entering the sector as funders and traditional banks are becoming engaged. Technology and intellectual property are revolutionizing inclusive finance as systems are being developed to enable mobile banking and e-banking. And the arts are not left out. Some borrowers engage in arts and crafts as their new enterprise. I even know of a microfinance client in a refugee camp in the Middle East whose enterprise is puppet shows. Each of their stories is fascinating.
Cutting across political and religious lines, everyone has something to contribute: Those interested in business, banking, technology, contracts, or investing; those advocating for financial inclusion, women’s rights, rule of law, charity, or social justice; those involved in issues of corporate governance, education, ethics, employment, or international trade; and anyone who just wants to help a business grow. Many organizations permit individuals to make loans in amounts as small as $25.00.
I serve as the co-chair, with Azish Filabi Esq, of the New York State Bar Association’s Social Finance and Enterprise Committee (formerly called the Committee on International Microfinance and Financial Inclusion, International Law Section). Please feel free to contact this office if you’d like to discuss this burgeoning phenomena.