Print
Version
TREATING PEOPLE AND COMMUNITIES AS ASSETS
BUILDING ON ACCOMPLISHMENT: THE Microcredit Summit
Campaign’S FUTURE CHALLENGES FOR GLOBAL POVERTY REDUCTION AND ECONOMIC
EMPOWERMENT
Sam Daley-Harris
Introduction
The Millennium
Development Goals can be met by 2015 — but only if all involved break
with business as usual and dramatically accelerate and scale up action
now.
UN Secretary General Kofi Annan
Eight years before
these words were printed in the United Nations Development Program’s (UNDP’s)
Human Development Report 2005, more than 2,900 people from 137
countries gathered in Washington, DC, for the Microcredit Summit — a
civil society-organized summit with a profound commitment to “break with
business as usual and dramatically accelerate and scale up action.”
Delegates to the 1997 Microcredit Summit launched an audacious campaign
to reach 100 million of the world’s poorest families, especially the
women of those families, with credit for self-employment and other
financial and business services by the end of 2005. The Summit 1) broke
with the tradition of excluding the poor from access to financial
services, 2) broke with the tradition of excluding the poorest[1]
from international development, and 3) made a commitment to dramatically
accelerating and scaling up action. This report outlines progress
toward the 100 million poorest goal as well as barriers to reaching it.
This Campaign offers much needed hope for achieving the Millennium
Development Goals (MDGs), especially the goal of cutting absolute
poverty in half by 2015.
As of December 31,
2004, 3,164 microcredit[2]
institutions have reported reaching 92,270,289 clients, 66,614,871 of
whom were among the poorest when they took their first loan. Of
these poorest clients, 83.5 percent, or 55,622,406
million, are women. Seven hundred eighty-one of these
institutions submitted an Institutional Action Plan in 2005.
Together these 781 institutions account
for 90 percent of the poorest clients
reported. Assuming five persons per family, the 66.6
million poorest clients reached by the end of 2004 affected some
333 million family members.
In order to reach
100 million of the world’s poorest families by the end of 2005, the
Campaign requires a 38.1 percent growth rate per year from its starting
point of 7.6 million poorest families at the end of 1997. The
Campaign’s overall growth of 776 percent
between 1997 and 2004 now averages just over 36
percent per year.
During 2005, the
Campaign was able to verify data from 330 institutions, representing
58,450,926 poorest families or 87.7
percent of the total poorest reported.
Loans to 66.6
million poorest clients affect a
total of 333 million people, including
both clients and their family members. The 333 million people affected
equal the combined populations of the United Kingdom, France, Germany,
Italy, Spain, The Netherlands, Switzerland, and Norway, but their lives
are dramatically different from the lives of the citizens of those
countries.
The Faces
Behind the Statistics
Microfinance stands
as one of the most promising and cost-effective tools in the fight
against global poverty.
Jonathan Morduch,
Chair
United Nations
Expert Group on Poverty Statistics
Janet Deval, a
client of Fonkoze, a microcredit institution in Haiti, is one of the
66.6 million poorest clients reached. Janet
has been a credit client for more than two years and comes regularly to
all meetings. She has also been a part of every literacy program
available and is about to start the newest module on developing business
skills. Not only could she not read or write when she started, but she
has had an extra challenge: Janet has
only a fraction of her hearing due to an injury when she was 20 years
old.
My husband didn’t
want me to send my five children to school because his parents didn’t
send him to school. From the beginning, he said he would not pay and he
has never given even one goud, but I always knew it was important. For
a long time I have gone to Port-au-Prince to buy goods to sell in Hinche,
and I put all my money into paying for school for my children.
When I found out
that Fonkoze gave literacy classes for market women, I was so happy. I
never went to school even one day. I didn’t know anything about
school. I started right away with basic literacy and I have tried to
never miss a class.
I couldn’t write my
name and I didn’t understand anything, but I kept going even when my
husband got angry. My kids pushed me and encouraged me and they helped
me practice my letters. The monitor, Christa, told me to keep writing
every day even when I didn’t understand.
