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Microfinance Institutions: The Good and the Bad


Microfinance institutions (MFIs) are institutions which serve to provide unemployed or low-income individuals or groups with access to financial services. The goal of most MFIs is to help individuals become self-sufficient. The institutions accomplish this goal by providing people with short-term funds aimed at providing long-term success.

Microfinancing may include lending capital, opening bank accounts, and offering insurance. Microfinance institutions charge interest on loans. However, interest rates are typically lower than standard bank rates. According to Investopedia, the majority of microfinance operations occur in developing countries such as Uganda, Indonesia, Serbia and Honduras.

Like any operation, microfinance has its ups and downs. On the downside, microfinance can be inundated with broken promises and corrupt institutions. A case study analyzing MFIs in Cameroon demonstrated that MFI’s were less effective at serving the needy in Cameroon than in other African states. The low number of active borrowers and the low percentage of women borrowers and depositors contributed to this conclusion.

According to Ethiopian Satellite and Television Radio (ESAT), the Dedebit Credit and Saving Institution run by the Ethiopian government, Tigrayan People’s Liberation Front (TPLF), has been providing high-interest mortgage loans. High-interest rates contradict the Ethiopian government’s goal of helping the Tigray community by providing low-interest loans.

Former member of the TPLF Asegede Gebreselassie says that the Dedebit Credit and Savings Institution has long been a means for exploitation by rulers in Tigray. Their exploitative actions have rendered many of the Tigray people debt-laden, bankrupt and impoverished.

MFIs are not all bad, though. Their positive impact on needy communities has been felt around the world. The rapid growth of microfinancing made reaching more than 130 million clients possible, according to the International Finance Corporation (IFC), a subset of the World Bank Group. The IFC is one of Columbia’s leading microfinance institutions with more than 460,000 clients. Micro-entrepreneurship has been a growing phenomenon in Columbia, especially among farmers. IFC’s impact on Columbia is an example of microfinance that works.

As microfinance operations continue to grow, they may become one of the most beneficial tools lifting communities out of poverty in a self-sustaining way.

– Rebeca Ilisoi

Photo: Flickr

Taking a Closer Look at Poverty Reduction in Bangladesh

Poverty Reduction in Bangladesh
The People’s Republic of Bangladesh has made a remarkable improvement in poverty reduction since 2000. The number of individuals living in poverty declined from 63 million in 2000 to 47 million in 2010, representing a 27% decrease.

Poverty in Bangladesh has reduced significantly largely due to changes in demographics and increases in labor income. Fertility rates also declined during this period. This led to fewer dependency ratios and a higher per-capita income.

“Against the odds, Bangladesh lifted 16 million people out of poverty in the last 10 years and also reduced inequality; that is a rare and remarkable achievement,” said Johannes Zutt, World Bank Director for Bangladesh.

Bangladesh’s recent improvement is a step toward becoming a middle-income country by 2021. Bangladesh needs to lift an additional 15 million people out of poverty. To do so, the government must boost investments in the transportation, power and gas sectors.

Moreover, the People’s Republic of Bangladesh could improve the skills of its labor force and focus specifically on the youth. This will harness the “demographic opportunity” of the country.

Bangladesh could also make use of its vast social safety net expenditures by improving program design to emphasize on human capital accumulation. Such services will be targeted towards the poorest communities and ensuring that growth remains inclusive.

Another considerable factor that contributed to poverty reduction in Bangladesh was microfinance institutions (MFIs). Such programs thrive to create innovative ways to financially support the poor.

These initiatives include training and entrepreneurial programs for the poor communities, helping 32 million individuals. In the past two decades, MFIs have contributed to poverty reduction in Bangladesh.

– Noman Ahmed
Photo: Flickr

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Greater Access: Financial Services in Developing Countries

Financial Services in Developing Countries
When talking about fighting global poverty, most people discuss solutions to problems of malnutrition, poor shelter, or dirty water. But how about greater access to financial services?

Most individuals in the developed world could never imagine living on wages of less than $10 a day. There are thousands of ways to secure an adequate daily income because of the countless economic opportunities that are supplied by developed markets.

