The Lasting Impacts of Microloans and Other Microfinance on Developing and Underdeveloped Countries

As of 2021, over $124 billion of Microfinance has been distributed by the World Bank amongst 140 million borrowers globally. Systems of credit and finance are spread unevenly around the world; in under-developed countries credit bureaus are uncommon and banking networks are more selective regarding loans. Therefore, a system of microloans has emerged, which has targeted small business owners who would not typically qualify for traditional loans from banks and other financial institutions. With approval, microloans typically provide the full loan amount upfront and charge the borrower monthly repayments with interest. On a broad scale, the difference between traditional finance and Microfinance lies within their scope. Microfinance is focused on the individual level to those defined as poor or impoverished by the World Bank, while traditional finance is focused on whole economies or corporations. The primary concern with Microfinance options like this is the higher probability of borrowers defaulting on their loans. This engenders an inescapable cycle of late payments and increased interest rates ultimately resulting in the borrower spending more money than they borrowed. However, Microfinance plans of this type are often the option for individuals stuck in impoverished countries or dismantled economies. At its core, Microfinance is a profit-focused industry that targets individuals that have proved they are not able to repay loans on the conditions of lenders. This arguably sexist industry has presented itself as an opportunity for those less fortunate to obtain funding for dreams currently unattainable given their circumstances. Thus, it is the institutions behind the Microfinance industry that are the problem, not the loans themselves.