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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 10 / March 2005 |
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Voices of Microfinance
In a year of global efforts to fight poverty, the issue of access to financial services has been largely ignored. Q. What role does extending financial services to poor people play in eradicating poverty and achieving the Millennium Development Goals, if any? Editor's Note: Perhaps as a reflection of the self-selected nature of the audience of this publication, only one respondent says that financial services do not play an important role in eradicating poverty and achieving the MDGs. The overwhelming consensus is that providing financial services plays an important role in alleviating poverty for reasons including increased opportunity, choice, mitigation of risk, ability to handle economic shocks, planning for and investing in the future, participation in growth and development - particularly for women, dignity, confidence, self-esteem, freedom, and hope. Several respondents did temper their enthusiasm by offering qualifiers: a few stressed that financial services must be specifically tailored for poor people, and must be accompanied by business development services and investments in education, health and infrastructure; another was concerned that offering financial services "at all costs" could have an adverse impact on poor people by dismantling informal mechanisms, while yet another calls microfinance a necessary, but not sufficient tool. Respondents also saw a role for microfinance in achieving anywhere from two to all eight of the MDGs, but only a handful referenced any hard evidence of this connection. While we can all agree that having access to financial services is a good thing, this discussion raises the question: do we have causal, empirical evidence that microfinance is making a difference to the MDGs? *Thank you to all those who contributed their expertise to provide valuable insight into this question. It is my belief that achieving any of the MDGs is directly linked with the economic possibilities of people in the countries involved. A basic economic theorem states that opportunities in (economic) development are highly dependent on the access one has to capital markets (read: external monetary means). Since both the commercial banking sector and capital markets in most underdeveloped economies are inaccessible to most groups in these countries, other alternatives must be sought. Microfinance, and especially saving and lending communities, can fill the gap left by commercial financiers. Building economies with microfinance lends a solid base to developing a lasting access to external monetary funds and thus to reducing (and eventually eradicating) poverty.
Joost M. van der Voort
By extending financial services to the poor we encourage self employment, decision making and sustainable growth, allowing beneficiaries to fulfill their personal as well as their professional goals by accessing a financial system to obtain the necessary funds in order to achieve personal objectives. In my opinion, the tools used in developed financial markets are the key to achieve the Millennium Development Goals.
Jose Ignacio Zabaleta
The policy of extending financial services to the poor seeks to provoke a fundamental change in the way people organize their lives. In the short term savings can provide a cushion in times of need while credit may leverage an economic opportunity to produce a larger financial return. However the long term goal is to extend the horizon of the family, through the possibility of financial planning. The opportunity to manage risk through purchasing insurance, saving and investing surpluses, and even discounting future cash flows increases the ability of a family to prepare against future adversity. Once greater financial stability is achieved, opportunities to increase income and wealth can be explored, and the threat of poverty permanently removed.
Terence Gallagher
Access to financial services plays a vital, though complementary role in eradicating poverty. In our work in microenterprise development among women at risk in Central and Eastern Europe, business development services, mentoring, market access AND access to financial services are all critical and complementary elements in the climb out of poverty. Each piece of the puzzle is essential.
Allan Bussard
As President of the Citigroup Foundation, a significant provider of funding to microfinance institutions, I have seen first hand the positive impact that microfinance is having on families around the world. Further, studies by academics are proving that microfinance is reaching at least five of the eight MDGs---eradicating extreme poverty, achieving universal primary education, empowering women, reducing child mortality and ensuring environmental sustainability. We know that access to credit is enabling women in particular, to raise family income. We have also learned that women use the additional income to send their children, boys and girls, to school for more years; to improve the family diet, thus reducing health problems; and provide savings for the tough economic times. The capacity to take care of their families through their own work has also proved to be incredibly empowering for women. Our work as MFI supporters has also taken us to cocoa and coffee plantations to encourage small but environmentally sustainable farming. Perhaps what is most important to me personally is that we are using financial tools readily available to the mainstream to provide opportunity for lower income and poor families. We are reaching out to find the strength in people who need a little help to create big differences in their lives and in their communities.
Chip Raymond
The role that the provision of financial services plays in eradicating poverty is very small. One needs to look at the underlying causes of poverty, which is most definitely not the lack of access to financial services, and tackle these head on. The provision of financial services to eradicate poverty presupposes many things. For instance, the provision of credit presupposes that the individual receiving the credit will be able to use this capital in some sort of income generating activity that will be successful. This is not always the case. The provision of savings facilities presupposes that the individual does have savings and would be willing to save these in some sort of "financial institution". The provision of insurance presupposes that the individual does have assets or circumstances they wish to insure themselves against and can afford and are willing to pay the premium. An extreme scenario perhaps, but it has been highlighted nevertheless to put the question into context. What is needed is an enabling environment that will help the poor get out of their circumstances. This can only be done through the provision of a supportive environment that will raise income levels and improve the "quality" of life; a supportive environment that will encourage, for example, enterprising activity, through the provision of infrastructure such as roads and telecommunications and of course macroeconomic stability; a supportive environment that will enable the poor to have access to healthcare, sanitation and education. An overall supportive environment will include the provision of financial services, but the role of financial services in eradicating poverty and achieving the Millennium Development Goals compared to the other factors mentioned is very small and will be negligible if the underlying causes of poverty are not dealt with.