I can write my name
now, and I write it everywhere. Imagine, I used to go to Port-au-Prince
to buy and I couldn’t read the bags and I felt lost. I couldn’t keep
track of what I bought. The drivers sometimes would take my boxes off
the truck and give them to someone else, but I didn’t know until
I got all the way home. Now, I can’t lose anything. Now I write my
name on every box and I know what I buy.
I finished Alfa Baz
and Alfa Pos and then I went to the Health Program, too. I still don’t
know many things, so I want to keep going. I take my notebook to my
school and I write in it because one day I hope to read and understand
everything. I bought two books in the market and my kids help me read
them.
I work hard in the
market so that I can repay my loans, keep going to school and so that my
kids have that chance, too. If my parents would have sent me to school,
I would have thrown a party for them to say thank you.
The Microcredit
Summit was launched to multiply stories like this 100 million times, but
a number of barriers continue to impede the Campaign’s success.
The End of
Poverty: An Inspiring Call and a Daunting Challenge
Massive poverty and
obscene inequality are such terrible scourges of our time — times in
which the world boasts breathtaking advances in science, technology,
industry, and wealth accumulation — that they have to rank alongside
slavery and apartheid as social evils.
Nelson Mandela,
former President
Republic of South
Africa
Perhaps the most
exciting news in international development over the past year has been
the escalating calls for meeting the Millennium Development Goals by
2015 and the even more inspiring calls for the end of poverty by 2025.
These calls from
leaders such as Columbia University Professor Jeffrey Sachs, rock
musicians/activists Bono and Bob Geldof, and from grassroots movements
such as the Make Poverty History and ONE campaigns are inspiring because
they overcome, even momentarily, our society’s deadly penchant for
focusing on the irrelevant. When the calls for the end of poverty are
given voice in the news media, it provides a glimpse of what is truly
important and what is possible for the future of our planet.
Delegates to the
Latin America/Caribbean Microcredit Summit, held April 19-22, 2005, in
Santiago, Chile, had an opportunity to eavesdrop on a statement of such
vision when Muhammad Yunus, founder of the Grameen Bank in Bangladesh,
addressed Chilean President Ricardo Lagos in his closing plenary
remarks. Professor Yunus, whose institution reached 5 million clients
by August 2005, affecting some 25 million family members, had visited
Chile two times previously and met with President Lagos each time. This
time, he was speaking to the President in front of 1,100 Summit
delegates. Here is a portion of what Professor Yunus said:
Mr. President, when
I first visited Chile and learned that there were only 15 million
Chileans and just 3 million lived in poverty I thought, ‘Chile could be
the first country on the planet to eradicate poverty.’ And you, Mr.
President, could hire the architect who would design the museum that
people would visit to see what poverty in Chile looked like before it
was eliminated. Mr. President, I have been told that it is especially
beautiful in northern Chile. The poverty museum could be built there
and you, Mr. President, could lay the cornerstone.
President Lagos,
whose term ends in March 2006, came to the podium, looked at Professor
Yunus, then at the 1,100 delegates and said, “He is a very optimistic
man.” Optimistic or not, some members of the microfinance community in
Chile have taken the challenge to heart and have begun to ask how their
work can contribute to the eradication of poverty in Chile.
More than 20 years
ago, former Republican US Senator Mark Hatfield said, “We stand by as
children starve by the millions because we lack the will to eliminate
hunger. Yet we have found the will to develop missiles capable of
flying over the polar cap and landing within a few hundred feet of their
target. This is not innovation, it is a profound distortion of
humanity’s purpose on earth.”
To Senator Hatfield,
ending the needless deaths of millions of children each year is clearly
one aspect of “humanity’s purpose on earth.” But 20 years later we
still live in a world where 29,000 children under the age of five die
each day from largely preventable malnutrition and
disease. Those words, “29,000 child deaths a day,” are far too easy to
write, far too easy to read, and yet excruciatingly difficult to grasp.
