Inflammation and stories on Microfinance

Credit Access in JamaicaEarly in September 2017, the Executive Vice President of the Inter-American Development Bank, Julie Katzman (IDB), and the Minister of Finance and the Public Service, Audley Shaw, signed a pact for a loan of $20 million that will allow for greater credit access in Jamaica for micro, small and medium enterprises.

This initiative seeks to implement limited credit pledges to compensate approved financial institutions to upturn their lending to micro, small and medium enterprises in Jamaica. It will benefit the credit enhancement facility that was formed in 2009 and managed by the Development Bank of Jamaica.

The loan will permit the credit enhancement facility to assure a higher percentage of loans, with up to a maximum of $385,000.

These partial credit guarantees provided by the credit enhancement facility are anticipated to reimburse micro, small and medium enterprises that are incapable of meeting insurance requirements. As a result, the credit enhancement facility is acknowledging one of the major issues that limit an enterprise’s access to finance. Katzman pointed out that this will be the blueprint for an improved inclination and capability to loan to the micro, small and medium enterprises in the long run.

Such loans will enable relationship-building efforts among financial institutions and the enterprises, along with supporting the growth of the skill-set to measure credit earnestness. Credit access in Jamaica has become widely acknowledged, with enterprise owners becoming aware of the opportunity to obtain loans.

Since creditors have established greater credit access in Jamaica, the island’s central bank updated its reports noting that there was a collapse in new non-performing loans (NPLs). The collapse accounted for more than $1 billion from 2014 to the end of last December.

Securities institutions have, as a result, provided better credit underwriting and supervision for all commercial banks, building societies and merchant banks. These advances validate the banks’ commitment to managing the credit risks inherent in their portfolios, especially in a context where borrowers have demonstrated an increased appetite for debt.

Over the last two years, the Bank of Jamaica has stated that it has approved longer-tenured loans that back the facilitation of credit terms to revamp borrowers’ servicing of loans.

– Jalil Perry

Photo: Flickr

Credit Access in Pakistan: Focusing on Agricultural ProductionPositive news was received in May 2017 that improved credit access in Pakistan. The Asian Development Bank (ADB) recently agreed on providing a $20 million loan to help Pakistan’s Khushhali Microfinance Bank (KMBL), with the goal of expanding access to credit for agriculture, focused on related borrowers and small businesses.

Before this major loan, only 24 percent of the adult population was in possession of a bank account with a formal financial institution, while microfinance enterprises lacked the financing from the banking sector. Therefore, this loan will be of major help for KMBL – Pakistan’s largest microfinance bank – as it will finally provide the necessary financial services to micro, small, medium-sized enterprises and ultimately increase credit access in Pakistan. ADP’s goal is to increase the provision of financial services from 5,700 today to over 30,000 by 2020.

This loan will mostly focus on expanding agricultural credit as it represents the largest economy in Pakistan, accounting for 26 percent of its gross domestic product (GDP). By providing farmers with credit, they are able to improve agricultural production and come up with innovative agricultural technologies. It will also improve the standard of living of the rural poor agricultural society as a whole, by increasing crop production and therefore, farmers’ revenues.

One of the major challenges faced by farmers concerns the input expenditure per hectare that requires farmers to provide proof of credit, despite their level of assets in comparison with the credit they are seeking. This means that high input spending can be linked to higher productivity and growth.

For developing countries like Pakistan, agricultural production is low and therefore, there is not enough income being generated by farmers. Credit agencies, such as ADB, are therefore crucial for improving agricultural practices, by allowing credit access in Pakistan for farmers that need to make use of their working capital, fixed capital and consumer goods.

Ghalib Nishtar, the President of KMBL, said that finally having better credit access in Pakistan will “deepen the market penetration of KMBL into the rural economy” and increase openings of small businesses that are important for economic growth and prosperity.