Chiara Chiumya
Microfinance services enable poor women to increase and diversify incomes and build assets, which in turn allow them to reduce and mitigate risks, make choices, and plan for their future. There is direct impact of the access to financial services to address income poverty and increased income have been instrumental to finance for human capital (health, education, physical infrastructure including drinking water and sanitation), thereby gradually creating an enabling environment to address human poverty. Thus a direct link between microfinance and at least five of the MDGs has been established. Effectively delivered microfinance products and services through sustainable MFIs can be one of the effective tools on creating enabling environment for achieving remaining MDGs as well. With strong management and efficient operations, the massive outreach required to reach millions of people is feasible and possible through microfinance services. Nevertheless, though financial services for the poor can extend beyond income dimension to human aspects such as education, health or infrastructures, it should not be viewed as a substitute for investment in education, health or infrastructure.
Nara Hari Dhakal
It is an acclaimed fact that extending financial services to poor people helps many overcome poverty. Eradicating poverty among the poor makes them regain self confidence that is essential for facing different challenges in their lives. Although achieving the Millennium Development Goals may appear to be the responsibility of government, the self confidence and the self determination to tackle these problems solely rest on the individual to address these problems. Self confidence and self determination not only enable people to make choices that should improve their lives but also embolden them to compel government to make good choices for the entire society.
Victoria C. Otti
Although microfinance development in the People's Republic of China is not yet in a mature stage, there is evidence that extending financial services to poor people is playing an active role in eradicating poverty and achieving the MDGs in following areas. Firstly, microfinance development stimulated financial sector reform in China, which led the whole financial system to become more pro-poor and more efficient. Secondly, microfinance development has contributed to poverty reduction in the affected regions by improving consumption smoothing of beneficiary households and increasing opportunities for employment and income generation. Thirdly, microfinance development with the priority of targeting poor women has largely improved women's status in the family and the community, which contributed to the improvement in the indicators relating to gender development in the MDGs. Fourthly, the contribution of microfinance development to income growth and raising women's social status also indirectly extends to the improvement of education and health care. It is noted that the role of microfinance development in eradicating poverty and achieving the MDGs varies with the product design and supporting priorities.
Guobao Wu
Providing access to financial services to poor people is the best way of sharing wealth because it is the basis for sustainable development. It builds a sense of self esteem and trust, by improving access to opportunities.
Leonor Melo de Velasco
Extending financial services to poor people does not necessarily play a positive role in eradicating poverty, as it may lead to accrued indebtedness. Forced extension of financial services results in unconditional lending and credit at very low interest rates. These turn out to be traps rather than solutions. However, extending access to financial services to poor people plays a significant role in alleviating poverty. People that want and need financial services will consider financial services if the access is easy and if they are properly informed. The goal must be to reduce the vulnerability of the poor by providing them new opportunities. Destroying self-constructed informal mechanisms through the extension of financial services at all costs would lead to a reduction of opportunities and thus increase their dependency and vulnerability. In conclusion, microfinance will succeed in eradicating poverty only if it brings new choices to the poor, through accrued accessibility. It won't if it replaces one fatality with another.
Gilles Davignon
Financial services providers, especially commercial banks, have to realize that 'poor' does not mean 'stupid'. Knowing the poor better will show us that the poor have great economic potential that is very attractive to financial services businesses. "Do not train the poor, but train your staffs to know better what their real needs, both in saving and lending program". This kind of philosophy needs to be promoted among the bureaucrats, policy makers and the financial services practitioners in supporting the UN Millennium Development Goals in achieving the world poverty eradication program.
Hudi Sartono
Many Governments, international donor agencies, international and local development agencies, nongovernmental organisations (NGOs) and other institutions have embraced the Millennium Development Goals (MDGs), the overarching one of which is that of reducing by half the proportion of poor people in the world by 2015. It is very clear that this target can only be met if high levels of economic growth are achieved and if poor people are able to benefit from it. As such, the poor need to participate in all economic growth strategies. One way of doing this is to enable the poor to actively engage in running micro, small and medium enterprises (MSMEs). To achieve this, financial services to poor people aimed at supporting growth of MSMEs have a very important role to play in eradicating poverty and achieving the MDGs. Financial services to the poor broadly provide the necessary financial capital, information and mechanisms for growth of MSMEs. Financial services to the poor are a source of credit and insurance, an avenue for savings, investment and trade. In addition to entrepreneurial training and business skills development, access to such financial services also helps to boost the entrepreneurial spirit among the poor in that they start to perceive themselves as agents of change in their own situation and not mere recipients of handouts.
Kennedy Bisani Lweya
I'm strongly convinced that the availability of financial services to poor people is a fundamental tool for the achievement of the MDGs. In fact, financial services provided by a microfinance program not only represent an investment at business level (micro-enterprise), but they also represent a significant investment in education and health. Having the possibility of paying for school fees and investing in children's education, as well as having better nutrition's conditions and health practices could lead to a faster achievement of goals like the universal primary education, the eradication of hunger, the reduction of child mortality and the improvement of maternal health. Last but not least, most of the microfinance programs privilege women as clients, due to their proved higher financial responsibility towards their families. This can help women have a more active role and participation in the decision making process both at family and at local community levels, leading to the achievement of the goal related to the promotion of gender equality and the empowerment of women. Microfinance can help achieve this wide set of goals only if it is part of a structured model, combining short-term assistance and medium-long term self-sustainability. Furthermore it is necessary to consider the extension of financial services as a tool for returning dignity and confidence to poor people and not as a mere business opportunity.
