Credible Future - Can Micro Loans Make a Macro Difference?, Development & Aid, Economy & Trade, Gender, Global, Global Geopolitics, Headlines, Human Rights, Poverty & SDGs, Women & Economy

DEVELOPMENT: Spreading the Gospel of Microcredit

Ayesha Gooneratne

UNITED NATIONS, Nov 11 2005 (IPS) - Representatives from more than 100 countries met this week to discuss ways to expand the reach of microfinance, which is primarily charity-based, to include profitable business opportunities that can benefit poor people, governments and investors.

The three-day forum at U.N. headquarters in New York, a highlight of the International Year of Microcredit 2005, drew a wide variety of participants, including Stanley Fischer of the Bank of Israel, Jose Antonio Ocampo, under-secretary-general of the U.N. Department of Economic and Social Affairs, and Paul Wolfowitz, president of the World Bank.

“Microfinance is a powerful tool for reducing poverty,” Wolfowitz said. “It enables people to increase their incomes, to save and to manage risk. It reduces vulnerability and it allows poor households to move from everyday survival to plan for the future.”

The topic of expanding microcredit to reach an estimated three billion people who lack access to financial services was heartily endorsed by the panelists and participants.

“The focus of the U.N. Year quickly expanded from microcredit to the whole of microfinance, including services such as savings, insurance and money transfer, as well as lending,” Fischer said.

“With good reason, the main message of the U.N. Year became (that) there is a vital, pressing need to build inclusive financial sectors in which the billions of poor people around the world have access to affordable financial services.”

In theory, microcredit, or very small loans, 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.

Microcredit began in the 1970s in Bangladesh when the Grameen Bank began giving small loans to those too poor to be eligible for credit from other banks.

The forum honoured entrepreneurs like Shakila Sarajulldin from Afghanistan, who suffered marital abuse so extreme that it led her to attempt suicide by self-immolation. Today, Sarajulldin runs a tailoring business in Kabul, which she founded with a loan of just 100 dollars, and is able to support her three children. She has never been late with a payment.

Ernesto Silva Toledo and Milkov Machaca from Tacna, Peru secured a credit line of 5,000 dollars. They opened a business that produces 3,000 litres of homemade beer per month, supports five employees, and is successfully competing with the industrially-produced beer that was the only kind previously available in the area.

They and others from Bangladesh, China, India, Liberia, Malawi, Sierra Leone and South Africa were given awards at the closing ceremony from celebrity guests that included singers Jennifer Lopez and Marc Anthony, and Chelsea Clinton, the daughter of former U.S. President Bill Clinton (1993-2001).

Speakers at the event expressed their hopes that the momentum garnered from the International Year of Microcredit would continue to grow, championing a future where everyone would have access to the financial services they need.

Christina Barrineau, the chief technical advisor with the U.N. Development Programme (UNDP), told IPS that “awareness has been heightened 100-fold,” and the year has effectively “opened up the floodgates”.

Barrineau and others noted that the future of microcredit and microfinance also required greater involvement from the private sector.

According to the World Bank’s latest development report, “While most microfinance programmes have been funded by governments and donors, efforts are now shifting to fostering commercial microfinance institutions.”

“Improving the environment for microfinance can also extend more credit to the rural poor,” it notes.

In Bangladesh, birthplace of the microcredit movement, 48 percent of the poorest households with access to microcredit loans rose above the poverty line.

During the year, the World Bank and the Consultative Group to Assist the Poor have worked with national committees around the world to host conferences linking microfinance to the fight against poverty. Over 300 conferences and events have been held, and Barrineau said that “more than 100 national committees have been established underlying how important the debate is”.

She likened one of the biggest accomplishments of the Year and the closing events to the notion that “The International Year of Microcredit exemplified exactly what the U.N. was created to do.”

Microfinance is considered especially important for women, with studies showing that access to financial services has improved their status within the family and the community, and made them feel more assertive and confident. Proponents of microfinance note that it allows women to own assets, including land and housing, and play a stronger role in decision-making.

The fact that the panels consisted of representative from multinational and domestic institutions, the World Bank, International Monetary Fund, central banks, private sector representatives, U.N. agencies, microentrepreneurs acknowledges that the Year and the U.N. did not engage in “subscribing to a particular viewpoint,” Barrineau added. Rather, a neutral platform was presented where debate was free to take place.

“One of the most beautiful panels that I saw was the panel on Africa,” she said, which featured Sir Nicholas Stern, head of Britain’s Government Economic Service, representatives from Senegal and Kenya, and a microcredit client from Malawi.

This image of people with diverse backgrounds and interests sitting side by side “underlined how relevant the U.N. is in bringing together disparate voices”, Barrineau said.