How else does one explain the mass media’s almost total disregard for
this tragedy?
If the people of the
planet were to ever truly grasp the scope of this scandalous human
calamity and our potential to solve it, the world would indeed be a
vastly different place.
This is why the
recent increased attention to ending poverty, limited as it may be,
remains such an inspiration and reason for hope. But this inspiration
is accompanied by a number of daunting challenges: the challenge of
ineffective institutions, the challenge of inaccurate analysis, and the
need to make way for the revolutionaries.
The following
sections include a particular focus on leading institutions from
Bangladesh. This is because time is running out for reaching the
Millennium Development Goals and the data that are emerging from that
country, the most saturated microcredit market in the world, provide
convincing evidence for a dramatic change in international development—a
change that makes sustainable microfinance for the very poor one of the
pillars in the effort to reach the Millennium Development Goals.
The Challenge of
Ineffective Institutions
If
the world were to truly grasp the opportunity that ending poverty
offers, we would still have to confront the difficulty many of our
institutions face in generating the necessary breakthroughs.
In 2003, for
example, more than 700 parliamentarians wrote to the heads of the World
Bank, the regional development banks, and the UNDP about the importance
of sustainable microfinance for the very poor in reaching the MDG on
reducing poverty, the need to expand resources going to microfinance,
and the need to guarantee that half of the spending reaches those living
on less than US$1 a day. Then-World Bank President James Wolfensohn
wrote back saying he agreed that “microfinance has a demonstrated,
powerful impact in improving the livelihood of the poor, and a crucial
role in reducing poverty” and that the poor’s ability to access
financial services “is a critical condition for the attainment of the
Millennium Development Goals.”
The statement was
clear in its conviction, but it came from the head of an institution
that spends less than one percent of its annual budget on microfinance.
The chasm between the words of endorsement and the paltry level of
funding is hard to reconcile. James Wolfensohn asked senior officials
at the World Bank and the Consultative Group to Assist the Poor (CGAP)
to answer the parliamentarians’ requests in depth. Their responses
questioned the wisdom of increasing resources from less than one percent
to less than two percent, targeting half of the resources to those
living below US$1 a day, and requiring the use of cost-effective poverty
measurement tools to ensure compliance. The reasoning the officials
used to justify inaction resonates in some quarters of the international
aid community, but is flawed in the eyes of many who work at the
grassroots level and who see the tremendous opportunity to scale up this
powerful anti-poverty approach.
The responses from
these major agencies raise obvious questions. How will these
institutions contribute to delivering on a visionary call to cut poverty
in half within 10 years, much less eliminate it within 20, without
increasing resources? How will it be accomplished without targeting a
portion for those living below US$1 a day? How will we know if poverty
is declining without proper measurement tools? And perhaps most
importantly, why is there so much resistance to these changes?
One reason for the
reluctance to fully rise to this challenge was provided by a senior
official at one of the regional development banks. This official
described the institution and others like the World Bank as academic
institutions, not development institutions — institutions focused
on testing academic theories.
The divide in the
field of development could also be described this way: on one side there
are officials populating these institutions who are informed by academia
and on the other, there are practitioners who are informed by field
experience. Certainly the academics have field experience, but they are
informed and driven by academic assumptions. On the other hand, those
driven by their field experience certainly have academic backgrounds,
often very distinguished ones, but they are guided by their experience
in the field. In fact, they discard their academic assumptions if their
field experience instructs them otherwise.
A clear view of what
it means to be driven by field experience emerges from the insights of
Fazle Abed, Chairman of BRAC, an institution that by 1985 had trained 5
million Bangladeshis to prepare oral rehydration salts (ORS), a solution
that protects severely dehydrated children from impending death. Driven
by a strong commitment to overcome barriers and solve seemingly
insurmountable problems, Abed outlined a visionary and dogged approach
that BRAC would apply in all of its development work.