– Sarah Soutoul

Photo: Flickr

 

Innovation: Islamic Microfinance in Sudan Helping to Reduce PovertyMicrofinance has become a crucial poverty-alleviating tool over the years, as it provides small loans to impoverished people lacking access to traditional financial services. Across the globe, microfinance institutions work towards tackling poverty and aiding poor people to develop their small businesses, which later can provide them with a regular income and give them the ability to sustain themselves. Those financial services are meant to target poor borrowers who have no collateral and would not otherwise qualify for a standard bank loan.

However, one of the challenges faced by Microfinance institutions is providing Microfinance services to Muslim countries under sharia or Islamic law, which limits the amount of interest that can be charged on loans. Therefore, a vast majority of Muslims refuse using traditional microfinance services because they are not sharia-compliant, meaning they are not in line with sharia law. This has led to the creation of Islamic microfinance, which is slowly gaining recognition among Muslim communities for reducing poverty and promoting business development.

Islamic microfinance in Sudan has become a government-mandated rule, due to their banking system being fully Islamic. Some of the applied sharia principles include risk-sharing, leasing and interest-free “loans.” Since 2006, the Sudanese banking sector has experienced the implementation of 10 microfinance institutions, the establishment of microfinance “windows” in 12 banks and the creation of “micro” products available for poor clients in five insurance companies. All of these new innovations have led to positive outcomes within the Islamic economy.

One of the positive effects of Islamic microfinance is improving financial inclusion for small farmers in Sudan. In 2010, the World Food Program partnered with microfinance institutions to launch an initiative that linked 3,000 farmers to markets and sources of financing in three Sudanese states. Two years later, this program has increased its influence to nine states, which has helped a total of 150,000 farmers.

Islamic microfinance in Sudan has led to many successes for the Sudanese community and Muslim states in general. Some of the benefits include economic growth, poverty reduction and better financial inclusion for those deprived of financial services. Not only does it enable the development of small businesses for the poor, but it also helps meet the needs of Muslim communities who refuse to use conventional financial services for religious reasons. Islamic microfinance still has a long way to go, as it has not yet reached enough Muslim communities. For example, in Sudan, only eight percent of the total population – estimated at 7.2 million – is benefiting from sharia-compliant financial services. However, since it increased its reach dramatically in such a short span of time, this brings hope for the improved success of Islamic microfinance in the near future.

– Sarah Soutoul

Photo: Flickr

Positive PlanetAccording to the World Bank, more than 2.5 billion people do not have a bank account and many of those people make up the world’s poor. So, it should not be surprising that just within the past decade, microfinance has become an increasingly popular form of business in many countries. Microfinance, or micro-lending, essentially refers to lending small amounts to individuals who do not have access to typical financial institutions.

Because this service goes to low-income individuals, it is popular among many nonprofits and private businesses to help people start enterprises around the world. Many microfinance institutions lend to women, young people and others who have been historically kept out of finance.

One organization, in particular, strives to alleviate poverty by empowering marginalized populations.

Since its founding in 1988, Positive Planet has set out to provide microloans to women who want to start their own businesses. The nonprofit aims to provide the chance to start a viable, sustainable business to women without resources. The organization also follows some of the intuition behind the Sustainable Development Goals, especially the goals of gender equality, decent work and economic growth.

The organization, based in France, manages projects through different locations that provide assistance to people in different countries. Positive Planet’s reach extends all over the world to 35 countries. Its projects span from helping refugee businesses in the Middle East to inspiring young people in West Africa.

Since its beginning, the organization has touched more than 40,000 people through nearly 40 projects. Just one of these projects helps microfinance groups provide women with financial education. The project aimed to help further develop the infrastructure in place for microfinance in China and also support women’s finance training. Through a partnership with Diageo and the Huimin Microcredit Company, the project was able to directly impact more than 7,000 people.

Another project assisted low-income women in Brazil with entering the labor market and learning the basics of entrepreneurship. The program attempted to benefit vulnerable women through individual support. By partnering with Gerando Vida, a local NGO, the program was able to directly impact the women and their families.

By helping vulnerable women around the world, this organization takes a staunch position against global poverty. This organization and its results demonstrate the importance of empowering women entrepreneurs.

