Poverty Reduction Through Innovative Microfinance Services

By Peter Ryan, CEO and Founder MicroLoan Foundation

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.

If you want to find out more about MicroLoan Foundation and the work we do in Malawi and Zambia please visit our website MicroLoan Foundation and follow us on Twitter @MicroLoan

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5 Responses

  1. I agree that it is vitally important to help women trapped in a cycle of poverty, and also that we should be supporting the development of entire communities.  Computers 4 Africa are trying to break the poverty cycle by bridging the digital divide.  We believe it is essential that Africa be brought into a technological age so they can function in a global society.  By providing people in Africa with computers we are trying to help them support themselves, improving education and career paths.  Please read my post here: http://community.businessfightspoverty.org/profiles/blogs/computers

  2. At CARE International UK we agree that women and girls should be financially included.  We have found  that for very poor people the right approach is to begin by building financial assets and skills through savings rather than debt.   There is a savings revolution taking place across the world, with 7 million people becoming members of local savings groups, of which CARE facilitates 3 million.  Savings groups have been proven to help secure and stabilise volatile incomes and can also provide a stepping stone for investment in small enterprises to grow household incomes. Women involved in savings groups have also experienced increased confidence and sense of self-worth, freedom of mobility within their communities and financial independence. A striking example is our Banking on Change programme, which goes beyond microfinance and demonstrates that no woman is too poor to save.  This partnership with Barclays CARE and Plan gives people in the poorest communities the skills to save and manage their money effectively, and has already helped over 513,000 people, of which 80% are women across 11 countries.   The average saving per member per year is $58, but members start by saving as little as 5p per week.  To find out more please click here to read our Breaking the Barriers to Financial Inclusion report

    Gerry Boyle, CARE International UK

  3. Peter……how do you ensure capital appreciation in high inflation environments like Malawi?  How sustainable is the model if the MFI charges sub-economic rates of interest?

  4. We are structuring our social enterprises called RAVA EXCLUSIVE HONEY CLUBS on the same premises that empowers women, I am a founder of a Trust called Rava Zimbabwe Rava Trust a non profit entity that aims to inspire the ordinary person to take up reading, motivate those who read a little to read more, nurture a reading culture to the youth and ensure society is exposed to self-developmental and improvement books. Now to resource the Trust we initiate profit earning social enterprises that are people centred hence the formation of Rava Exclusive Honey Clubs, just to explain before I go further, I have studied in my community that lack of development or self improvement starts with lack of confidence in oneself due to ignorance. First and foremost people do not realize power is within oneself, They think help only comes from others and not themselves, a job has to be offered by someone otherwise there is no way of creating income. Women are really worse off having been disenfranchised by the traditional system and made to feel subservient to men since birth. Now having said that no amount of funding will change that mind set. Rava which means Read aims to work and change that mind set but at the same time this cannot be done in a vacuum. First contact has to be made with women groups and Rava Exclusive Honey Clubs facilitates first point contact where 10 Langsthrope bee hives are assigned to a club of say 20 women in a rural setting and they are shown how to look after them. When the honey is ready for harvesting our team goes to harvest the honey for central marketing with the income brought back to the club.  Income derived goes back to pay off the initial hive by way of installments. Now the 20 women brought together are introduced to reading self developmental/improvement books and material (Zimbabwe has over 90% literacy rate). This creates an opportunity to change mindsets and day courses within their locality to start off with beekeeping courses that will stretch into other courses as demanded by the group are then embarked on. Of course Rava has taken the opportunity to partner with Breast Cancer Alleviation in Zimbabwe that teaches women on breast cancer, self examination and early treatment. In other words health issues are then  also discussed at these forum. Invariably the group starts brainstorming and this will lead to individual projects being tabled and help for funding sort. Now enter Peter with Micro Loan Foundation.

    My point is that we have women out there who are very enterprising but the question is how do we spur that spirit. I would be interested to hear other people’s points on the model that I am setting. We are currently looking for a social investor to loan funding for 140 such clubs country wide. We are embarking on various Rava initiatives that are people centered but highly participatory with the aim of making recognizable brand that is multi-sectorial and can propel easy marketing of its products. It is at this Honey clubs where saving groups can be triggered.

     

  5. hi Friends:

    it is a good write up;

    however, i agree with Gerry that savings revolution as a precursor to Debt is quite result oriented approach.

    Honey club is a very good concept (if it is having regular market)-this is happening in many parts of India. if you need any guidance will love to help you guys.

    If any of your farmers are affected by water logging then let us know. We might help you with our World Bank Development Marketplace awarded water technology. if convinced- we can gift for some farmers also.

    regards

    Biplab K Paul

    bi******@gm***.com

    Ashoka Global Change Maker awardee

    Rockefeller Foundation Centennial Innovation Challenge awardee   

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