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Microfinance and the World’s Poor

microfinance-world-poor
Poor populations in developing countries worldwide are often ignored by most lending institutions. Traditional banks typically do not loan to those with little income or other forms of collateral. As a result, it is extremely difficult for those in poverty to advance economically without access to forms of credit, insurance, or savings mechanisms.

Microfinance services provide these low-income individuals with a broad range of financial tools involving small amounts of money in the hopes that services like capital, banking, and insurance will assist them in rising out of poverty. The World Bank estimates that there are around 160 million people in developing countries that are currently benefiting from microfinance. Many of the institutions that provide microfinance services are nonprofit organizations like Kiva and government agencies such as the United States Agency for International Development (USAID).

Many case studies have demonstrated that microfinance is responsible for helping low-income households meet basic needs, improve their economic welfare, and grow their livelihoods. Microfinance also helps to empower women by providing microcredit, thereby promoting equality and economic opportunities.

Microcredit provides poor entrepreneurs the ability to start or expand their businesses. Having this reliable source of credit makes it easier for them to manage cash flow and business activities. Even though the size of the capital lent seem comparatively small, sometimes less than a couple hundred dollars, it is a significant sum for half of the world’s population, who lives on less than $2 a day.

After using credit to start a business or buy land, poor individuals in developing countries can benefit from savings services that microfinance institutions provide. Since the poor are more likely to lose control of their money due to mismanagement, fraud, and corruption, secure financial services allow safer and more responsible transactions. Additionally, low-income families in developing countries are more likely to be adversely affected economically due to many uncontrollable factors such as death, illness, and natural disaster. Access to credit, insurance, and savings can make these precarious conditions easier to manage and maintain financial security.

Empirical evidence from the Consultative Group to Assist the Poor (CGAP) shows the benefit that microfinance services can provide to the world’s poor. For example, members of the Grameen Bank, a nonprofit microfinance organization for women, who use microfinance services have over 40% higher incomes than those who do not. Development in countries like India, the Philippines, and Morocco has also been advanced due to microcredit. Businesses have expanded and industries have diversified.

Individuals in developing countries are in dire need of a broad range of financial services. Microfinance services provides these people with the opportunity to develop their own businesses, build assets, and manage their incomes and risks. Those who are given access to microfinance services live in significantly better economic conditions than those who do not. And in time, many of these people are able to pull themselves out of poverty.

– Rahul Shah 

Sources: KIVA, CGAP, Lend with Care
Photo: The Guardian

Take Africa to the Bank

Solve_Poverty
The lack of financial services for the world’s poorest is one of the greatest obstacles to economic growth in developing nations. Pindie Nyandoro, one of the chief executives of Africa Standard Bank, makes the case that the state of Africa’s small farmers and entrepreneurs defines the developmental ceiling of the continent. According to him, the post-2015 development agenda needs to support innovative financing and legitimize the informal financing sector in Africa. The unbanked need our consideration.

He recognizes much of the good work is already being done. Nyandoro commends mobile banking services—like M-Pesa, Ecocash, and Mzansi, to mention a few—for their innovative approaches versus traditional banks. Utilizing mobiles is exactly the kind of specialized financing that African countries need because Africa has some of the lowest private-credit-to-GDP ratios on the planet. Their approaches also need to reduce up-front costs like finance infrastructure and public education about finance basics.

Another approach he applauds is the “SME Quick Loans” of the Standard Bank Group, which substitute psychometric testing for conventional credit analysis. Their practice makes desperately needed loans available to millions who otherwise can’t access lending services because of their background. Theirs is another example of financial service being tailored to riskier, but still profitable, circumstances with great success.

The place where he sees the most potential, however, is in informal finance. Although only a residual sector in more developed economies, he argues that its regulation in Africa is the key to prosperity. Informal credit associations, savings groups, and the limitless army of entrepreneurs that form them make up 60% of employment and income in Africa. In his view, policy that legitimizes them, shapes public education around them, and otherwise caters to them could transform an otherwise unstable sector into a booming revenue-churner.

He warns that, without the right policy action and pressure, the truly massive potential of this group could continue going untapped—and economic growth in Africa could slow down. They are the key. And the upfront costs of reaching out to them, in his view, are worth it.