Access to these financial services, a sparse resource in areas suffering from poverty, provides individuals with the chance to actively participate in securing a means of subsistence.

In March, the World Bank released a video interview with Douglas Pearce, the Global Lead for Financial Inclusion at the international organization. The conversation shed light on the lack of access to financial services in developing countries.

“My favorite number is two billion,” said Pearce, “Two billion is the number of adults who don’t have access to formal financial services.” This latest statistic has fueled the World Bank’s new Universal Financial Access Goal which targets 25 countries that account for 73 percent of the world’s “unbanked.”

Access to financial services in developing countries would offer more of the world’s poor the opportunity to feed themselves and increase their potential income. “Being able to tap into savings provides that level of protection, cushion, of falling back into poverty,” Pearce continued. This method of poverty relief plays an important role in sustaining an individual’s rise out of hardship.

The World Bank plans to meet the goal of more financial inclusion by ensuring that each individual helped has a bank account regardless of gender. Pearce hopes that these accounts will be “gateways to a range of credit, insurance, payment, and savings services.” These services then allow people living in poverty to afford education, a home or vehicle and equipment to start a business.

Pearce hopes that these accounts will be “gateways to a range of credit, insurance, payment, and savings services.” These services then allow people living in poverty to afford education, a home or vehicle and equipment to start a business.

There are multiple kinds of financial services that are being integrated into poverty-ridden areas:

  1. Microfinancing is a smaller, more intimate version of a traditional loan from a large financial institution. This type of lending is more beneficial for the poor because smaller institutions can work closely with the borrower to design a plan that works for both parties. Also, a relationship of trust between the borrower and the lender can often take the place of a good credit history which allows more people to qualify for loans.
  2. Access to a micro savings account allows people to safely store any additional resources as well as earn interest on money not being spent. Digital services provided by mobile technology can enhance the interaction between those in poverty and financial institutions as electronics get cheaper and internet access increases.
  3. Owning a micro insurance policy may not seem like a useful service for those with few assets, but its importance emerges as individuals start to rise out of poverty. People who are rising out of poverty cannot afford the sudden costs and extreme losses that come with an accident. Without an insurance policy, unexpected events endanger the pathway to a better life.

These financial services are being integrated into many developing countries across the goal. The emergence of these economic opportunities has the power to inspire entrepreneurship and income security in areas with the most poverty. As Pearce says, “financial inclusion has the potential to unlock opportunity for people.”

– Jacob Hess

Photo: Flickr

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Whole Planet Foundation: Benefits of Microfinance Institutions

Whole Planet Foundation

Whole Planet Foundation, the nonprofit organization founded by Whole Foods Market, seeks to alleviate poverty in communities around the world that supply Whole Foods stores. All of the Foundation’s overhead costs are covered by Whole Foods Market, meaning 100 percent of donations go straight to community micro-lending programs.

According to the Kiva organization, “microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services.”

Microfinance encompasses a wide array of services, such as credit, savings and small loans services. Whole Planet Foundation focuses on the credit component of microfinance by supporting microfinance institutions that provide small business loans.

To ensure the efficacy and intentions of Microfinance Institutions (MFIs), Whole Planet Foundation conducts careful research. Field teams in each country first identify potential partners. After reviewing relevant information, the list of potential partners is shortened.

Each institution is visited in person by Regional Directors. The field visit allows the Foundation “to see first-hand the approach and practices of an MFI”. Once approved, MFIs are eligible to receive grants from the Whole Planet Foundation to service their clients.

The field visit allows the Foundation “to see first-hand the approach and practices of an MFI”. Once approved, MFIs are eligible to receive grants from the Whole Planet Foundation to service their clients.

The Whole Planet Foundation does not work with government-run MFIs which they have found to be “poorly run and corrupt”. The Foundation states that it has found “great success by working with MFIs with no government affiliation”.

At the same time, the Foundation acknowledges that microcredit is not a “silver bullet” that can address all the factors that contribute to global poverty. As the website notes, one loan doesn’t immediately lift a family out of poverty.

