Ten years since the United Nations’ International Day of
Microcredit and nine years since Muhammad Yunus and the Grameen Bank won the
Nobel peace prize, microfinance is more relevant today to international
development than it has been at any other point.
Pending
the adoption of the Sustainable Development Goals (SDGs), we are confronted
with the ‘historic responsibility’ of trying to concert global
action to ensure the dignity, shared prosperity, and secured future well-being
of people and the planet.
Microfinance, or financial services for the poor, offers a distinctively crosscutting tool capable of alleviating some of the most challenging issues of our time. These include, but are not limited to, ending extreme poverty and hunger, promoting gender equality, enabling access to healthcare, and promoting inclusive economic growth. Yet, financial services are not nearly as accessible as they ought to be to make a meaningful global impact across these fields.
Below
I outline five reasons why we must continue to invest in financial services for
the poor, in line with the five sustainable development goals in which
microfinance is a critical part of the solution.
Microfinance is a proven part of the formula for beating extreme
poverty
Financial
services, such as savings, cash transfers and loans, are part of a powerful
formula proven to lift millions of households from the direst forms of poverty.
Thegraduation approach, which grew out of BRAC’s work with the
ultra-poor, combines access to financial services with asset transfer, basic
healthcare, hands on training, and social integration to create a powerful
combination capable of putting households living under less than USD 0.80 per
day, on a sustained path out of poverty. Once clients complete the programme,
microfinance then helps to sustain that path. In Bangladesh, BRAC’s ultra-poor
graduates have seen continued
success, in part because they have continued to receive support from
our microfinance programme.
Backed
up by six randomised controlled trials from six countries, the graduation
approach is gaining steady recognition as a means for governments to improve
social safety nets, and enable the most vulnerable members of society to become
healthy and active economic citizens. This recognition needs to turn to action.
Microfinance can boost agriculture and promote food security
With 70% of
the world’s poor currently relying on agriculture for income and employment,
the provision of agricultural financial services offers a critical lifeline to
stimulate, stabilise and strengthen millions of farming enterprises. This in
turn offers resilience to communities in the face of changing weather patterns,
and enables farmers to meet food demand from millions of families worldwide.
In
sub-Saharan African, where food insecurity is the most pronounced,
organisations such as Opportunity International and One Acre Fund are making strides using tailored financial
services to empower smallholder farmers through investment in new techniques,
high quality seeds and fertilisers. These measures, being increasingly employed
by MFIs globally are helping to strengthen local livelihoods, reduce dependence
on imported food, and enable farming households to boost incomes and stabilise
consumption, bringing benefits that accrue as wide as the community, and down
to each individual household member. With growing demand for food caused by an increasing global
population the implementation of these measures needs to accelerate.
Microfinance offers access to healthcare where other options are
simply not available
Healthcare
remains a vital service unavailable to those who need it most – the poor and
vulnerable, yet universal access to affordable healthcare would require the
mobilisation of huge public financial resources. When it comes to microfinance
this lack of existing resources is our trade. Financial service providers have
come up with innovative financing mechanisms that promote healthcare that have shown increasing
evidence of positive impact.
Freedom
from Hunger, for example, has integrated health education into
its credit products that over time lead to behavioural change in the
communities in which they serve. BRAC provides health loans that
integrate access to health providers, Pro Mujer offers a discounted health package to microfinance clients, while
several other global providers have started to offer micro-health insurance.
One
billion people still lack basic healthcare, and an estimated 100 million people
a year fall into poverty trying to access it. We can significantly reduce that
number if we scale up the health financing solutions that we know are working.
Microfinance promotes gender equality and empowers women and
girls
Proponents
of microfinance have long sung the effects of access to credit and savings on women’s empowerment. In Bangladesh, we saw how lending to
women through small groups has increased their sense of empowerment within households and communities,
in what is otherwise a patriarchal society. This manifests itself in women
setting up their own microenterprises; or by giving women greater say in how
finances are spent and managed – often by investing more on household needs
such as stable food consumption or children’s education.
Microfinance
can also be a great source of empowerment for adolescent girls. InUganda, which has the highest levels of youth unemployment in
sub-Saharan Africa, we have seen how the provision of financial services induce
girls to either save for their education, or set up their own enterprises.
“On virtually
every global measure, women are more economically excluded than men”.
With an expansion of microfinance, we can reduce gender inequalities in ways
that extend beyond just economic and financial exclusion.
Microfinance promotes inclusive economic growth and stimulates
productive employment for the poor
Microfinance
is mostly recognised for its ability to stimulate self-employment through the
establishment of microenterprises that reduce reliance on informal, low wage
jobs, and stimulate employment opportunities. In South Asia and Latin America, microfinance has given millions of rural women,
previously engaged in domestic work, the chance to earn independently and
sometimes employ others through the micro-businesses they establish. Over our
40-year experience of providing microfinance at scale to rural women, we have
also seen how their empowerment has gradually led to more women joining the
formal workforce. Today women make up 85% of the 3.5 million garment factory
workers in Bangladesh.
In
spite of financial services being recognised as a key driver of inclusive growth, the IFC estimates that over
200 million micro, small and medium enterprises (MSMEs) are being
insufficiently served by financial services, creating a drag on economic growth
at the bottom half of the pyramid. Expanding access to financial services to
the poor, would promote MSME resilience, business growth, and help generate and
secure millions more jobs.
While
practitioners are still in the process of understanding the full breadth of
utility of microfinance, we do know that there are few tools with as wide an
application to alleviating the various dimensions of poverty. Put simply, with
the tools and support financial service providers offer, each client is better
able to determine how they manage their resources and plan their futures. This
sense of agency may not translate clearly into the achievement of any one development
goal. But it does make a real difference in how the disempowered take charge of
their own lives and access the opportunities they deserve which ultimately is
what the next fifteen years are all about.
Author: Shameran Abed
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