– John Mahon

Sources: ECDPM, The Guardian
Photo: International Land Coalition

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Pro Mujer International 101

Pro_Mujer_International_info
Pro Mujer International is a development and microfinance organization helping women in Latin America. They provide financial, health, and human development services to help women break the cycle of poverty. Pro Mujer equips women with the tools and resources necessary to build their own livelihoods through microfinance, business training, and health care support.

Pro Mujer is motivated to affect change in Latin American society. They understand the conditions of income disparity and gender inequality. They believe that when women are given the tools to lift themselves out of poverty, they will also lift their families too. According to Pro Mujer, women are more likely to reinvest in their families to provide education, healthcare and to improve living conditions.

The organization is committed to a client-focused approach that actively seeks results. They strive for integrity, transparency, solidarity and they work to maintain commitment to human development. Pro Mujer was founded by Lynne Patterson and Carmen Velasco in 1990 in Bolivia. Their vision for an organization to help lift women from poverty has today become one of Latin America’s premiere development and microfinance organizations for women. Pro Mujer has since been able to allocate over $1 billion in small loans and services including empowerment training, preventive health education and primary healthcare services.

Examples of the financial services provided by Pro Mujer include small business loans, education and housing loans, savings accounts, and life insurance. Their business and empowerment training programs teach women to be more economically independent and informed decision makers as well as teaching basic financial literacy, and empowerment training on domestic violence, communication and leadership skills. Additionally, Pro Mujer is able to provide healthcare assistance including pre and post natal monitoring, family planning, and sexual and reproductive health services to name a few.

Pro Mujer’s current CEO is Rosario Perez. Perez began her career in private banking where she was charged with leading multinational businesses and teams and executing organizational transformations. She is now responsible for Pro Mujer’s portfolio of more than US $100 million and 1,700 employees. Her employees serve more than 2,547,000 clients in Argentina, Bolivia, Mexico, Nicaragua, and Peru.

– Caitlin Zusy

Sources: Pro Mujer, Mastercard Worldwide

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Caterpillar’s Role in International Development

Caterpillar's Role in International Development

Caterpillar Inc. is an Illinois based company that plays a dominant role in energy, trade, and infrastructure for developing countries. Yet Caterpillar is more than just business. The philanthropic efforts of the Caterpillar Foundation, founded in 1952, have contributed more than $550 million towards human development around the world. The Foundation has partnered with a variety of key organizations to fund projects in the areas of environmental sustainability, access to education, and meeting basic human needs for food, shelter, and healthcare.

As a Fortune 100 company with 2012 sales and revenues of $65.875 billion, Caterpillar is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. They are best known for their big, yellow tractors. Caterpillar’s global reach and presence are unmatched in the industry. They have a presence in more than 180 countries around the globe and over 500 locations worldwide. More than half of their sales are outside the United States. As a powerful multinational corporation, Caterpillar has a very influential role in human development.

The Caterpillar Foundation invested $3 million during 2012 in a partnership with a World Resources Institute (WRI) project to promote the development of sustainable cities in China, India and Brazil. Through this “smart cities” initiative, WRI will work with five cities on strategies to increase energy efficiency, curb greenhouse gas emissions, and improve water quality, urban mobility and land use.

Specific project goals include solutions that will reach one billion people with new public transportation options; avoid 617,000 metric tons of CO2 emissions in the transportation area; reduce nitrogen, phosphorus and ammonia water pollution by 15 percent; and provide more reliable energy to 11 million industrial, corporate and residential consumers. In total, the Caterpillar Foundation expects to support this project with $12.5 million over five years – all in an effort to curb the negative environmental side effects of rapid urbanization in the developing countries.

The Resource Foundation is another partner of the Caterpillar Foundation. This $3 million partnership will reach more than 11,000 children in Latin America and the Caribbean over three years, beginning in January 2013. Through a regional strategy targeting specific communities in 10 countries, the program seeks to improve academic achievement, gender equity and life skills among primary school-age boys and girls from 54 schools.

