THE WORLD SUMMIT ON MICROCREDIT AND THE FUTURE OF FINANCIAL INCLUSIVENESS

By Soraya Rodriguez Ramos Reprint | | Print |

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MADRID, Nov 7 2011 (IPS) - Opening a small shop in a town in Bangladesh, founding an artisans cooperative in Peru, setting up farm in sub-Saharan Africa, or encouraging the formation of economic alliances of women anywhere in the world -these are concrete examples of the goals of microcredit, a new financial system set in motion decades ago in Bangladesh by Professor Muhammad Yunus, a social leader who was awarded the Asturias Prize in 1998 and the Nobel Peace Prize in 2006.

Today Spain is the world’s second largest donor in the microfinance sector. The firm support for microfinance by the Spanish Agency for International Cooperation for Development (AECID) led the Microcredit Summit Campaign (MCS) to choose Spain as the host of the Fifth World Summit, which will take place in Valladolid from November 14-17.

Microcredit has proven to be an efficient instrument in the fight against extreme poverty. Women in developing countries have been the main participants. However, in the last few years it has reached a turning point. First, the microfinance sector is undergoing a major reevaluation of its objectives. There is a raging theoretical and practical debate over its effects.The dramatic cases of nonpayment and arrears that have appeared in the media in recent months demonstrate that microcredit programmes that are badly run or fail to adequately calibrate risk can become an obstacle to emerging from poverty.

The most recent studies argue that microcredit always has a positive impact when it is tied to public policies to advance social cohesion and poverty reduction -like access to education and health care- functioning institutions, and an economic infrastructure that can generate real opportunities in employment and self-employment.

Another factor is the evolution of the microfinance sector, which has gone from being led entirely by NGOs and cooperatives to involvement with new entities that can offer more services, including microinsurance and microsavings, mobile banks, while becoming more sophisticated in attracting resources from venture capital funds or through issuing bonds.

In addition, new sources of financing have emerged, in particular remittances from emigrants which, in certain emerging countries, are the largest source of financing, together with remittances from within the country. These new sources provide a grassroots source of financing directed to families and often destined for immediate consumption with a negligible impact on entrepreneurial activity

Fourth, which is related to the latter, is the establishment of international standards, guidelines for social and financial performance, and mechanisms for management at the national and international level.

In addition to these factors, there is Spain’s own process of transforming financial instruments of cooperation. The Fund for the Promotion of Development (FONPRODE) was created in October 2010 with the recognition that merely providing funds is not enough to win the fight against poverty. Outside financing must be accompanied by adequate development, whether in terms of regulation or financial infrastructure, as well as the solvency and effectiveness of the financial institutions. On the other hand, FONPRODE has adopted a code for responsible financing which calls for the establishment of rigorous oversight of its social, environmental, and gender impact.

The Fifth World Microcredit Forum is not, however, merely a forum for the debate and exchange of experiences. More than anything else it aspires to achieve two goals: first, providing access to basic financial services for some 175 million families, the world’s poorest, and especially to the women. The second goal is to raise the income of the world’s poorest 100 million families above the level of a dollar per day between 1990 and 2015. If we can make progress towards these objectives, the Valladolid meeting will be a success. (END/COPYRIGHT IPS)

(*) Soraya Rodriguez Ramos is Secretary of State for International Cooperation and President of the Spanish Agency for International Cooperation for Development.