UNITED NATIONS CAPITAL DEVELOPMENT FUND    Microfinance

Issue 18 / November 2005

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1. Why did the United Nations designate 2005 the International Year of Microcredit?

   The United Nations designated 2005 the International Year of Microcredit to mobilize the world around the critical issue of increasing access to financial services. Microfinance is an idea whose time has come. A small loan, a savings account, an affordable way to send a pay-cheque home, can make all the difference to a low-income family or small-scale enterprise. And with the ability to collateralize their assets, they can move beyond day-to-day survival, toward planning for the future. That means they can invest in better nutrition, housing, health, and education for their children. They can create productive businesses, and recover more quickly in the aftermath of natural disasters. In short, they can take real strides towards breaking the vicious circle of poverty and vulnerability.

   The International Year of Microcredit has generated unprecedented worldwide interest in microfinance. Member States engaged to an impressive degree, reflecting the tremendous demand and impetus that already existed on the ground in countries throughout the world. The United Nations must now leverage the power of microfinance if we are to achieve the Millennium Development Goals. Our work will be done only when we have achieved truly inclusive, not exclusive, financial sectors.

2. Why do you think microfinance is an effective tool to fight poverty?

   Microfinance is not charity. It is a way to extend the same rights and services to low-income households that are available to everyone else. It protects people against shocks, and allows the majority of the population to become part of a country's economic activity and contribute to their communities' economic and social progress. It can help to build markets, and show that profits and principles can reinforce each other. Just as important, microfinance recognizes that poor people are part of the solution, and builds on their ideas, energy and vision.

3. What are the obstacles to extending financial services to poor people around the world? How can these obstacles be addressed?

   Microfinance is not as widespread as it could or should be because the vast majority of people in the world do not yet have access to financial services. In many countries, the financial sector reaches only a small fraction of the population, with very few people having even something as basic as a bank account. There are great disparities in the availability of banks, ATMs and other services. Some countries have less than one bank branch per 100,000 people, while others enjoy more than 50.

   Thankfully, this situation is changing. Governments, financial institutions, private businesses and others are recognizing the proven value of microfinance for poor individuals and for small- and medium-sized enterprises. The World Bank and the International Monetary Fund have embraced it as part of their strategy for alleviating poverty. The United Nations is making this a key issue in implementing the Monterrey Consensus on Financing for Development. September's World Summit at the United Nations affirmed the need for access to financial services for the poor. And of course, the General Assembly proclaimed this to be the International Year of Microcredit.

4. As the Year reaches its climax, how is the UN looking ahead?

   Our collective challenge is to sustain this momentum and to meet the growing global demand for increased access to financial services. The International Year has served as an effective stimulus for action. More than 100 governments have undertaken initiatives to observe the year. A number of microfinance leaders, development banks, credit unions, postal and savings banks and commercial banks are lending their support, for which we are most grateful. More than 300 events have been held around the world at which financial experts have been raising awareness and sharing their knowledge. Data and policy work initiated under the auspices of the Year is expected to have an important impact.

   The Year's culminating event, the International Forum on Building Inclusive Financial Sectors, was held at UN headquarters in New York from 7 to 9 November 2005. Bringing together more than 700 people from around the world -- ranging from small-scale entrepreneurs from Afghanistan and Sierra Leone to high-level global financial sector leaders -- the event symbolized the Year's efforts to focus international attention on the critical importance of microfinance.

   The involvement of the private sector in the Year has also been very encouraging. Indeed, microfinance offers an excellent platform for private-public partnerships and for interventions by private solidarity institutions such as non-profit organizations and cooperatives. Through such arrangements, poor people can gain new choices, and a chance to increase their wealth. Small- and medium-sized enterprises can build up their infrastructure and capacities. Societies benefit in their efforts to defeat hunger and achieve other development goals such as better nutrition, gender equity and education for children. And private businesses profit from access to new markets and, not least, the boon to their reputations that comes with offering services that have a positive social impact.

   I hope such engagement will intensify. The potential is significant. It is estimated that many millions of poor people around the world have unmet needs for financial services. The challenge is to scale up without losing sight of the poorest and most vulnerable members of society. Microfinance has been a small and, at times, partially subsidized venture. Now, the possibilities for commercial involvement have increased. We need to transform it into a viable and truly developmental effort on a mass scale that reaches the people, businesses and microfinance institutions that need it. I hope financial institutions will continue to show that they are true entrepreneurs, and invest robustly in this line of business.

   Where people have a stake, a start, a piece of ownership, they are more likely to prosper. And where businesses are given a chance to develop, countries are more likely to flourish. The International Year of Microcredit is only the beginning. I look forward to working with all stakeholders to build on all that was accomplished this year to create choices and opportunities for poor people around the world.