Abed described a
massive effort to educate mothers on the signs of dehydration in
children and on training them to prepare and administer the life-saving
oral rehydration solution. BRAC measured its results and found only
eight percent usage within the community. He then described a campaign
to train fathers and other male leaders in the villages on preparing the
ORS and finding that, as a result, usage doubled to 16 percent. Abed
went on to describe the launch of a wide-ranging social marketing
campaign that used multiple forms of communication to educate entire
communities, resulting in a surge of ORS usage.
This effort on oral
rehydration is not an isolated case for BRAC. Jeffrey Sachs, in his
book The End of Poverty, describes visiting BRAC microcredit
clients and learning that the women all had, or planned to have, no more
than two children each.
Perhaps more
amazing than the stories of how microfinance was fueling small-scale
businesses, were the women’s attitudes to child rearing…Here was a
group where the average number of children for these mothers was
between one and two children…This social norm was new, a
demonstration of a change of outlook and possibility so dramatic
that Dr. Rosenfield [the Dean of the Columbia University School of
Public Health] dwelt on it throughout the rest of his visit…he
remembered vividly the days when Bangladeshi rural women would
typically have had six or seven children.
Dean Rosenfield was
stunned by this transformation, but it is the sort of transformation
that will be required if we are to end poverty. But our systems are not
yet prepared to provide the “more and better aid” that the Make Poverty
History campaigners call for. The next story, again from Professor
Sachs, gives a painful example of how bureaucracy can triumph over
vision.
In his book, Jeffrey
Sachs refers to “cruel” international processes when he describes the
donor agencies’ responses to Malawi’s effort to deal with the 900,000 in
its country infected with AIDS.
Malawi actually put
together one of the earliest and best conceived strategies for bringing
treatment to its dying population, and gave an enormously thoughtful
response….to help Malawians try to reach about a third of the total
infected population (about three hundred thousand people) with anti-AIDS
drug treatment within a five-year scale-up period.
…The donor
governments—including the United States and Europeans—told Malawi to
scale back its proposal because the first proposal was “too ambitious
and too costly.”
The next draft was
shrunk to 100,000 receiving treatment within five years and was cut two
more times at the insistence of donor agencies. Jeffrey Sachs
continues:
After a long
struggle, Malawi received funding to save just 25,000 at the end of five
years — a death warrant from the international community for the people
of this country.
Will the inspiration
found in the calls for an end to poverty be matched by the required
action from the major development institutions? Business as usual is
clearly insufficient.
Making Way for
the Revolutionaries
Instead of business
as usual, what is required is a revolution in the way we fight poverty.
Grameen Bank Managing Director Muhammad Yunus gave an example of the
revolutionary action required when he was asked about his strategy for
creating the Grameen Bank. “I didn’t have a strategy,” Professor Yunus
replied, “I just kept doing what was next. But when I look back, my
strategy was, whatever banks did, I did the opposite. If banks lent to
the rich, I lent to the poor. If banks lent to men, I lent to women.
If banks made large loans, I made small ones. If banks required
collateral, my loans were collateral free. If banks required a lot of
paperwork, my loans were illiterate friendly. If you had to go to the
bank, my bank went to the village. Yes, that was my strategy. Whatever
banks did, I did the opposite.”
If we are to end
poverty, we not only need to make way for the revolutionaries, but we
must also follow their lead. All too often, however, the move within
the field of microfinance is to be more like banks, often with the
unintended consequence of once again failing to provide financial
products and services to the very poor, once again denying them tools
they need for a dignified route out of poverty. The Microcredit Summit
Campaign’s work on integrating microfinance with health education is a
case in point.
One thing the
Campaign and many of the microfinance practitioners it supports
worldwide have learned is that microfinance is an incomplete solution
for many poor people and that its impact can be magnified if used in
combination with complementary strategies. If a family raises its daily
income from US$0.50 to US$1.50 through microcredit, its members might
still be no more knowledgeable about basic health topics and other life
skills such as the importance of vaccinating children against
preventable diseases or learning how to prevent HIV/AIDS. This lack of
knowledge and the resulting illnesses can swiftly undo the improvement
in a family’s economic situation. Economic well-being cannot be
separated from health; indeed, the two are intimately linked.