Francesco Strobbe
The emerging paradigm of providing microfinance to mitigate the poverty pandemic in developing countries is the discourse within the political and economic circles of most nations. Microfinance definitely plays an unprecedented role in the form of curative, preventive and promotional mechanisms of moderating the effects of poverty. The answers to the questions "what" and "why" microfinance can do for the poor seem to have reached a positive consensus among both theoreticians and researchers. Issues of microfinance helping to build assets, empowering and mitigating the effects of vulnerability to both external and internal shocks has well been researched into and documented. The concerns as to "how" microfinance will help achieve all the targets of the Millennium Development Goals (MDGs), especially, targets 1 and 2 of Goal 1 and target 1 of Goal 2 which are directly related to poverty is the issue of concern. The concerns are that microfinancing seems to have an informal approach thereby falling on an eclectic approach to strategize in reaching the poor. A number of countries have used microfinancing in principle but how it is done varies across these countries. Another question is; how do we use this bottom-up (micro to macro) approach to help reduce poverty and development as a whole? The theoretical debate as to the usage of top-down or bottom-up approach still remains as a knowledge gap for most developing nations. In the framework of the above exposition one can assert that microfinance is a "necessary" tool but not a "sufficient" tool for reducing poverty and achieving the Millennium Development Goals. This calls for the continuous research into the environments where best practices within the microfinance industry have been identified.
Samuel Kobina Annim
Financial services available to the poor are often cited as empowerment opportunities for those excluded from conventional financial markets. This empowerment is particularly constructive when little or no basic social services are offered by local authorities, causing micro-entrepreneurs to function as the driving force of local economies. The benefits of financial services offered to those marginalized from even the most impoverished of societies can generate dramatic improvement in standards of living. It is the improved starting point of the next generation, the children of those who have become self-sufficient through access to micro-financial services, however, that will accelerate the poverty reduction rate, yielding poverty levels closer to the Millennium Development Goals.
Megan Holahan
Extending financial services to poor people enables those to plan for their future and nurture skills and experiences to plan financially to make their family planning and income generation strategy. Not only extending credit, but also savings, cash payment and settlement infrastructure allows people to grasp how much money will be put aside for the future, and how much needs to be paid by when. The first step for the poor to empower themselves is to be aware and have control over their future with solid planning. Financial services would be a good vehicle to provide opportunities to have their future plan associated with monetary resources to realize.
Hikaru Kozuki
The MDG's are all about providing capacity to the poor and marginalized to liberate them from poverty. Financial surpluses by access to credit is a very important aspect of this capacity. Research has proved over and over again that the poor cannot recover from, what should be short term economic shocks, due to the lack of reserves or savings. Participating in micro credit programs and self help savings and credit groups will empower poor communities to help them to build up reserves. Women especially are an important target group since it is well established that surpluses in a mother's hand go towards family nurture, education, nutrition and housing. Therefore extending financial services to the poor through pro poor micro finance institutions would be vital towards achieving the MDG's.
J. Charitha Ratwatte
In terms of extending financial services to poor correlation seems to exist between the eighth, second and first MDG. Starting off from the eighth MDG it permeates across the second and can potentially receive full incorporation in the first. Hence, in the first step, the development of global partnership for development can lead to development of open, rule-based, predictable and non-discriminatory financial systems in developing countries reflecting their special needs. This requires tackling institutional resistance to change across the developing world. The next step in the MDG based poverty eradication spiral is related to the second MDG on achievement of universal primary education because poor people who are illiterate are directly prevented from obtaining financial services that require any kind of written procedure or paperwork. Ultimately, by engaging the poor in the development effort, by improving education and the financial system market-based financial services shall be extended more effectively and chances of halving extreme poverty shall thus be improved.
Milan Vemic
The International Year of Microcredit is a perfect occasion to recall to which extent financial services play a significant role in development. Still today, a large majority of people from developing countries do not have access to financial services and are thus deprived of a significant lever of development for their community, their family and themselves. And that, along the negative consequences that this generates: difficulty in putting savings in a safe place, no access to small consumer credit which would make it possible to pay school fees or drugs at the convenient moment, no access to productive credit at reasonable rates, no insurance. In this context, it becomes difficult to hope to improve its living conditions. Those conditions can even get worse if one is confronted with the loss of a capital that was acquired with difficulty or with the obligation to sell it in order to meet a particular need. In addition to the direct impacts on the improvement of the living conditions of the families, the access to the productive credit stimulates the economic activity and makes it possible to materialize the local entrepreneurship, a basic (an essential) element (for the development) of a dynamic private sector development. When a community finance institution is created, it constitutes an open door for the population. A door which gives access to new quite concrete opportunities. It also makes it possible for individuals to create their own wealth. Organizing and democratizing financial access is certainly not a panacea in searching strategies for poverty reduction, but certainly a powerful lever.
