DEVELOPMENT: Microcredit Poised to Reach 100 Million Families

By IPS Correspondents Reprint | | Print |

Ayesha Gooneratne

UNITED NATIONS, Dec 8 2005 (IPS) - Last year, more than 92 million families – most of them living on less than a dollar a day – benefitted from small loans known as “microcredit”, marking a bright spot in international development efforts too often frustrated by missed targets and broken promises.

Last year, more than 92 million families – most of them living on less than a dollar a day – benefitted from small loans known as “microcredit”, marking a bright spot in international development efforts too often frustrated by missed targets and broken promises.

The Microcredit Summit Campaign, launched in 1997 by representatives from 137 countries, says that number represents a seven-fold increase from the 13.5 million borrowers counted in the campaign’s first year.

The new survey by the Microcredit Summit Campaign collected data from more than 3,100 institutions worldwide. The goal of the Campaign is to ensure that 100 million of the world’s poorest families receive microloans by the end of 2005.

“We set (this number) because we want to see a dramatic increase in the number of families finding a dignified route out of poverty,” said Sam Daley-Harris, the Campaign’s director.

“The majority of these loans have gone to the extremely poor, 66.6 million families, affecting some 333 million family members,” he added.

In theory, microcredit empowers borrowers to escape from poverty by giving them the means to establish small businesses. The loan, which generally does not require collateral, is usually paid back over a period of six months to a year.

The United Nations has designated 2005 the “International Year of Microcredit”. U.N. Secretary-General Kofi Annan notes that, “Microfinance has proved its value in many countries as a weapon against poverty and hunger.”

Iftekhar Ahmed Chowdhury, Bangladesh’s ambassador to the U.N., shared similar sentiments, calling microcredit “a major instrument of poverty alleviation”.

The report also found that of the 66.6 million poorest, 84 percent are women. “Empowering women is critical to reducing world poverty,” Daley-Harris said. “Some 29,000 children die daily from largely preventable malnutrition and disease.”

The Campaign’s four core themes are reaching the poorest, empowering women, building financially self-sufficient institutions, and ensuring a positive, measureable impact on the lives of clients and their families.

Microcredit loans are used to support a variety of small businesses, ranging from grain husking, rickshaw taxis, and sewing to more high-tech initiatives, such as marketing cell phone time.

Other strategies are also combined with microcredit to provide real, long-lasting support to the poorest populations. The report states, “Most microfinance programmes already offer some combination of services to the clients, including savings, training, networking, and peer support. Microfinance programmes can become powerful vehicles for other desireable social developments.”

Bangladesh is a well-known example of microcredit’s role in reducing poverty. Shahidur Khandker, a World Bank researcher, studied three Bangladeshi microfinance institutions over a 14-year period.

“Based on his data, Khandker concluded that microfinance accounted for 40 percent of the entire reduction of moderate poverty in rural Bangladesh,” the report said.

A second study highlighted in the report is from the U.N. Development Programme’s Human Development Report 2005, which compares India and Bangladesh. The findings show that despite India’s stunning economic growth, Bangladesh has overtaken India in reducing its child mortality rate. The report credits Bangladesh’s progress to effective partnerships with civil society.

Although the reach of microfinance has made impressive gains, setbacks and challenges still impede advancement. For instance, less than one percent of World Bank funding goes to microcredit, which Daley-Harris has termed “unconscionable”.

Richard Weingarten, executive secretary of the U.N. Capital Development Fund, said, “The demand for microfinance services remains largely unmet, especially in Africa.”

The report shows that 90 percent of current microfinance clients are in Asia, with 10 percent spread across the rest of the world. In Africa, just 8.5 percent of the potential market is currently being served, leaving 91.5 percent of the poor without access to financial services. In Latin America and the Caribbean, only 11.6 percent are covered.

The Microcredit Summit hopes for even greater progress and improvement during the Global Microcredit Summit in Halifax, Canada in 2006. Two new goals will be added, including providing microcredit to 175 million of the world’s poorest families and boosting the incomes of 100 million of the world’s poorest families above a dollar a day.

When such numbers are translated into real people, their stories of triumph, empowerment, and dignity are looked to as inspiration.

Susan Wangui grew up in rural Kenya, and was forced to drop out of school when her family could not afford the fees. At 17, she became pregnant and was kicked out of her home. Wangui married and had a daughter after moving to Nairobi, but her husband left her after learning she was HIV-positive.

With no means to support herself and her children, Wangui turned to prostitution. After learning about a Nairobi-based microfinance institution, she eventually began a clothes-mending and sales business. She was soon able to move her family into a safer house, quit prostitution, and gain access to HIV medication.

In the new edition of his book, “The Price of a Dream”, David Bornstein writes, “[The progress of the Microcredit Summit Campaign] represents one of the few times that a major development promise is going to be fulfilled – and remarkably close to schedule.”

The Microcredit Summit is a project of RESULTS Educational Fund, a Washington-based non-governmental organisation.