Selasi Amoani

Photo: Flickr

Virtual MicrofinanceFounded in 2009 by Julia Kurnia, Zidisha is a virtual microfinance platform that seeks to combat poverty in developing countries by directly connecting lenders to entrepreneurs. To date, Zidisha has raised more than $10 million in microloans.

Zidisha, which means “grow” or “expand” in Swahili, is the first virtual microfinance service to eliminate the use of local intermediaries to disburse loans to companies in need. The Virginia-based nonprofit follows a platform similar to that of eBay, in which entrepreneurs post public loan requests for lenders across the world to access. This streamlined process is both cost-effective and convenient for emerging entrepreneurs who seek capital to accelerate their businesses.

Zidisha is not the pioneer of virtual microfinance. However, its distinctive feature is its commitment to lower fees and rates for entrepreneurs. Similar organizations such as Kiva make use of “field partners” who often distribute loans at interest rates of more than 35 percent to pay for administrative costs. Zidisha’s flat interest rate of five percent means that borrowers can retain more money to reinvest in their ventures.

The nonprofit has been a highly successful means of growing businesses in 11 developing nations. According to its website, lenders on Zidisha have fully funded more than 70,000 unique projects.

Developing countries are quickly adopting recent technological advances and joining an increasingly interdependent world. According to a Pew Research study, 54 percent of adults in emerging and developing nations described themselves as “Internet users” in 2015, a rise from 45 percent in 2013. However, in the same countries, formal job markets are inadequate and local banks are seldom financially helpful.

Thus, the use of cheap and effective microfinance is critical to spurring economic growth in emerging countries. Developing economies inevitably benefit from microfinance because entrepreneurs can use loans to pay for expansions, renovations, inventory and, most importantly, new employees.

Other virtual microfinance platforms could follow Zidisha’s cost-effective system of lending. If these platforms truly value charity and philanthropy through the form of financial support, they should recognize that the use of third parties to disburse loans poses a financial burden on emerging companies that cannot afford to accumulate thousands of dollars in unpaid interest.

People in developed nations should embrace the unique power of virtual microfinance. It is a viable, even profitable, form of philanthropy that has tangible effects on the crisis of world poverty. Using microfinance as a means of alleviating global economic distress will directly result in more jobs, profit and prosperity for those in need.

Henry Emanuel

Photo: Flickr

Islamic Microfinance
While poverty is a global phenomenon, the Muslim world is disproportionately affected. According to Iran’s Mehr News Agency, 46 percent of the world’s poor live in countries where Islam is the dominant religion. Since Islamic microfinance responds to the needs and preferences of Muslims, it can play a vital role in reducing poverty in the Muslim world.

Many Muslims avoid traditional finance because Islam prohibits usury, also known as Riba. While usury generally refers to unreasonably high interest rates that unfairly benefit lenders, some argue that the term covers any interest charged on loans.

This aversion towards non-concessional loans is what Islamic financial products can circumvent. At this year’s International Conference on Best Practices in Rural and Agricultural Finance in Kigali, Rwanda, Muhammad Zubair Mughal, CEO of the Al-Huda Center of Islamic Banking and Economics (CIBE), highlighted the utility of Islamic microfinance in agriculture and manufacturing.

“Islamic finance has specialized financial solutions for each segment of rural poverty,” according to Mughal. Riba-free contracts, such as Bai Salam and Modarabas, can provide funding to farmers to purchase seed and equipment, Mughal said.

Non-Muslim majority countries can also benefit from Islamic microfinance. Uganda, where only 14 percent of the population is Muslim, may begin making small loans compliant with Islamic law in 2017, according to a Bloomberg article from July 25, 2016. The loans form part of an initiative by Uganda’s Microfinance Support Center to increase employment and income in the country’s rural regions.

To alleviate poverty, Muslims have also begun raising money in other innovative ways. August saw the launch of WaqfWorld, the world’s first Islamic crowdfunding platform. The organization will use new technology to improve the flow of waqfs, donations of money or property in Islamic law, to charities with the goal of promoting community and economic development.