Anne Gaboury
Microfinance is a key strategy in reaching the Millennium Development Goals (MDGs) and in building global financial systems that meet the needs of most poor people. Although microfinance has demonstrated the potential to reduce poverty, its impacts have varied. Perhaps as a result of these inconsistencies, few donors have prioritized microfinance in their strategies to achieve the MDGs. Microfinance can have positive effects everywhere, if services respond to the particular mission and social context of a microfinance institution (MFI), as well as to the needs of its clients. This issue of insights asks: "How can we be more realistic in our expectations of microfinance? How can we help MFIs to achieve sustained impacts such as alleviating poverty or reaching out to more poor people? How can microfinance realize its potential?" Microfinance, and the impact it produces, goes beyond just business loans. Poor people use financial services not only for business investment (agriculture, livestock, trade, processing) in their microenterprises but also for health and education, managing household emergencies, and meeting the wide variety of other cash needs that they encounter. The availability of financial services for poor households is therefore a critical factor for the achievement of the Millennium Development Goals
Aitchedji Codjo Casimir
When the poor people obtain financial services, they can then convert their brilliant project ideas into practical and measurable projects. The net result of this equation is that the poor people can fend for themselves; they can improve their quality of life. This then reduces incidences of dependency syndrome of relying on handouts from governments and donors. This then restores their dignity as they become more independent than dependant. This averts manipulation by the rich and powerful. Financial services targeted to the poor lead to the general development of the poor countries as more people can access the commanding heights of the economy.
Jestias C. Rushwaya
Extending financial services to the poor enables them an opportunity to save money against future risks or opportunities. In Ghana we have the daily itinerant savings collectors (Susu Collectors) who are prepared to collect the small amounts of money that the poor person can set aside daily. Those amounts are returned at the end of the month less a day's collection. The poor then can buy raw material and stocks such as provisions, foodstuffs, etc. in quantities which give them discounts. Credit facility leverages the capacity of the poor to procure assets, raw materials and stocks. Thus, both the savings and credit facilities help the poor to increase their profit margins thereby generating extra household income which may be used for education, health facilities or better nutrition. All of these are elements of the MDG.
David O. Andah
The overarching objective of the Millennium Development Goals is to halve global poverty by 2015. To achieve this objective it is necessary to provide sustainable livelihood to the poor. This would help generate a regular stream of income and facilitate access to basic amenities of life such as safe drinking water, hygienic sanitation, quality energy, etc., that significantly contribute to alleviate penury. In developing sustainable livelihoods, the focus should be on creation of opportunities for self-employment. And, this requires access to financial services such as loans, savings, insurance and the likes, which are usually denied to the poor by the formal banking system. Microfinance institutions can play an important role in delivering financial services and technical guidance to the poor by building awareness, involving the community and tying up with willing banks.
Amitava Basu
Ensuring access to and the availability of financial services has a critical role to play in eradicating poverty and achieving the Millennium Development Goals. Access to microfinance means that individuals are able to buy small value items that could significantly increase their ability to earn higher income. For example, farmers can buy often the small amounts of fertiliser that could significantly increase the yields form their small holdings, meaning that can have excess produce which they can sell to earn income. Moreover, as this microfinance will be at a fairer price then this should ensure that individuals are no longer pushed into further poverty through having to pay extortionate rates for credit when they do need it.
Bindesh Shah
Extending financial services to poor people/women means, increased accessibility to financial resources, more choices and increased options to choose from. More employment (self and others), more production and business and more income; enhanced consumption, improved access to food and nutrition thus improved health, less illness/diseases; improved access to health care facilities and services/treatment, access to better care, easy access to ARVs/ART, more children will go/be sent to school; hence improved living standard. For poor women this will additionally mean that greater access to public spheres, institutions, more assets, better health, self-esteem and self-actualisation, more negotiating power, decision making ability and asserting positions and choices. These will help all improve the achievements of MDGs from 1 to 6.
Shipra Bose
Microfinance increases the ability of individuals to invest in their future at a cost that is reasonable (both in time and expense.) Microfinance is not so much about the 'micro' as it is about filling a need. Every person living in the modern economy (even those living on the periphery) needs financial products and services to meet the challenges of daily life. Those with access to more services are able to meet both the immediate challenges (food and temporary shelter) and longer term challenges (safe and long-term housing, education, stability of income, healthcare, etc.)
Paul Hamlin
In Switzerland secrecy is considered the basis of banking. To a large part, the business model of microfinance in the least developed countries is, however, based on transparency. The high repayment rates of microcredit are not only the merit of individual discipline but also due to financial transparency in villages making social accountability possible. A lesson in social accountability and responsibility of the poor to be learnt by the rich?
Richard Gerster
The provision of financial services to the poor is essential in eradicating poverty and achieving at least 7 of the 8 MDGs. This is because the poor most of the time lack start up capital due to issues of securities and loan collaterals required by the conventional financial institutions like commercial banks. In this case, since many microfinance institutions have tailored their services to be accessible and affordable by the poor, then the issue of poverty and hunger is addressed in that when they have money they can invest and even save up and meet basic needs. When they have money, the issue of mortality of infant and mother are reduced as they can visit hospitals. Further, illiteracy is reduced, as more children would not remain at home due to lack of school fees. Since microcredit service provision is not discriminatory on gender lines, each one can contribute to the well being of the family by accessing credit and investing the money well. Since microcredit providers are also interested in the social well being of the clients, people are able to access more and more information on health and other developmental issues. The selling point for the microcredit providers is that they give small affordable loans to people with friendly enough conditionalities. When many people can access credit, then the burden of poverty (disease, illiteracy, Mortality, Malnutrition, Crime etc) on the government and community is tremendously reduced.
