In 1976 there was a young man named Mohammad Yunus who worked at a bank in Bangladesh. He observed poor people working hard but caught in a cycle of poverty. In a village near the capital women made bamboo furniture. They borrowed money to purchase the bamboo, made the furniture, and sold it. Then almost all of the profit went back to the lender because of the very high interest rates that were charged. These villagers operated outside of the regular financial system because their needs were too small for banks.
Mr. Yunus decided to change that. He lent the women small loans at reasonable interest rates. They were able to repay the loans and make a small profit. They could start to save for larger purchases and plan for a better future. They could begin to pull themselves and their families out of the cycle of chronic poverty. The financial tool called microfinance was born.
A Prize
Mr. Yunus eventually received the Nobel Peace Prize for his work and the widespread effect it has had on helping people in the world. There are now many organizations that specialize in microfinance around the world.
Financial Tools Changing The World
What is fascinating to me is that this is really a case of providing people with the right financial tool and seeing how they use it to benefit themselves, their families, and ultimately, their communities. Around the world, people have been able to take loans at reasonable interest rates for a long time. Mr. Yunus just expanded this tool to those who were at the very bottom of the economic ladder. It’s not a very earth shattering idea. And yet, the effect has been earth shattering. Millions of people are using these loans to change their lives.
My Favorite Tools
Fortunately, most of us have access to great financial tools. No matter if we’re new to the right tools or already familiar with them, a financial tool used well can change lives. Two of my very favorites are simple but very effective.
1) A healthy emergency fund in the bank (making emergencies less of problem)
2) Contributing to retirement funds (401ks, IRAs, etc), especially from an early age
With these two tools alone, we can help ourselves, our families, and even our communities. Heck, we should all get a Nobel Peace Prize for doing that!
Kristin Rodriguez