Today in IB Economics, as part of our unit on Economic Development, our class had an interesting discussion about the barriers developing countries face in improving the lives of the average citizen.

One obstacle persistent in many poor countries is the average citizen’s lack of access to a dependable banking system. Entrepreneurs interested in getting financing for a business endeavor may find themselves unable to access credit, as domestic banks may be unwilling to loan small amounts of money to individuals without a credit history or even any formal education or training. Meanwhile, international banks operating in developing countries are often there only to serve international investors and corporations that want to open up shop in the country. These banks may not even allow a common citizen of the developing country through its doors, much less consider giving them a loan.

Marco, a student in my class, mentioned an organization he’d heard of that allowed citizens from the developed world to log in and make loans directly to entrepreneurs in the developing world. The very concept of this variety of micro-lending seemed so straightforward and ingenious that I had to fine out more. Luckily, Marco found the website and this video about the organization, which goes by the name Kiva.org. From their website:

Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can “sponsor a business” and help the world’s working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you’ve sponsored. As loans are repaid, you get your loan money back.

Discussion Questions:

1. Why is investment necessary for economic development to occur?
2. What institutional factors exist that prevent improvements in human capital in some developing countries?
3. I micro-lending in general and Kiva.org in particular a realistic solution to the problem of poverty in developing countries?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

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