Dorothy Nduku
It is true that financial services to the poor meaning access to credit (microcredit) vulnerability (group based and community based insurance products) and social security is largely ignored and hardly mentioned in the context of the MDGs. But the tsunami has clearly proved that without risk transfer mechanisms (insurance products), development is not sustainable. Financial services to the poor can thrive due to ICT, open and liberalized markets but suffer from donor apathy, capacity building funds moving away from practitioner based networks, lack of seed money for using ICT to reduce the transaction cost, inability of the practitioners to use and combine fund based activities (microcredit) along with fee based activities (insurance and social security products) etc. Even in the International Year of Microcredit there hardly any reflective forums which talk of three sixty-degree financial services to the poor without which development is not sustainable.
V. Satyamurti
A well developed financial services sector can be very useful for poor people. While it is not conventional wisdom to believe that credit is the best tool to mitigate poverty, this belief may reveal its true role and value has not been completely understood. By way of example, anybody who does not have access to food would likely qualify to receive food; however, those who do not have access to credit may not necessarily be credit worthy. Credit is useful only if there is a productive purpose. Maintaining adequate financial discipline can be difficult whenever the credit component is located within a program based on donations. Programs especially designed to relieve poverty frequently incorporate political objectives, no matter how praiseworthy they may be, they go in the opposite direction of a well managed financial institution. Programs in which credit is an activity among many others do not demonstrate the financial specialization necessary to handle credit in an efficient way. More than adopting commercial interest rates, it must be understood that sustainable micro-credit programs must adjust their rates so as to cover total costs with these rates being logically higher than those for commercial credits. On the other hand, a program focusing on credit programs alone ignores the fact that deposits are one of the most important needs which must grow in a financial institution, therefore MFIs should offer a complete set of financial products to adapt to the needs of its target market (poor people). Finally, it is also relevant to give access to poor people to all non financial products, such as training and advisory services.
Alejandro Soriano S.
Freedom is the groundwork for individuals to better contribute to their own way out of poverty. Without access to a financial sector, this freedom is jeopardized. In developing countries, most land is used for agricultural production, a mainstay of economic sustenance. The possession of land rights also allows people to turn latent assets into live capital through entrepreneurial activity. Thus, the "land" is generally recognized as a right. The same must be applied to the right to finance products like credit, insurance and savings. In order to be free, poor people needs credit, insurance or financial education. Based on sound and sustainable policies, microfinance can be an effective freedom-oriented global factory. And this is not a utopian vision as the success of microfinance in Africa and Asia shows, and can be applied in other regions. In Latin America, Banco del Nordeste, operating in one of the poorest regions of Brazil with very little donor support, became one of the largest microfinance operations of the region with more than 100,000 clients. In Mexico, the great non-bank financial institution Compartamos has doubled the number of its clients in one year to become the Latin American program with over 150,000 customers. The promotion of inclusive and resilient financial projects, in conjunction with supporting sustainable access to financial services, will help to reduce poverty and consequently will lead towards the diffusion of Freedom. Microfinance is not a magic solution, but is a powerful tool to begin to defeat poverty. Credit is one door through which people can escape from poverty and embrace freedom. Many more doors and windows can be created to facilitate an easy exit. It involves designing a new institutional framework consistent with this new conceptualization. A conceptualization that take into account freedom and responsibility of all individuals and corporations.
Lic. Federico Juan Melli
Products offered by commercial MFIs will be helpful to the poor to the extent that these institutions really incorporate "serving the poor" as a priority within their strategy, with specific action lines. This is the case for some MFIs but not for all of them. Another way to support the poor is through alliances between commercial MFIs and NG's where the characteristics of both types of institutions complement each other: scope, technology and funding of the commercial MFIs versus the specialized attention with social focus of the NGOs. Generally speaking, loan products that incorporate the poorest into the financial system with products that enable access to loans, training, advice and information are those that generate most impact.
Véronique Van Simaeys
Microfinance terminates the cycle of poverty. Poverty perpetuates itself because most of the time, the victims have no way out. Financial services alone will however not liberate the poor. They need basic information and the appropriate mind set to get out. To achieve the Millennium Development Goals, a well-structured organization/system rendering an all-inclusive financial service will be required (as available in some Asian Countries). The private sector/community bank should be the driving force, not government.
M.O.Oyegunle
Financial services for poor people, especially those for disabled people are necessary. We know that poverty and disability are very related and in countries like Perú, the micro-credits given to these people has helped them to develop their small business and also have contributed for their integration to society and to develop their self confidence and the capacity to fight against adversity.
María Zúñiga de Gallegos
Providing educational services is the first stage in providing financial services. People in poverty who wish to start or further develop an enterprise need to have an understanding of business planning to have a greater chance of success. Throwing money at people might provide some success but it's the long term planning that will sustain any project. In general educational services need to be provided to enable people to realise their dreams and thus get out of the poverty cycle.
Mark Pickham
Extending financial services in the form of loans, savings and insurance services is one of the quickest and most direct ways of empowering poor people to engage in productive activities, increase their incomes, build productive assets, reduce vulnerability to hunger, disease and illiteracy, as well as promote greater gender equality within the family when targeted at women. As such, it is one of the most powerful tools that development agencies, governments, and civil societies can use to achieve most, if not all, of the Millennium Development Goals.
Mike Getubig, Jr.
The role of extending financial services to poor people lies mainly in the opportunity this will give those who are otherwise denied access to the tools or vehicles of development on which the rest of society relies in order to grow, develop, or at least thrive in day to day living. The fact that the poor people don't have access to financial services on a regular and continued basis renders them vulnerable to the rigors of life's turns and the economy's variances, negating their possibility to accede to 'higher grounds' where they may have, or at least dream of better standards of living.