This lesson is
emerging in institutions around the world. For example, Fonkoze
Executive Director, Anne Hastings, tells of her work in Haiti with Dr.
Paul Farmer, co-founder of Partners in Health and its Haitian affiliate,
Zanmi Lasante. Farmer wants a Fonkoze bank branch in every Zanmi
Lasante clinic and hospital because he not only wants to see his
patients’ health restored, but he also wants to make sure they are armed
with financial services that can help free them from a life of unending
poverty. Dr. Vicky Guzman, a visionary
health leader in El Salvador, has come to this same conclusion and has
begun integrating microcredit into the work of her organization,
Asociacion Salvadorena Pro-Salud Rural
(ASAPROSAR).
But just as health
providers see the need for microcredit, some microcredit providers find
that their clients’ greatest barrier to leaving poverty is poor health
and the money spent on medical treatment—treatment that is sometimes
competent and sometimes not.
Most microfinance
programs already offer some combination of services to their clients,
including savings, training, networking, and peer support. Microfinance
programs can become powerful vehicles for other desirable
social developments. Linking financial services with health education
can improve the well being of clients and their families, increase their
productivity, and reduce dropout rates, all in a sustainable manner.
Experience has shown
that microcredit can empower women and change lives. “Some of the
impacts evident in evaluations of Credit with Education programs,”
writes Chris Dunford, President of Freedom from Hunger, “might be the
effect of either the financial or education components or both working
together.”
… [In] Bolivia,
there was evidence that access to the financial and education
services had positively impacted women’s self-confidence and status
in the community…participants in Bolivia were running for and
holding offices in local governing bodies…[and] were significantly
more likely to have given others advice about both practices for
good health, nutrition, and better business.
Under the tutelage
of Freedom from Hunger, Microcredit Summit trainers in Asia and Africa
have begun leading three-day and five-day training workshops on
integrating microfinance with education in health. By August 2005,
training had been completed in a total of eight countries across Asia
and Africa. Based on the data from evaluations in the first four
countries, all eight training workshops could reach 731,731 clients,
affecting some 3.7 million family members.
Although combining
quality financial services with quality health education can create a
powerful synergy, there is still an influential, and, in the view of the
Microcredit Summit Campaign, short-sighted school of thought arguing
that microfinance institutions should only offer financial services.
This was made clear in 1999 when a microfinance specialist at a donor
agency replied to the Campaign’s initial efforts to integrate
microfinance with health education. “Lunacy!” he wrote in response to
our request for feedback. “Let bankers be bankers and let health
educators be health educators.”
Last year, these
sentiments were repeated at the beginning of a three-day workshop in
East Africa. One of the 33 trainees, a senior official in the
association of microfinance institutions (MFIs) in that country, called
the training that was about to begin “bad practice.”
(This is the
trap of defining certain approaches as “best practice,” which tends to
stifle new thinking and innovation. It might be better to define “sound
practices” that are appropriate for different objectives in different
contexts.) The Microcredit Summit trainer asked if the trainee had ever
participated in a workshop on integrating microfinance with health
education. “No,” replied the trainee. The Summit’s trainer asked the
trainee to stay for the three days and then offer his views.
At the end of the
workshop, the trainee said that microfinance practitioners had been led
astray by donors who urged a focus solely on financial services. He now
saw that integrating microfinance with health education was important
both to his clients and to his staff and he was the first to enroll in a
follow-up five-day workshop. Similar resistance has been found in parts
of Asia and Latin America and remains a challenge to be overcome.
It is, therefore,
critical that academics learn from the revolutionaries. Those who say
we cannot reach the very poor will see no reason to try and will in fact
not reach the very poor. Those who say we cannot integrate
financial services with health education will see no reason to try. It
is the visionary leaders, those willing to break the rules, who will
create what is missing to end poverty.