However, MFIs, when run correctly, can help people without jobs start and maintain their own businesses. MFIs give people the opportunity to invest in their own potential and create opportunities for themselves and their families.

Whole Planet Foundation currently supports over 1.3 million micro-entrepreneurs in 70 countries around the world. Of note, 87 percent of those reached globally are women. This investment has been met with success, boasting a repayment rate of 97 percent.

One entrepreneur who is benefitting from the program is a woman named Yajaris from Nicaragua. According to the Foundation, she heard about her local MFI, Pro Mujer Nicaragua, from a neighbor several years ago. She used micro credit loans as a way to expand her kiosk business. Yajaris added a variety of vegetables, drinks and cleaning supplies to her inventory.

Microloans also helped Yajaris to purchase a refrigerator and shelves on which to display the new items. Within just three years, according to Whole Planet Foundation, her kiosk doubled in size. Yajaris used her savings and an additional housing loan from Pro Mujer to build a two-room home. She rents out that property and is currently using the rental income to save up for another floor.

According to Kiva, the benefits of MFIs have been proven to go far beyond supporting small businesses. By providing people with opportunities to become self-sufficient, household economic welfare stabilizes, allowing families to better cope with the challenges they face. The success of female-run businesses, in particular, contributes to the increase in gender equality. As households succeed, communities can grow to become more empowered and educated.

– Taylor Resteghini

Photo: Flickr

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Cashpor Micro Credit Fights Poverty in India

Poverty_business_finance

Cashpor Micro Credit is a non-profit assisting those who live in impoverished communities in India. The organization uses microfinance techniques and loans to help women build a life for themselves and their families in addition to earning enough money to repay the loans provided to them by Cashpor Micro Credit.

Cashpor Micro Credit

Founded in Varanasi, India in 1996, the organization works in Uttar Pradesh and Bihar, India. In addition to microloan assistance, Cashpor Micro Credit also provides scholarships for college education, financial training, health education and insurance programs.

Their mission is to reach all impoverished women throughout the BIMARU states in India, which include the cities of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh, and guide them in lifting themselves and their families, out of poverty.

Astronomic Growth

As of 2014, Cashpor Micro Credit had 864,551 women actively borrowing loans from them, according to Mix Market statistics. Their gross loan portfolio, which comprises all outstanding client loans, reached 147.4 million, with the average loan per borrower averaging 170 dollars. This has allowed them to maintain a 40 percent business growth over the past few years.

In total, Cashpor Micro Credit has 341 branches in and around the BIMARU states. Cashpor Micro Credit is known for its efficient business model, the way in which it manages its finances and assets and the fact that Cashpor Micro Credit shares this knowledge with its clients to ensure a proactive use of their loans.

Three Main Programs

Its credit plus activities are divided into three major programs. This program assists members through scholarships, health education and a community health facilitator program.

The scholarships allow members to send their children to college, thus distancing them from the poverty line.

Cashpor’s health education teaches overall health to their clients. During their regular business meetings, community leaders are required to engage in 15 minute discussions about health, including how to best fight illnesses in children.

The community health facilitator program is designed to provide clients with a health mentor, who will give health intermediary services. The program designates 80 women, who are trained in health and assigned to 300 Cashpor clients. The program is run in each district Cashpor operates in.

Improving Quality of Life

Cashpor Micro Credit continues to assist those in India struggling to get out of poverty and will continue until the quality of life in India becomes sustainable, abundant and efficient.

– Julia N. Hettiger

Photo: Flickr

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CARD MRI Empowers Women through Microfinance

CARD MRIThe Center for Agriculture and Rural Development’s Mutually Reinforcing Institution (CARD MRI) fights poverty in the Philippines. It does this through strategic microfinance programs aimed at helping women living in poverty.

The institution first started helping women with finances for activities on a small scale like education, farming and health. Now, the institute’s main goal is to help women evolve into businesspersons through years of training and education on how to manage loans.

These newly evolved businesswomen called for a new type of assistance. To accommodate, CARD created multiple banking institutions such as CARD Bank, Inc. and CARD SME Bank, Inc.

