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DEVELOPMENT: Microcredit a ‘Practical’ Way to Fight Poverty

María Vega

ROME, Jan 21 2005 (IPS) - Of the wide range of strategies identified for combating world poverty, the promotion of microcredits – and other forms of financing for people with limited resources in developing countries – has proven to be a highly effective tool, say experts from international agencies.

In fact, the success of these initiatives has led the United Nations to designate 2005 as the International Year of Microcredit.

“Microcredits are one of the most effective ways to fight poverty, and represent a tool that could contribute significantly to achieving the Millennium Development Goals,” said Lennart Bage, president of the International Fund for Agricultural Development (IFAD), a specialised U.N. agency.

Bage spoke with IPS at the presentation of the Millennium Project report, “Investing in Development: A Practical Plan to Achieve the Millennium Development Goals”, earlier this week in Rome, where IFAD is based.

Microcredit programmes can play an extremely important role in development strategies because they give small farmers and traders the possibility of increasing their earnings and improving their standard of living through the creation of small businesses, he said.

Bage cited the example of Egypt, where the establishment of “microenterprises” in the agricultural sector has led to encouraging results: “Crop production has increased by as much as 100 percent in some cases, in addition to other benefits.”

There have been similarly successful experiences in Latin America, particularly in Argentina, Mexico, Peru and Bolivia, where 80 percent of the microcredit-funded initiatives are led by women.

Nevertheless, Bage pointed out, 70 percent of the world’s poor still lack access to credit, savings and money transfer services, which are essential elements for the creation and management of small businesses.

IFAD has joined with the Food and Agriculture Organisation (FAO) and the World Food Programme (WFP) – two other Rome-based U.N. agencies – in stating that it will be possible to achieve the eight Millennium Development Goals (MDGs) by the established deadline of 2015 “if the developing and industrialised countries take action immediately” by implementing plans and projects, in which microcredit could play a major role.

The eight MDGs, adopted in the year 2000 by the 189 U.N. member countries at the time, encompass specific targets such as achieving universal primary education and halving the proportion of the world’s population suffering extreme poverty (those who earn less than one dollar a day), hunger, and lack sustainable access to safe drinking water and basic sanitation – all by the year 2015.

The goals also include promoting gender equality and empowering women, reducing child mortality, improving maternal health, combating HIV/AIDS, malaria and other diseases, and ensuring environmental sustainability.

The three Rome-based U.N. agencies are optimistic about reaching these objectives within the established timeline, although current statistics on world poverty would seem to indicate otherwise.

One in every five people in the world today lives in extreme poverty, which translates into roughly 1.2 billion human beings. Over 850 million suffer from chronic hunger, close to 11 million children die every year from preventable diseases such as malaria, diarrhoea and pneumonia, 114 million children have no access to schooling, and 584 million women are illiterate.

One-third of the world’s poor live in rural areas and depend primarily on agriculture, a sector in which official development assistance (ODA) has been steadily declining since 1988. Today, only eight percent of this aid goes to rural development.

IFAD, FAO and WFP concur that “the leaders of the poorest countries must take the necessary steps to ensure good government and solid economic planning,” while the international community should take on strategies that will support them.

Pedro Sánchez, who presented the Millennium Project report in Rome, told IPS that in order to effectively combat poverty, there has to be a change in attitude on the part of leaders, governments and the international community, one that leads to concrete actions.

“We have to be realistic and confront the countries and leaders who opt to perpetuate poverty for political purposes. We must act to genuinely help those who live in a never-ending ‘tsunami’ of hunger, poverty and disease, like the countries of sub-Saharan Africa,” said Sánchez, director of tropical agriculture at the Earth Institute of Columbia University, in New York.

According to Sánchez, everyone knows, in theory, what the most effective strategies for fighting poverty should be, but what is needed now is “greater political will and more commitment.”

An essential element, he noted, is to stop forcing developing countries to become victims of the “loan business” when they should really be receiving donations.

“Many countries pay five times more on debt servicing than what they are given in development aid,” said Sánchez, pointing to the example of Kenya, where 56 percent of its 31 million inhabitants live on less than a dollar a day.

Kenya receives around 100 million dollars annually in foreign aid, but spends roughly 500 million on paying off its foreign debt. “And we continue to increase that debt through more loans,” he added.

The three Rome-based U.N. agencies are convinced that the goals set for 2015 can be fulfilled if effective strategies are adopted to reduce hunger and poverty, including initiatives aimed at political reforms, investment, increased productivity, and the creation of service and financial institutions for rural areas.

In order to promote thriving economies with sustainable long-term growth, where people can successfully fulfil their own needs, it is essential to provide access to employment, education, water, credits, and other basic needs, according to the agencies.

It has been estimated that the Millennium Development Goals could be met by 2015 with an annual investment of 100 billion dollars, but only half that amount is currently devoted to this objective.