The Caterpillar Foundation has also been a long-time supporter of Opportunity International’s microfinance programs in more than 20 countries around the world. The Caterpillar Foundation’s investment has helped Opportunity International provide life-changing microloans to more than 75,000 small entrepreneurs, create 30,000 jobs and give more than 60,000 rural families access to basic banking services. A majority of Opportunity International’s clients are women who reinvest more of their earnings into health care, education and their communities, which helps break the cycle of generational poverty. As of July 2012, Opportunity International has four million clients, 17,600 employees, 2.3 million insurance policies, and a 95 percent loan repayment rate.

– Maria Caluag

Source: Caterpillar,CSR Wire
Photo: Companies and Markets

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Student Documentary Sheds Light On Poverty

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For Chris Temple and Zach Ingrasci, students at Claremont McKenna College studying economics and international development, the daily struggle that over a billion people living on one dollar per day face is more personal than it is for the average westerner. After a visit to Guatemala with a microfinance group, Temple began to lay the foundation for what some might call a radical experiment. Along with two filmmakers, Temple and Ingrasci set out to shine a light on global poverty in a bold way: by living it themselves.

For 56 days in the rural village of Pena Blanca, each of the four young men vowed to live on just one dollar per day. Because many people who live in such poverty must take work as it is given, the quartet paid itself random dollar amounts (often $0) each day to make the experience more realistic. The film even takes a pragmatic turn as the students investigate the powerful impact of microloans on the lives of people in the region. They do all of this while battling chronic hunger and parasitic infections.

Although the documentary, which was available on Hulu for a limited time, began as a small project with only four crew members, it eventually drew the attention of big names such as Jeff Klein, the former general manager for the L.A. Times, David Doss, the former executive producer of Anderson Cooper 360, and Mike Lange, who was the former CEO of Miremax.

Currently, the filmmakers are travelling to promote the film. Those interested in watching the film can find a screening in their area or even host one themselves via the organization’s website.

– Samantha Mauney

Source: Huffington Post
Photo: My Northwest

What is Microenterprise?

What is Microenterprise?
What is microenterprise? Microenterprise is the mom and pop shop on the corner. It is the lemon-aid stand on the side-walk. It is the vegetable stand in the local market. Microenterprises are entrepreneurs working towards a livelihood with a small number of products and often limited access to financial security and support.

USAID uses financing of microenterprises as an anti-poverty program. Economic growth on its own is not enough. Poor people in developing countries often do not share in the wealth creation. The distribution of income from economic growth through empowering poor people to participate is a crucial and fundamental challenge undertaken by USAID.

An additional challenge, particularly for women in developing countries, is finding a safe place to keep their savings. Without a reservoir of savings, obtaining credit and making investments in their business is next to impossible. The savings they do accumulate are often drained when natural disasters and social/cultural events occur. Their lack of access to insurance means they spend their available money on purchasing life saving medicine for an ailing relative or purchasing new seeds when drought kills a crop.

The USAID provides financial services to many of those lacking access through their national and private institutions. These services include savings and credit. These two basic financial tools allow entrepreneurs to invest in technology, connect to professional networks and most importantly, get their products to market.

The USAID microfinance programs have three goals:
1. “Improve the quality and affordability of financial services.
2. “Extend access to excluded populations such as women, the disabled, and those living in remote areas
3. “Assist smallholder farmers and small business entrepreneurs in selling their products by linking them with buyers and suppliers of good and services.”

The approach USAID and partners use is called the Value Chain Approach. The VCA views each business as a unique cog in the intricate clockwork of the global marketplace. To assess the potential of projects VCA focuses on influencing “structures, systems and relationships that define the value chain.” Manipulating these factors increases competitiveness by improving/upgrading processes and products. The scope of industry analysis and inputs to intervention design yield a unique perspective that has led to great success.

• “A market system perspective
• “A focus on end markets
• “Understanding the role of value chain governance
• “Recognition of the importance of relationships
• “Facilitating changes in firm behavior
• “Transforming relationships
• “Targeting leverage points
• “Empowering the private sector”

By working to fulfill these goals, USAID and entrepreneurs make higher quality products and increase the visible to consumers. In the experience of USAID, when micro financing options are offered alongside education, health and energy services, household earnings are increased allowing people to “graduate themselves out of poverty.”

