Micro-Finance

What is Micro-Finance?

It simply means managing money on a small scale according to the principles of large-scale money management found in developed countries. These principles are things like investment, loans, banking, etc. Normally, in the developed world, finance principles are not applied to small amounts of money. It is rare for banks to loan someone $50 with $2 monthly payments in order to invest this money in a business venture with the potential of returning $100 over the course of a year. The costs of the banking system simply make this non-viable in developed countries. But in a developing country where costs and wages are much lower, these principles can be successfully applied. Micro-finance is also viable where a donor organization covers the costs of bank administration. The end result is that new viable businesses can be bootstrapped and the economy of a region can be positively developed at a cost far less than donating food, tools, etc.

Where has it been implemented successfully?

The premier example is Muhammad Yunus' Grameen Bank in Bangladesh. His latest project Grameen Phone is now distributing mobile phones.

What is the relevance to OLPC

The OLPC laptop is not just another PC. It is an innovative device which combines the features of an ebook, a communications device, and a computer. Unlike mobile phones, which require expensive centralised infrastructure which must be paid for by per-minute usage rates, the OLPC laptop creates a wide-area mesh network that is essentially free if you don't count the cost of electricity. In any case, the electricity is also locally generated by the users rather than requiring a centralised electricity distribution system. The OLPC laptops will bring communications into areas where mobile phone networks do not yet reach.

Once the OLPC laptops have been deployed in an area they can be leveraged by the local population by adding software that provides a benefit to them. Unlike the developed world where children are kept separate from society until they reach age 16, in the developing world children are integrated into society. They do chores in the home to free up the parents to do income generating activities. They do work after school to supplement the family income. They do unpaid work in the school in order to clean and maintain the school infrastructure. We expect that the children who receive OLPC laptops will waste no time in figuring out how to leverage the communication, computing, or library capabilities of the device in order to improve the family's economic well-being.

How can we help?

First of all, the OLPC project itself cannot do all things. We have created an innovative device with much greater possibilities than normal laptops. We are arranging to get these devices in the hands of children. But we cannot set up micro-finance banking systems everywhere. You can help by producing software that can leverage the capabilities of the device and provide economic benefit to their family. This software might well require some peripheral device that uses one of the 3 USB ports on the OLPC laptop. And that peripheral device might be purchased with a micro-finance loan.

You can also help by developing educational material that explains the principles of finance and banking at a level that older children can understand. Once they understand how to do a cost-benefit analysis of a loan, some of them will proceed on their own, borrowing from local sources. Not everything has to be done top-down. Beware of financial jargon. First of all it is not the same in all languages and secondly, it does not describe things in terms that children can understand. Use simple visual language and include lots of diagrams and images. Perhaps a comic strip in which each frame links to further explanations of that stage in the action.

Links to other sites

Please include links to any other micro-finance sites to this list in the following form:

• Science/Social_Sciences/Economics/Development_Economics/Microfinance (directory.google.com)
• http://www.developments.org.uk/data/issue31/loose-talk.htm
• http://kiva.org/
• http://51give.com/
• MISEREOR: microfinance