Perhaps our
challenge is best described in a speech delivered more than 20 years ago
by the late Louis Kelso, an investment banker who pioneered the concept
of employee stock ownership plans (ESOPs). Kelso describes his
discovery, laid out in books co-authored with Mortimer Adler and with
his wife Patricia Kelso, in the following way: “As the production of
goods and services changes from labor intensive to capital intensive,
the way in which every man (sic) — not just some men, but every man —
earns his income must change in the same way. You can’t do that unless
two things happen: 1) you have to broaden the ownership of capital and
2) you have to tighten up the laws of property so that the capital owner
collects the wages of his capital with the same faithfulness that the
laborer now collects the wages of his labor.” Here is how Kelso
reflects on the resistance to his own ideas, cited above, and to the
discoveries of others:
What I discovered
was not a new economic theory, but a missing fact. Copernicus, after
watching the stars and playing with the mathematical formulas that he
thought explained their activities, concluded that geometric theory was
wrong. He deduced, instead, that all the heavenly bodies in our
galaxies moved not around the earth, but around the sun. But he was
dealing with something that was so distant that it couldn’t be easily
seen or accurately measured. And when Galileo, almost a century later,
picked up the same idea and tried to get it accepted by conventional
science, the establishment almost fried him. They made him recant
heliocentric theory to save his life. What each had discovered without
realizing it, was not a new theory, but a missing fact. You couldn’t
see it until the invention of the telescope.
Later, when Pasteur
came forward with germ theory and struggled much of his lifetime to get
the medical profession to accept it, he was dealing not really with a
new theory, but with a missing fact. The only problem was that the
germs were so small, you couldn’t see them until the invention of the
microscope.
We don’t need
telescopes and microscopes to understand the fact I want to talk about
now. We do need shovels to dig through the tons of mythology that cover
it up.
In much the same
way, the field of microfinance also needs shovels to dig through the
myths that often hide what the visionaries have found.
Myths that
Impede Microfinance’s Full Contribution to the MDGs
At the most basic
level, the key to ending extreme poverty is to enable the poorest of the
poor to get their foot on the ladder of development. The ladder of
development hovers overhead, and the poorest of the poor are stuck
beneath it. They lack the minimum amount of capital necessary to get a
foothold, and therefore need a boost up to the first rung.
Jeffrey D. Sachs
The End of Poverty
Each year’s State
of the Microcredit Summit Campaign Report highlights our work to
debunk myths that stand as barriers to fulfilling the Campaign’s four
core themes: 1) reaching the poorest, 2) reaching and empowering women,
3) building financially self-sufficient institutions, and 4) ensuring a
positive, measurable impact on the lives of clients and their families.
The following myths have been the most damaging:
Myth one
— Microfinance
institutions cannot reach the poorest because they are too costly to
identify and motivate.
Myth two
— If an institution
succeeds in reaching the very poor, it cannot become financially
self-sufficient.
Myth three
— An institution
that somehow manages to reach the very poor and become financially
self-sufficient will only be adding a debt burden to those families.
These myths spring
from the belief that microcredit will not help the world’s poorest
families move out of poverty. Every year, however, progress is made as
each myth is more fully discredited.
It is critical that
these myths be refuted both individually and as a group, for those who
promulgate the myths see them as interconnected. The Campaign,
therefore, has addressed them both separately and as a group. In this
section we will first look at each myth individually.
In 1998, in an
effort to show that the poorest families could be identified at low
cost, the Microcredit Summit Campaign launched a Poverty Measurement
Tool Kit that included two tools: 1) Participatory Wealth Ranking (PWR)
and 2) the CASHPOR House Index (CHI). With Participatory Wealth Ranking
(PWR), villagers map out their village with the help of a facilitator
and three separate groups of villagers rank each household in different
categories according to their poverty. PWR, though similar to
participatory rural assessment (PRA) and rapid rural appraisal (RRA), is
far more accurate and reliable because with this method, each family is
ranked by three separate groups of villagers and an average of the three
groups is used for ranking a particular family. Then the women from the
bottom groups are motivated to join the program. With the CASHPOR House
Index (CHI), staff examine the houses of potential clients and assign a
standard score based on the size and structure of the dwelling as well
as the material used for the roof and walls. After selecting houses of
those who are most likely to be the poorest, an assets test is
administered to further verify the results. The Toolkit was a result of
a Poverty Measurement Discussion Group launched by the Campaign in 1997.
