07/10/2015 12:24 EDT | Updated 07/10/2016 05:59 EDT

How Microfinance Helps Developing Nations

Janet Karimi, in her garden, has been a client of KWFT microfinance since 2007. She is currently servicing a loan of 100,000 KS, Kenya. (Photo by: Godong/Universal Images Group via Getty Images)
Janet Karimi, in her garden, has been a client of KWFT microfinance since 2007. She is currently servicing a loan of 100,000 KS, Kenya. (Photo by: Godong/Universal Images Group via Getty Images)

By: Craig and Marc Kielburger

Maxim Zorya had more than a decade's experience as a registered nurse in his native Ukraine, and then in Israel. But when he and his family made Vancouver their home five years ago, Zorya's nursing career floundered.

In a story too familiar for many highly-trained immigrants, Zorya was told he required extra training to qualify for work as a nurse in Canada. And the cost of the courses was simply out of reach. Without an established Canadian credit rating, he couldn't get a loan.

Across Canada, there are so many people with the potential and the desire to contribute so much more to our society and economy. Whether it's skilled immigrants like Zorya--or aspiring Canadian entrepreneurs with great ideas, who are held back by poverty and lack of access to mainstream financial services--these individuals just need a financial hand-up to realize their dreams.

In developing countries, from India to Ecuador, we've seen the power of small-scale loans--microfinance--to turn people living in poverty into prospering entrepreneurs and agents of change. There's no reason microfinance can't also work for the vulnerable in rich western nations.

With the near-collapse of the American finance industry in the recent recession, it became vastly harder for aspiring low-income entrepreneurs in the U.S. to get credit. Yet these are the very people who could help reignite a faltering economy. Global microfinance pioneer, Mohammad Yunus, realized the Grameen Bank, the microfinance institution he founded in Bangladesh in 1983, could do as much good in the U.S. as in places like Bangladesh or Haiti.

According to Grameen America (founded in 2008) the only real difference between microfinance in a developing country and in the U.S. is the size of the loan. Where an entrepreneur in Bangladesh can start a small, home-based business for just a few hundred dollars, a low-income American entrepreneur needs at least $1,500.

The company didn't see that as a barrier. As of May, Grameen America has provided low-interest loans to 50,000 low-income aspiring entrepreneurs in the U.S. And it says the microfinance sector across the States is growing steadily.

In Canada, a variety of avenues have been explored to stimulate economic opportunities for Canada's most vulnerable. For example, approaches like RBC's Social Finance Initiative provide funding and low-interest loans to support community small businesses and social enterprises that create jobs specifically for low-income Canadians.

Microfinance here is still a small-scale concept being tested by a few social enterprises and co-op financial institutions scattered across Canada, such as B.C.'s Vancity, Alterna in Ontario, and social enterprise organizations like Momentum in Calgary which all provide micro-loans.

Microfinance loans range from a few hundred to a few thousand dollars, depending on the need. They help low-income Canadians start small home-based business, assist new immigrants like Zorya in getting the training they need to practice their profession, and help vulnerable individuals--like women fleeing abusive relationships--get through personal crises.

Catherine Ludgate, manager of community investment for Vancity, is quick to smash one of the biggest myths about low-income borrowers--that they are higher risk for defaulting on loans. Ludgate says Vancity's microfinance clients have an incredible 96 per cent success rate, meaning the overwhelming majority never miss a payment on their loans.

"We need to do better at telling the powerful story about the tremendous outcomes microfinance has in communities," says Ludgate.

Microfinance, as Ludgate puts it so well, "is about looking forward." Microfinance focuses, not at what you were--an immigrant, a person living in poverty--but at what you can become. With a small loan, Zorya completed his extra studies and became a qualified nurse again in Canada. His family is prospering and he's making a valuable contribution to the good health of our country.

We love the idea that an innovation designed to help developing communities lift themselves out of poverty could also be key to unlocking Canada's entrepreneurial potential.

Brothers Craig and Marc Kielburger founded a platform for social change that includes the international charity, Free The Children, the social enterprise, Me to We, and the youth empowerment movement, We Day.


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