Marcelino San Miguel
After education, credit is perhaps the largest hurdle for an entrepreneur in a developing country to overcome. In the US there's a perception by some that the poor are "lazy"; in the developing world people work harder than we can imagine simply to survive. Ingenuity and effort, fuelled by credit at a fair rate, can and does lead to phenomenal accomplishments. And a family that can afford to educate its children - particularly girls - directly reduces poverty both by giving birth to skilled laborers and by lowering the birth rate of those laborers in the next generation. It's this generation change that will lead to a true reduction in poverty and it will be done through credit which can build on itself, not through handouts that need to be replicated year after year.
Liz Wald
Extending financial services for poor people is the major role of micro-finance institutions to eradicate poverty. Two reasons. (1) It will generate much employment which in a way solves the problem of unemployment and (2) it will help support microentrepreneurs which comprise the major number of players in the economy. However, in order to sustain the entrepreneurial activities of the poor people, government should allow support systems to be established to help microentrepreneurs to develop themselves a better play in the economy.
Peace and Equity Foundation
Poor people largely depend on daily wage labour and on marginal resources. Extending financial services helps eradicate poverty and achieve the Millennium Development Goals in the following ways: inculcates a habit and discipline of thrift and small savings; helps them escape from the clutches of moneylenders and brings them to deal with formal banking systems; builds financial but social and human capital and confidence; and enables investments in small group enterprises for a beginning and more profitable group / individual enterprises.
Mohan Krishna
The role of microfinance at a global level and achieving the MDGs is to cut out handouts and restore dignity and self-respect to the disadvantaged. Each person has a role to play and is a unique creation and born to succeed. Participatory capacity building effort makes the world we live in fair and equitable. Enterprise development, consumption and asset development increases the passion and belief of all in microfinance. This gives even the disadvantaged the confidence to move beyond barriers to change through innovation, creativity, research and advocacy. Poverty reduction helps everyone realize that: (i) Opportunities are within and staring at us all the time. (ii) We have to move fast, throw our heart and soul into the work. Work with focus, conviction, sincerity, and truthfulness. (iii) In developed countries, one has to get the government on side to enable our newly engineered microfinance model to work. Some ethnic groups who are disadvantaged can make a borrowed model work. (iv) Globalization makes our work challenging and interesting. (v) Passion and perseverance with a positive mindset make everything a possibility.
D. Antony Vijayaraj
Microfinance plays a protagonic role, but we have to be really careful in the kind of financial services that we provide. We have to provide access to a financial services made for poor people instead of the commercial financial services that most of the NGO`s among the world are giving to people. They are just thinking how to earn more money instead of give services to the poor.
Bryan Solis
Poverty is not only measurable in terms of income but also from the economic isolation faced by poor people. Extension of financial services to the poor in terms that meet their needs allows them to participate in the economy, to gain ground and improve their situation through entrepreneurial ventures.
Taaru Chawla
Charity and donations from developed nations only teach emerging economies to rely on foreign aid. Microcredit starts at the grass roots level, and teaches the poor how to help themselves. A hand up is always better than a hand out!
Sarah Pesek
Eradication of poverty is basically a financial implication. Whether one works for the poor on the basis of either the strength or weakness of the poor community, it is ultimately the extension of financial services which determines the success or failure of abrilliantly conceived programme.
Tapas R. Maity
The role that extending financial services plays in eradicating poverty is to reach a greater number of people who don't have access to formal financial services, despite their demand for various types of loans, deposit facilities and other financial products. The provision of financial services is not only the way to eradicate the poverty, especially if we talk about credit because depending on the circumstances, credits can thus increase or decrease poverty. It also shows us that government must be the provider of the basic infrastructure, which rural areas need, and let the financial sector be the provider of the financial services. There are a lot of people that cannot access financial services, but through developing financial systems that include microfinance, poor people that need money to start a microenterprise, or to improve it, find in microfinance an alternative to be involved in the finance world. Moreover, we have to consider that success in the provision of financial services is based on its efficiency. If we are efficient providing financial services, we can reach more people with fewer costs.
Ma. Cristina Muñoz V.
If we are to view poverty as lack of access to financial services, things may differ. Simply proved in Stuart Rutherford's book, 'The Poor and Their Money', poor people have a greater need for financial services than the rich. The rich may have more money to mind, invest, and spend, but on a fundamental level the poor have a more pressing need for financial services. Simply put, if you have very little money and need all of this to get by, then a safe, secure place to store this is perhaps the most important thing that you need to ensure that you can feed, cloth, and provide shelter for your family. The rich simply do not have to think like this. Therefore it is clear that access to financial services is a crucial and ignored Global Public Good that is already provided to the rich (as in economically active in the developed world and the 'rich' in the developing world). For example, the credit union movement was started in the developed world to provide financial services to those that needed them but were outside the existing financial system. What has changed? Nothing. It is time to realize that a global effort to provide financial services for all will go a long way toward people being able to stabilize their lives and pursue themselves the MDG's which people do. The thing that people spend their limited resources on first are food, shelter, clothing and education, this is true of us all, forever. Let's make it happen. Create and build the Global Public Good of 'Access to Financial Services', now.
Garrett Wyse
The main assumption we have by providing poor people the access to financial services is that their entrepreneurial abilities are as well refined as in any Westerner. Poor people don't need a handout and the very fact that a loan costs money gradually changes people's perceptions about money and business practices. With that approach to microfinancing comes the duty to educate potential and/or existing business owners about, what we view as simple things, such as cash flow, depreciation and return-on-investment, but education is what microfinance is all about. The success of any microfinance institution is measured only by the success of its clients.