“Financial inclusion” is the central theme of the 6th Global Islamic Microfinance Forum, which is taking place in Nairobi, Kenya from Nov. 8 to 9. The poverty-reducing potential of Islamic financial products cannot be understated, and one of its primary advantages is that it benefits those excluded from traditional aid on account of their religion.

Philip Katz

Photo: Flickr

Whole foods market
Whole Food Market’s 2016 annual Prosperity Campaign for the Whole Planet Foundation raised $3.26 million to improve global poverty. All of the funds raised by Whole Foods Market will help support the foundation’s work to fund microcredit for poverty relief in 68 countries.

Philip Sansone, president and executive director for Whole Planet Foundation, shared that the “Whole Planet Foundation will be able to give an additional 91,100 people the chance to lift themselves out of poverty through microcredit and change their own lives” because of shoppers’ generosity.

The Prosperity Campaign encourages Whole Food Market supplier sponsors, customers, team members and online donors to donate to the Whole Planet Foundation, a nonprofit organization founded by Whole Foods Market. The foundation provides grants to microfinance institutions in Asia, Africa, the Middle East and the U.S. These countries then develop and offer microloans to the self-employed poor.

Microloans are small loans of usually less than $300 with no contract or warranty. The loans are used to help the world’s poorest create or expand businesses and make an income for their families. The average first loan size in poor countries is $184, but each microloan helps at least five people invest in their families.

Whole Foods Market covers 100 percent of Whole Planet Foundation’s operating expenses to ensure that all donations benefit microcredit clients. Since 2006, the foundation has distributed over $53 million in microloans across the world, giving 7.8 million people a chance at a better life.

In communities without many jobs, credit serves as a direct means for the poor to improve their family’s lives. Without jobs, the poor are left to their own devices to provide for their families. While microcredit loans alone will not end poverty, it will help provide better nutrition, healthcare, housing, education and schooling to families living in poverty. Whole Planet Foundation is committed to supporting life-saving opportunities to help global poverty.

Jackie Venuti

Photo: Flickr

Poverty_Aid

In Paraguay, where the poverty rate is 35 percent, the challenges of providing strategic and meaningful aid seem overwhelming. However, the Poverty Stoplight, a newly developed technology to help families self-assess poverty in their lives, is transforming communities.

In the words of Martin Burt, founder of Fundación Paraguaya and creator of the Poverty Stoplight, the technology “enables poor people to self-diagnose their own level of poverty in 30 minutes using a smartphone or tablet.” The app works through a survey that utilizes images as well as a color-coded system to identify extreme poverty with red, poverty with yellow, or no poverty with green. Families complete the survey by examining their poverty level in a number of different areas: Income and Employment, Health and Environment, Housing and Infrastructure, Education and Culture, Organization and Participation and Interiority and Motivation.

These six categories encompass 50 different indicators of poverty in Paraguay and therefore provide a multidimensional understanding of the circumstances faced by families in disadvantaged areas. Once they receive their results, families work with local community support to come up with a plan for improvement in red or yellow areas.

The international community also recognized the Poverty Stoplight for its efficacy in supporting gender equality. Many of the aid plans for families in impoverished communities include microfinance efforts to provide opportunities for women as well as training to reduce sexual harassment. Thanks to the technology of the Stoplight, many Paraguayan women are lifting their families out of poverty as owners of their own micro-franchises.

The color-coding mechanism of the Poverty Stoplight works beyond helping families describe their living situation by creating maps of countries, regions, even neighborhoods, that reflect the level of poverty in any given category. These maps help struggling families to identify others who face the same challenges or those who may have already overcome them, providing an opportunity for support and mentorship.

The Poverty Stoplight maps also allow governments and aid organizations to more fully understand the problems in these areas so that strategic plans can better support those who need it. By encouraging people to think of themselves “less as beneficiaries [of aid] and more as empowered agents of change,” the Poverty Stoplight is a respectful, insightful, and exciting tool for change.