CARD MRI was founded unofficially in 1986, as CARD, an organization to help social development. It was founded by 15 development practitioners. They came together in December 1986 to assist underdeveloped communities in the Philippines.

The year 1988 marked the official start of CARD’s operations. They began assisting women who owned no land by creating a training-focused community and livelihood assistance program for coconut workers. The organization followed this model for some time. Then it initiated another program for landless women, called the Landless People’s program, in 1990.

It was in 1995 that CARD decided to extend its program to start the Mutually Reinforcing Institution. After receiving the proper licensing in 1997, CARD MRI began assisting landless men and women through their microfinance programs.

In addition to assisting with loan management development and livelihood expenses, CARD MRI also has a Microfinance Plus program that assists people with holistic needs. The program issues micro-insurance for pharmaceutical needs, strategic marketing services and life insurance.

CARD MRI routinely collaborates with other development programs to ensure everyone has fair access to their community development services. These services include health, education, resource mobilization and communication.

Most recently, CARD MRI acquired the Riza Rural Bank. This allowed them to expand their services even further throughout the Philippines. The creation of their Leasing and Finance Corporation was fulfilled in 2013, adding to their growing number of reinforcing institutions.

– Julia N. Hettiger

Sources: CARD-MRI, My Philanthropedia, PR News Wire
Photo: Flickr

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Lendwithcare: A New Kind of Microfinance

Lendwithcare

Next time you need to give someone a gift, why not give the gift of giving? That is the idea behind Lendwithcare, a microfinance program established by CARE International UK. The idea is simple: you give someone a gift voucher that they can use to help the less fortunate.

At a minimum of £15, Lendwithcare vouchers enable people eager to give to provide loans for entrepreneurs in developing countries that lack access to financial services and institutions.

Entrepreneurs can fold themselves into the program by applying to local microfinance institutions (MFIs) partnered with Lendwithcare. If the MFI is confident in the entrepreneur, they give them their stamp of approval and put them in touch with Lendwithcare, which makes a profile for the entrepreneur on its website.

Lendwithcare lenders can go online, read about the entrepreneurs and their ambitions and choose which one they would like to support. After that, the entrepreneur’s activities, setbacks and successes can be tracked on the Lendwithcare website. Their profiles will be regularly updated.

Once the loans are repaid, the lender can either withdraw or find another entrepreneur to finance. It’s the gift that keeps on giving.

Since its founding in 2010, Lendwithcare has partnered up with MFIs in Benin, Bosnia and Herzegovina, Cambodia, Ecuador, the Philippines, Togo and Vietnam. According to the Guardian, by 2013, they had processed over 74,000 loans totaling £2.7 million to 4,600 entrepreneurs worldwide.

Best of all, the loans are not cut down by administrative charges. Everything goes to the entrepreneur. Lenders do not have to worry about not getting their money back. Lendwithcare’s default rate is “virtually zero,” says the Guardian.

For over two decades, according to their website, CARE has used microfinance to serve people who otherwise would not be able to find loans to support their businesses and households. Microfinance also helps entrepreneurs avoid loan sharks who prey on low-income areas.

CARE views microfinance “as a long-term and more sustainable approach to helping poor people” than simpler aid provisions. Microfinance encourages and supports self-sufficiency.

Despite the increasing popularity of the method, CARE believes that “the real potential of microfinance is still to be realized.”

Lendwithcare is the next step toward reaching that potential. Rather than restricting lending opportunities to professional institutions, the program allows regular people to get involved with financially supporting entrepreneurs in developing countries, many of whom come from isolated rural areas, according to Lendwithcare’s website.

Guided by its “strong social development mission,” Lendwithcare encourages loans which “create employment opportunities for the very poor, promote sustainable agriculture, recycling and renewable energy and energy efficiency.” It also refuses to promote loans that “involve poor animal welfare.”

Not only do loans help underprivileged entrepreneurs and the communities they live and work in but they also give do-gooders a chance to enjoy a new kind of gift.

BBC Three’s Stacey Dooley, an eager lender herself, wrote a moving article for Huffington Post about meeting the people she supports in Bosnia and Herzegovina. Lendwithcare vouchers are different from charity gifts, Dooley says, “because they keep on giving, year-in and year-out.”