Nikita Osharov
Energy services can play important roles in helping to achieve the MDGs and improving the quality of lives of poor people. Renewable energy technologies (RETs), such as biogas and solar home systems, can provide substantial improvements in the quality of life of rural households. However, the poorer segment of society is still deprived from the benefits of RETs, such as better quality lighting, more hours for income generation activities in the evening, and smoke-free indoor environment, for lack of disposable income on their part which results in them not being able to purchase these systems. Poor households that cannot pay the cost of systems in one lot in cash need credit so they can pay for systems over a longer period. Micro-finance institutions can provide micro-loans for systems cost-effectively and help the poor people to access the modern form of energy technologies.
Prem Sagar Subedi
Financial services facilitate asset building by: a) providing access to additional funds for investments through loans, b) providing households a safe and remunerative alternative for holding savings for future needs and c) providing money transfer and other services which expedite money transfers. Evidence has shown that the poor often have high returns to capital and hence additional funds can help them to grow their businesses faster and earn more income for their family. Similarly, through loans or savings, the poor can stabilize their income and source capital to avoid, reduce and/or recover from losses, thus not falling into poverty or deeper poverty when farm and business difficulties or disasters arise.
Calvin Miller
The most important role of the microfinance services is to bring hope to poor people. To give them the certitude that they can count on the MFI to supply them with loans to give them the opportunity to solve their problems by their own means. Many financial institutions erroneously believe that the poor are not bankable. The crux of the matter is that, the poor have for a long time not been given the chance to display their propensity to save and borrow. Thanks to the protagonists of microfinance. Microfinance, which hitherto, in the early 80s only provided micro-credit or small loans to the economically active poor, now provides a myriad of financial services such as micro-insurance, savings, remittances and even home mortgages, to some extent. The role that microfinance (extending financial services to the poor) plays in eradicating poverty cannot be over-emphasized especially with regards to the attainment of the United Nation's Millennium Development Goals (MDGs). The question that one would ask is "what are these goals and how has microfinance contributed to the achievement of these goals?" Several studies carried out by researchers and also evidence of the positive impact of microfinance on poverty reduction, run through the first six out of eight Millennium Development Goals. Many households now have increased income as a result of financial assistance received from microfinance institutions. This has enabled them to send their children to schools and also provide them with their needs. Many microfinance institutions provide "credit with education" which increases the awareness of women towards child and maternal health. With increased income, women are now empowered to take control of their lives
Patrick Awuku Dogbe
We need a network of geographically diversified banking offices, accessible to any citizen, a duly legislated right to an account to make payments and receive financing through collateral loans and micro-loans. Such a network would offer an optimistic outlook on effective citizenship and socio-economic integration for thousands of people who are in severe risk of financial exclusion, marginalization, immersion in the underground economy and inability to adapt socially.
Antonio-Claret García García
Financial services provided to the poor community play a key role of informing them how to run their projects sustainably so that in future the community is able to contribute financially. It will also make them use the surplus to reinvest, pay for school fees, pay for medical expenses, build good houses, buy good clothes and afford good food for better health. With the surplus they get they will resort to biogas energy or kerosene thus conserving the environment. In this way the Millennium Development Goals will have been attained.
Lawrence Makheya
Providing access to affordable financial services is a critical building block in helping poor people improve their lives and create a better future. Professor Mohammad Yunus speaks of microfinance as a 'fundamental right' because it empowers poor people to improve their lives - with dignity - and provide for their basic human needs such as food, shelter, health and education. Poverty can be eradicated in our lifetime. Microfinance is the best tool available to achieve the Millennium Development Goals, to half the number of poor people as well as make major strides in education, health and developing just civil societies.
Drew Tulchin
Financial services provide the poor the opportunity to access credit and related services, build up resources both financial and non-financial to enable them provide not just the basic needs of food, clothing and shelter, but most importantly, build up their capital base and enhance the opportunities for them to engage in sustained economic activities; a sine quanon for poverty reduction. Financial services are that window of opportunity for the poor to make an entry and stay in economic production and for building sustainable livelihoods.
Christy Ahenkora Banya
Access to financial services by the poor has far reaching impact for the poor, whom the formal banks consider as non-bankable and high-risk category clients. In an individual's life it brings out their inherent talents, increases their self-confidence and self-worth. It enables them to create a business asset for the livelihood and to plan for the future. The family gets regular and consistent income. The habit of savings is inculcated and thus the dependency on informal lending with exorbitant rate of interest is avoided. It provides better access to health care, communication, entertainment, education and housing. Child labor and seasonal migration of the family in search of job is also avoided. The solidarity of the whole community or village is strengthened. Many entrepreneurial activities come into existence. The purchasing capacity increases. Infrastructure development takes place in leaps and bounce. Thus many of the Millennium Development Goals are achieved.
Milton Devadosan
"No collateral or savings" does not mean people have no diligence, entrepreneurship or capacity to become an independent shoemaker, tailor, bakery or student. No collateral or saving does usually mean, however, people are poor and need financial services to try out their possibilities. Access to financial services is the start of possibility. Poverty is eradicated only if every poor person realizes his own potential and builds a sustainable livelihood.