– Katherine Zobre
Sources: USAID , Microlinks
Photo: USAID

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Africa: Working to End Hunger Internally

Africa: Working to End Hunger Internally

When discussing the issue of hunger and global poverty, most immediately think of foreign aid and intervention from donors as being the main solution to the problem. What seems to be disregarded is the power of those living in poverty and the influence of those in power in impoverished countries. Now, leaders in Africa are working to end hunger internally. A recent conference brought together delegates from five African nations with the Director-General of the Food and Agriculture Organization to develop an effective way to eradicate hunger in Africa.

FAO looks to form innovative partnerships in Africa to “build on experiences and stop the suffering of the estimated 23% of all Africans who remain undernourished”. While the organization’s program, Unified Approaches to End Hunger in Africa, will work to provide greater access to water, food, and education, the program builds off of the already increased production of goods and “consistent political will” in many developing African countries.

Countries like Angola and Ethiopia have run social protection and national development plans, promoting domestic agriculture and the provision of water as well as infrastructure improvement. Services including microfinancing and “cash-for-work public infrastructure programs” work to accelerate development in order to end poverty. These internal programs work to create stable societies and economies that are more conducive to greater production in order to advance the protection of their citizens.

While partnership and foreign aid are incredibly important forces behind eradicating extreme poverty around the world, they are by no means the only work being done. It is necessary to take into account the work being done by these people that are often portrayed as hopeless and helpless by the media; they are far from it and are working to end global poverty just as resolutely internally as developed countries are external.

– Sarah Rybak

Source: All Africa
Photo:Radio Netherlands Worldwide

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A Step Beyond Microfinance

microfinance

The values and benefits of microfinance lending to the world’s poor are mixed; but they have overall proven to be a mechanism for lifting individuals out of poverty.  The system of proving microloans is a well-oiled machine providing finance to individuals in low resource areas. One micro lender wants to go a step beyond microfinance and provide the poor with much needed savings and insurance products.To continue to help the poor life themselves up, Microlending pioneer Accion has called for more financial products typically common in the developed world.

These financial products such as insurance, saving accounts, and ways to move money are sophisticated tools many in the developed world don’t think twice about, but for the world’s poor these products are rarely available.  Accion, based in Boston, announced they would begin investing in start-ups that are working to provide more variety of financial tools to people around the world.  Unfortunately, business models and technology to deliver financial tools like savings accounts is much less tested in rural and poor areas. The lack of longevity in testing and practice causes many venture firms to be wary of investing in start-ups.

Accion’s Venture Lab will invest $10 million in ventures seeking to expand financial tools beyond microfinance.  This is not to diminish the effects and needs of microfinance, but to continue to take the poor a step beyond microfinance.   Accion’s first investments include Salud Facil, which helps low-income individuals in Mexico pay for health care, and Varthana, an Indian company financing low-cost private schools.  In addition, the fund is investing in payment companies in Asia and Mexico as well as a start-up in Hong Kong attempting to use data to improve credit scores.

Other investors are also offering money for financial products in the developing world. LeapFrog Investments has dedicated $135 million to bring insurance to underserved markets. Those in poorer income brackets need financial services beyond credit. Constant innovation and testing must be continued to find self-sustaining and profitable financial products to developing markets. Accion Venture Lab will continue to invest in start-ups to help them do the testing they need and continue to innovate in providing insurance and savings products to low-income individuals. Accion’s model is to help the start-ups and if they fail, to take the lessons learned and start over. Ultimately, the goal is improving the credit and lives of the world’s poor.

– Amanda Kloeppel

Source: Bloomberg Businessweek

Top 10 Microfinance Blogs

Microfinance Blogs
Blogs are a great way to hear a variety of voices and experience an issue from diverse perspectives, and there are a variety of sites full of information, opinions, and more. Below are 10 interesting blogs that present unique perspectives on the topic of microfinance.