With its skyrocketing success, Lendwithcare has demonstrated that its model works and that other companies can use this revolutionary idea to make development more personal and sustainable.

– Joe D’Amore

Sources: Huffington Post, Lendwithcare, The Guardian
Photo: Care International

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Ghana’s AFAWI Empowers Marginalized Groups

AFAWI
The Alliance for African Women Initiative (AFAWI) is an organization that was founded in 2005 to support people, particularly women, affected by HIV/AIDS in Ghana.

The key founders of the organization were Yaw Adu Dartey, Eva Asiedu and Kwesi Agyei, the man whose vision led to the foundation of the group. Through the understanding that HIV/AIDS is a key component of women’s health, this organization sought to fight this grave disease and its effects on women, children and society as a whole.

Acting as a grassroots organization, AFAWI leads projects to empower women, people living with HIV/AIDS and other marginalized groups in the community. It also works with different international organizations to create sustainable development initiatives.

One of AFAWI’s projects is the clothing cooperative that urges women to use their skills to manufacture clothes made from 100 percent Ghanaian materials.  The livelihood project offers loans with a low monthly interest rate to women who are in need of initial capital for their businesses.

Another initiative is the healthy menstrual management project, which is an initiative supported by the Canadian International Development Agency (CIDA) to help girls stay in school during menstruation. The women in the oil industry project seek to empower women through education and employment opportunities in the oil industry in order to aid economic development.

Another long-term project run by AFAWI is the ECCACHILD project, which seeks to meet the needs of the most vulnerable children in communities surrounding Accra. Many of the children have been orphaned by the AIDS epidemic. As a result of this project, about 50 children have been enrolled in the National Health Insurance Scheme to give them access to free medical services.

AFAWI has also taken on the issue of gender mainstreaming in development projects. At a 2014 meeting with SEND Ghana, the topic was addressed: “Gender mainstreaming means providing equal access to men and women, for controlling over resources, decision making and benefits at all stages of the development process and projects,” states an article about the meeting on the AFAWI website.

“Gender mainstreaming is not about women being given more power than men, but rather about equalizing the playing field. Giving women the opportunity to empower themselves and close the gap between the sexes.”

AFAWI’s goal is to ensure projects and policies are constructed to empower women in their communities. “AFAWI’s microfinance program has allowed many women to start their own businesses,” says the article. “Not only do they now earn their own income but AFAWI also provides training to ensure the women understand the importance of business structure and saving.”

Although the project also helps vulnerable and needy children, focusing on women is vital. Gender equality is a necessary prerequisite to leading a developing country like Ghana toward being more developed, both economically and socially. Since women tend to make up the majority of the poor and marginalized in developing countries, empowering them and incorporating them into the nation’s development is necessary for growth.

As Dr. Emmanuel Kwegyir-Aggrey states, “Educate a woman, and you educate a whole family.” AFAWI’s efforts to improve gender equality and, in turn, women’s and children’s standing and opportunities in society, therefore, is a great contribution to fighting poverty.

– Vanessa Awanyo

Sources: Alliance for African Women Initiative 1, Verge Magazine, Alliance for African Women Initiative 2
Photo: One World 365

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Shared Interest Helps End Poverty in South Africa

shared_interest
For 21 years, Shared Interest has helped end poverty in South Africa by connecting farmers and handicraft makers with legitimate and supportive investors. In 1994, South Africa had its first democratic elections, and Shared Interest was launched to help bring South Africa out of poverty. The organization was initially started by black South Africans, who had been sent into exile, in the United States in 1985. Shared Interest established a partner organization called the Thembani International Guarantee Fund in South Africa in 1995 to work with banks to invest in low-income black townships and rural communities and help bring them out of poverty.

Shared Interest is the only nonprofit committed to providing guarantees and supplies to black townships and rural communities in South Africa. While South Africa does not suffer from a lack of capital, the country has issues with evenly distributing capital to its residents. Shared Interest works to alleviate this problem by helping banks enhance their financial principal.