Toshi Nishigori
The poor need to have a space where they feel a sense of dignity as they venture to improve their standard of living. Microfinance is the first step. The space offers individuals a place where they can come to and be treated professionally, with courtesy and recognized as a valued client.
Hussain Tejany
Extending financial services permits poor people to realize their activities. In order to eradicate poverty and in the same way to achieve the Millennium Development Goals, people have to be helped in many ways, including: extending financial services to make them more accessible: financing MFIs at low interest rates to permit them to refinance to poor people at low interest rates; creating some mutual guaranty fund in each MFI to exempt poor people from having to provide personal securities they do not have; providing technical assistance to people in setting their projects; training people in SME and project management; cooperating with States and organizations in order to make easier the administrative procedures to set up SMEs and to reduce or exempt poor people beginning in managing SMEs from paying taxes.
Maguette GUEYE
Poverty can be defined as the denial of all human rights and has many faces; it means not being able to send your child to school or not knowing how to read and write, not having access to safe drinking water, not being able to visit a health centre when ill. Poverty is also insecurity, voicelessness and being excluded socially. This gloomy vision of our common planet and humanity is dramatically the way of life of millions of people in Africa. Many attempts to focus attention on the obstacles and opportunities facing the continent have been made. But, the quest of building and implementing suitable pro-poor credit institutions have been rejected from the debates. As years pass by, and 6 months before the 2005 UN evaluation summit which will measure achievements and define new development strategies to reach MDGs, it is important to highlight the useful role of microfinance in reaching the poor and achieving the MDGs. Credit in reality plays a more powerful economic, social and political role. It is a powerful weapon to generate self-employment opportunities for the poor. With appropriate credit institutions, and credit policies, it is possible to lead the society toward a desired shape. Through the interactive framework of microfinance (close relationships, formation and alphabetisation), poor people can acquire and experiment new income-earning opportunities and enlarge the process of creation of assets, enabling them to earn more and play an active role in the national poverty reduction commitment. At this level, while the MDGs remain unfulfilled, they also remain feasible and affordable. Banking on the poor can help to reduce extreme poverty in full respect of the Universal declaration of human rights and realise the dream by the year 2015.
Ndzana Olomo Patrick
Microfinance has the potential to contribute significantly to the achievement of the Millennium Development Goals, as documented in CGAP's Focus Note 24 (2003). This potential is more fully realized when microfinance is integrated with other critical services. Sustainable services that lead to high impact outcomes for the poor contributes directly to Eradicating Poverty & Hunger, Achieving Universal Primary Education, Promoting Gender Equality and Empowering Women, Reducing Child Mortality, Improving Maternal Health and Combating HIV/AIDS, Malaria & other critical diseases. Numerous studies have documented the impacts of such integrated service for better family nutrition, improved health, improved self-confidence and social standing for women, increased personal income and savings, and enhanced ability to cope with the destabilizing shocks and crises that characterize extreme vulnerability.
Sean Kline
The provision of microfinance to poor entrepreneurs is perhaps the single most effective developmental tool for achieving the Millennium Development Goals as it addresses nearly every target. Microfinance reduces poverty by increasing daily incomes, creating new jobs, building assets, and allowing clients to absorb economic shocks. With microfinance loans, the poor are able to use their increased income to buy more nutritious food, which in turn results in healthier lifestyles, healthier pregnancies, and healthier children. The income also enables clients to send their children to school, improve their shelters, and obtain health care. It allows them to buy essential tools to make their businesses more productive and provide employment within their communities. With access to savings and micro-insurance, poor clients are poised to absorb the economic shocks of death, serious illness, and natural disasters. This enables clients to contribute to reconstruction efforts, whether familial or communal, in the aftermath of an unplanned disaster. When provided through a group-lending methodology, microfinance services offer a venue for education about relevant social issues, such as HIV/AIDS, and peer support for personal empowerment and community involvement. Women, who make up the majority of microfinance clients worldwide, are empowered to be decision-makers in their families and leaders in their communities. It is in these grassroots settings that true and lasting developmental change takes place, and where progress is made toward reaching the Millennium Development Goals.
Stephanie Montgomery
More than ten years of experience with Mongolian women's NGOs shows that micro credit and income-generating activities among poor women not only help to them to survive during transition periods, it also develops them to become women entrepreneurs.
J Erdenechimeg
One of the biggest challenges facing the microfinance industry today is to develop financial products and methodologies for very poor or difficult-to-reach rural populations to reduce their economic vulnerability and increase their overall well-being. Microfinance can create an environment of community where people find connection, and can gradually bring about a more just, equitable, and peaceful society. Microfinance programs, when done well, are a powerful tool to promote not only the full potential of the individual, but the force of unity reflected in the concept of community. A sense of community motivates action for the common good rather than individualistic self-interest - and can result in greater protection of the environment and the promotion of material sufficiency rather than rampant consumerism. It can create opportunities for local economic self-sufficiency, thus helping to stem the out-migration from rural to urban areas, and from less developed to more industrialized countries.
Daniel A. Weiss
To reach the Millennium Development Goals, employment must be created and income generated for most people. To achieve this, investments in profitable business activities are necessary. Microfinance is an efficient tool for the smallest businesses. They constitute an important part of local trade and industry and create a considerable number of jobs and provide substantial income for poor families. Investing directly in commercial microfinance institutions (MFIs) or specialised funds helps to develop both jobs and new industry in small local communities. Thus extending financial services to poor people is an important element in the effort to reach the Millennium Development Goals.
Per Emil Lindoe
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