  1. The Consultative Group to Assist the Poor (CGAP) Microfinance Blog discusses the benefits and challenges of various tools used in microfinance and provides a forum to learn more about new microfinance initiatives. There is a variety of contributing writers who share their expertise on the nuances of microfinance, and CGAP also presents fact-based blog entries in addition to opinions on how to improve the industry.
  2. The Nicholas D. Kristof blog is a favorite of many readers of The New York Times. This blog is not directly related to microfinance but discusses many of the world problems that microfinance addresses.  It tackles many development issues around the world and discusses issues ranging from hunger to education to women’s rights.
  3. A Grameen Foundation blog (Creating a World Without Poverty) discusses Grameen’s work in microfinance and showcases thoughts and feelings from the organization’s volunteers in the field. It provides a variety of voices experiencing microfinance in action around the world.
  4. The Wall Street Journal’s India Real Time blog provides a “daily pulse for the world’s largest democracy.” This blog is not solely about microfinance or poverty eradication but it does provide many articles related to daily life and the economic growth of India. It offers regular comments and critiques of the Indian microfinance industry.
  5. The Center for Financial Inclusion blog from ACCION International covers and comments on the many new ventures currently in progress in the field of microfinance. It also discusses methods for how to enable more people to access microfinance services in the future.
  6. Defeat Poverty provides reviews on current books in the field of development and microfinance, in addition to covering many other issues related to poverty eradication.
  7. The India Microfinance blog discusses the issues and triumphs of the microfinance industry in India. It discusses many specifics on the financial tools used. India’s microfinance industry is critiqued by many and this blog provides voices that speak on either side of the issue.
  8. Banking with the Poor Network blog discusses microfinance in Asia and around the world, with a focus on a wide variety of organizations.
  9. The MF Transparency blog deals with some of the challenges faced by for-profit and nonprofit microfinance organizations and offers information and resources that encourage transparent pricing.
  10. The myKRO blog serves as an online community where microfinance organizations can raise awareness about their work, offering and receiving commentary about their actions with other players in the field.

 – Katie Brockman

Source: Opportunity International
Photo: Fairview High School

Female Entrepreneurs: A Case Study

Female-Entrepreneurs

Since the start of 2013, a huge focus in the humanitarian world has been on the benefits of small entrepreneurial endeavors in developing countries. Due to global financial crises and budget cuts, especially here in the United States, investors are becoming more picky with where and to whom they are sending their money to. In many cases, they have opted for private organizations that directly put the money in the hands of local men and women who are making immediate and visible changes in their communities.

Ana Cecila Acuña is such woman. Despite her meager circumstances, having grown up in a small village in Nicaragua, her parents instilled in her a confidence that would help her dictate her own life and propel her towards success. A big obstacle that Acuña and many other women in her position have been able to overcome is making a name for themselves in a patriarchal society where not only does man dictate home life but also all outside business and negotiations.

Ana established a small home business selling oil and rice with the help of microloans from the nonprofit Opportunity International, managing to expand her business as well as to incorporate 20 other women and their ideas into the project. This venture led her to gain a seat on the board of the La Laguna Community Cooperative. A local political organization run exclusively by men, the Community Cooperative was in charge of handling the village’s affairs. When Ana recognized a fault with the way things were going, she decided to make the change herself.

Opportunity International, which started in the 1970s, is a microfinance nonprofit that has been providing loans, saving opportunities, insurance, and finance training to entrepreneurs in over 20 countries. After working with Ana and her small business, they funded the Cooperative with a $10,000 loan. The money was used to build a well in the village, providing close access to water for over 200 families, a luxury that the Cooperative was not able to figure out on their own. Instead of walking four miles by foot each day, the water is sent directly to the village homes through a piping system that was also installed.

Acuña’s achievements are remarkable for two specific reasons: the first is because of her socioeconomic standing prior to forming her business and joining her village government and the second, because she is a woman. Women in developing countries are being looked at to lead the escape out of poverty for their families and communities. Gayle Tzemick Lemon of the Huffington Post recently reported on the increase of female entrepreneurs and that “when women have income coming in research shows that the entire family benefits in the form of better nutrition and health”.

It is important to keep in mind the potential that every single human being possess. Whether they live in Angola or Arkansas, the entrepreneurial spirit is embedded in all of us; it simply needs encouragement, a bit of hope, and of course a little bit of money.

– Deena Dulgerian

Source: Huffington Post