In 2014, with only $1.5 million in donations and funds, the Poverty Stoplight helped improve the welfare of 18,000 Paraguayan families, an estimated 92,000 people. The low-cost nature of the technology, as well as it’s comprehensive strategies for assessing poverty in any given community, make it incredibly versatile.

As this revolutionary tool continues to eliminate poverty in Paraguay, it is migrating to other regions around the world. Nongovernmental organizations (NGOs) in 18 different countries have already integrated this new technology into their support initiatives, demonstrating the name Poverty Stoplight is quickly making for itself as a means of revolutionizing our modern strategies for identifying and alleviating poverty.

Kathleen Kelso

Photo: Flickr

World Council of Credit Unions
The World Council of Credit Unions has a simple mission: to improve lives through credit unions.

Credit unions give people in developing communities the opportunity to expand their horizons through microfinance, smart money practices and local businesses. The World Council of Credit Unions works to increase the number of credit unions around the world to give everyone their best chance at a healthy, prosperous life.

A credit union is defined as a member-owned and not-for-profit financial institution. This institution provides financial services, such as savings and credit accounts, to their members, although their formal name changes based on their location and people they serve. Credit unions serve their members based on a common linkage, like religion or occupation. Increasing the population of credit unions worldwide can help end poverty epidemics while improving the economic situations of countries.

The World Council of Credit Unions is a nonprofit organization that has been spreading the importance of credit unions worldwide since 2006. The international credit union system has more than doubled since its inauguration and continues to serve more than 200 million members to this day. The organization has credit unions in 105 countries as of 2014, including nations in Latin America, Asia and Africa.

Financial inclusion programs assist credit unions and their members in areas affected by serious conflict, helping them during and after the conflict has struck a country. These programs focus on bringing innovative technology solutions and providing resources to those in need. In total, the World Council of Credit Unions has 275 long-term and short-term programs that assist credit unions in more than 70 countries.

In 2014, the organization put forth its efforts to the project Vision 2020. Vision 2020 is a global membership growth project initiated by the World Council of Credit Unions to expand credit union services to at least 50 million new people by the year 2020. It is expected to solve the issue of having more than two billion people remain without banking services, with the majority comprising of women, young adults and those in extreme poverty.

The organization hopes to eventually raise the number of credit union members from 208 million to 260 million worldwide.

Julia Hettiger

Sources: WOCCU 1, CUInsight , WOCCU 2
Photo: Google Images

FINCA
FINCA International helps small business owners in more than 23 countries worldwide by providing the finances and resources they need to keep their businesses up and running.

The innovative nonprofit focuses on four core areas: financial assistance, social intermediation, enterprise development and social service impact.

FINCA International serves as a financial intermediary by providing developing business owners with loans, teaching them how to open savings accounts and helping them find insurance tailored to the products and services they offer. This helps new businesses blossom into full-running operations that help women and men provide for their families.

Their second facet, social intermediation, is also an important part of their business model. Because they are serving entrepreneurs in countries that may be lacking in gender equality, they have to serve as people who can help bring change to these communities. FINCA International provides this intermediation through education in financial literacy and Village Banking loan programs.

In addition to enterprise development, they also help developing communities through educational programs, nutrition services, and health training. These programs contribute to the success and growth of the villages and towns they serve.

FINCA International was launched in 1984 by former Peace Corps member Dr. John Hatch. Hatch started the organization as Village Banking, which operated in Bolivia and served as a financial intermediary for farmers struggling through tough economic times. The following year, Hatch started the organization.

In its early days, FINCA International operated primarily in Latin America, including Honduras, Mexico, and El Salvador, but by the early 1990s, its services had spread to Africa and Eurasia as well. Since its inauguration, FINCA International has lived up to its name and has provided services in countries all over the world.

Subsidiaries exist in countries in Africa, Western Europe, Latin America and Asia.

Julia Hettiger

Sources: FINCA, Give, Philanthropedia, MicroCapital
Photo: Flickr