Poverty Reduction Through Innovative Microfinance Services
Women perform 66% of the world’s work but earn only 10% of its income and own just 1% of global property (Global Poverty Project). They are more likely than men to be poor and at risk of hunger because of the systematic discrimination they face in education, healthcare and employment. Women also experience much higher levels of financial exclusion and face persistent discrimination when they apply for credit. This means that many impoverished women cannot access the capital to invest in income-generating activities and remain trapped in a cycle of poverty and subsistence living. One way to break this cycle and provide a sustainable route out of poverty is through microfinance.
I am the Founder and CEO of MicroLoan Foundation, a microfinance charity working in sub-Saharan Africa. I founded the charity 10 years ago, and have seen firsthand how microfinance can change the lives of individuals and whole communities. I have seen how a small amount can go an incredibly long way to providing long-term, sustainable change.
Microfinance, attributed to banker Muhammad Yunus in 1970s Bangladesh, is the provision of financial services to those lacking access to formal banking. More often than not, therefore, microfinance services are targeted at providing loans to poor people. Proponents of microfinance argue that it provides a sustainable and empowering route out of poverty and often into employment as loans tend to be invested in setting up and growing small businesses. Its critics, however, highlight issues of debt, and question the effectiveness of microfinance at tackling long-term poverty.
Traditionally, pro-poor microfinance services, usually in the form of small loans lent to poor people to establish and grow small businesses, are considered “good” microfinance and are proving highly successful in lifting communities out of poverty. In recent years, however, we are increasingly seeing the rise of what we would term “bad microfinance” with microfinance institutions (MFIs) offering a form of ‘pay day loan’. These forms of loans are particularly prominent in urban areas of developing countries, where loans can be disbursed easily, and with unaffordable rates of interest for the recipients. Pay day loans differ fundamentally from pro-poor microfinance services in that they operate for financial gain and the enforcement of loan repayments are often supported by the use of unscrupulous debt collection practices.
Negative coverage of pay day loans in the UK has been prominent in the press over the last week or so when the Archbishop of Canterbury announced he wanted the Church of England to force pay day companies out of business by competing against them. He has said he plans to expand the reach of credit unions, which provide small loans to their members, as part of a long-term campaign to boost competition in the banking sector.
From a personal perspective, I decided something needed to be done to support poor women when I travelled to Malawi in the nineties. I saw the disparity between rich and poor and realised the need and opportunity for a microfinance service in sub-Sahara Africa, so in 2003 I founded the MicroLoan Foundation. Malawi is the eighth poorest country in the world and I realised that by setting up the Foundation, we could empower women to set up small businesses and work themselves and their families out of poverty, thus supporting the development of entire communities
At MicroLoan Foundation, we made the decision to target our small loans and business training solely towards women, as research has shown that women tend to invest approximately 90% of the profits back into their families and communities. We have been operating for over 10 years now, and year on year we see thousands of women investing their business profits in food for their families and education for their children. The fruits of their businesses are not only transforming their lives, but that of their families and entire communities. And this is exactly what I wanted to see when I set up the organisation over 10 years ago.
Something that really sets MicroLoan Foundation apart from other MFIs, is the extensive and participatory training and on-going mentoring MicroLoan provides the women, alongside its loans. This training and support ensures that the women are educated on a whole host of important topics such as marketing and budgeting, ensuring that their businesses are a success. Through the services we provide, our 29,000+ beneficiaries develop small, sustainable businesses, which generate profits and savings, increase household spending on healthcare, dietary consumption and education. Unlike ‘pay day loans’, our focus is on lifting these women out of poverty, and seeing lasting, positive change. We do not make a profit, and the interest we charge exists only to cover the costs of delivering our services which, as we operate in isolated rural environments, are high.
No single intervention can overcome global poverty, but I believe that small steps, and small amounts of money, targeted in the right way, can make a huge impact. Good microfinance can change a whole family’s life, and in time can change a whole community, and maybe even a whole country. Despite its criticism, the huge positive impact that microfinance can have is still being recognised, with philanthropists, social investors, local banks, governments and international institutions setting up programmes (Forbes). I think this is testament to the potential for microfinance to continue encouraging development globally over the next decade.