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. The graduation 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. In Uganda, 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 is the director of the BRAC microfinance programme
Image: Bangladeshi women wait for a volunteer to distribute their loan money collected from a microfinance agency at Manikganj,100 km (62 miles) from the capital Dhaka. REUTERS/Rafiqur Rahman