The organization was founded by Donna Katzin, who served as executive director from 1986 to 1994. All of the board members have continued to assist South Africa with social justice, education and development.

When people receive the investments, they are able to afford houses, start businesses, support their families and create jobs. This also allows community institutions to expand their operations to better serve more clients, strengthen their finances and increase their commercial viability. Financial institutions and banks benefit as well, as it allows them to build their capacity to serve the underprivileged.

There are more than 400 individuals and institutions in the United States investing in rural communities in South Africa, with investments totaling over 12 million dollars. As of right now, all of the investments have been paid back and the investees have utilized the loaned funds to bring themselves out of poverty. As of 2012, 79,657 people have received assistance from investors, with 100 percent of them being able to pay them back. Because of this support, 43,429 jobs have been created and 36,219 small businesses and microfinance clients have benefitted. In total, 145,473 people have served as guarantee beneficiaries.

Every August, Shared Interest hosts a month-long celebration honoring women in South Africa. The celebration focuses on empowering women who run businesses and are struggling with upholding their economic, social and political rights. The celebration brings together investees to commemorate making it out of poverty and to overcome other issues together.

– Julia Hettiger

Sources: Shared Interest, Matador Network
Photo: BrazilWorks

Muhammed Yunus Turns 75

Muhammad Yunus
Try to buy a house without a mortgage loan or start a business without a business loan. For most of the world’s population, even in developed countries, these tasked are difficult. In the developing world, where financial services are virtually nonexistent for millions of the poor, opportunity is a myth and breaking an endless cycle of poverty seems hopeless.

Bangladesh celebrated one of its own as Muhammed Yunus turned 75 years old on June 28th. Often thought of as the pioneer of the modern micro finance concept, Muhammed Yunus has, for decades, been an advocate for social business practices and alleviating global poverty.

Mohammed Yunus was born in Bangladesh India and is a social entrepreneur, banker, economist and civil society leader who was awarded the Nobel Peace Prize in 2006 for founding the Grameen Bank.

The Grameen Bank is a microfinance organization and community development bank founded in Bangladesh that makes small loans known as micro-credit or “grameencredit”, without collateral requirements to impoverished entrepreneurs.

The Oxford dictionary defines micro-finance or micro-credit as the lending of small amounts of money at low interest to new businesses in the developing world.

During his tenure as a professor of economics at Chittagong University in the 1970s, Muhammed began experimenting with providing small loans to women in the tiny village of Jobra. Today, the World Bank estimates approximately 160 million people in developing nations are using micro-finance.

Yunus Social Business, an organization co-founded and chaired by Muhammed Yunus, calls itself a company created with the sole purpose of solving a social problem in a financially self-sustainable way.

Muhammed Yunus, with the success of the Grameen Bank and his concept of social business, among many other accomplishments, has won 112 international awards, received 55 doctorate degrees from 20 universities, was ranked by Time Magazine as one of the top 100 public intellectuals of the world and has authored internationally acclaimed books, published and translated into numerous languages.

Today Muhammed Yunus, as he reaches age 75, is celebrated all over the world and is still very much involved in the mission to fight global poverty. Recently, Yunus Social Business (YSB) launched its first social business accelerator in Uganda, a land locked country in East Africa, haunted by conflicts resulting in millions of deaths and plagued with child slavery. With the implementation of the program, Yunus Social Business hopes to address social and environmental problems in Uganda in a financially sustainable manner by promoting and empowering social businesses through the provision of business development services, impact investment funds and related technical support.

Uganda, an impoverished nation and an area of operation for the Lord’s Resistance Army (LRA), a rebel group listed by the U.S. as a terrorist organization, could benefit from the Yunus Social Business model and possibly emerge from a society torn by war.

Through the implementation of micro-finance and the ideology of social business, societies around the world, mired for centuries in poverty could become self-sustainable and thanks, in part to Muhammed Yunus, more could lead rich fulfilling lives.

– Jason Zimmerman

Sources: Kiva, Prothom-Alo, World Bank, Yunus Social Business 1, Yunus Social Business 2
Photo: Huffington Post