Both tools were
tested against CGAP’s more rigorous and more costly Poverty Assessment
Tool. CGAP found that: “Participatory Wealth Ranking…offer[s] a far
more reliable method for communities themselves to identify who the poor
are…It asserts the primacy of local knowledge over externally determined
measurement criteria and lets the community take charge in deciding how
rankings are to take place.” CGAP also found, “the appeal of [the
Housing] index lies in its being simple, observable, and
verifiable….Housing can be used as an excellent proxy for ranking
households.” Since the Poverty Measurement Toolkit was launched, the
Microcredit Summit Campaign has organized two-hour workshops on the
tools for more than 3,000 practitioners in 35 countries of Africa and
Asia and nearly a dozen four-day training workshops throughout Asia.
“Myth Two” is
refuted with mounting evidence showing that you can reach the very poor
and build a financially self-sufficient institution. It becomes more
difficult when clients are in remote areas, but institutions in Africa,
Asia, and Latin America have demonstrated over and over that it can be
done. The Microcredit Summit Campaign commissioned a paper in 1999 on
this topic, which was discussed at our global and regional meetings in
Africa, Asia, and Latin America from 1999 to 2001.
For several years
now, the Microfinance Information eXchange (The MIX) and the
Micro-banking Bulletin (MBB) have shown that Microfinance institutions (MFIs)
reaching very poor clients can grow to be financially sound. CGAP CEO
Elizabeth Littlefield made that point in 2004 at the Asia/Pacific
Microcredit Summit held in Dhaka, Bangladesh.
There is no evidence
of a necessary trade-off between poverty and sustainability. Very recent
data from our MBB and from the MIX show us that the best poverty-focused
microfinance institutions are breaking right through conventional
wisdom….Sustainable microfinance institutions that serve lower end
markets, the poorest, reach, on average, one and a half times as many
borrowers as other microfinance [institutions] and they do it with fewer
resources. Hence, these institutions do a much better job of stretching
their resources to reach more clients. In terms of clients served, they
are far more efficient with their human resources, serving each borrower
at half the cost, on average, of a sustainable institution serving
higher market segments.
This point is most
clearly made in the case of the Association for Social Advancement (ASA)
in Bangladesh, an institution that reaches more than 2.7 million
clients, many of them very poor when they start. ASA has been called
the most efficient MFI in the world, able to lend at an administrative
cost of US$0.035 per dollar loaned.
And finally, “Myth
Three” is refuted when it is shown that microfinance, while not a
panacea, is still the best tool we have to reduce poverty among the very
poor. Perhaps the most compelling data on the impact of microcredit to
date can be found in two important documents published in 2005. One is
Shahidur Khandker’s in-depth study, published in the World Bank
Economic Review, of three Bangladeshi MFIs: BRAC, Grameen Bank, and
RD-12, the latter a government program. The additional findings are in
the United Nations Development Program’s Human Development Report
2005. Khandker, a World Bank researcher whose study spans 14 years,
was able to draw from research done in 1991/92 and again in 1998/99 by
the World Bank and the Bangladesh Institute of Development Studies.
Khandker found:
·
Moderate poverty in all villages declined by 17 percentage points, 18
points in program areas, and 13 percentage points in non-program areas.
·
Poverty declined by greater than 20 percent for program participants who
had been members since 1991/92, which is about three percentage points
per year. Greater than half of this reduction is directly attributable
to microfinance.
·
The
impact was greater on extreme poverty than moderate poverty.
·
Spillover effects among non-participants due to growing economic
activity: Microfinance reduced poverty among this group by some 1.0
percentage points annually for moderate poverty and 1.3 percent annually
for extreme poverty.
Based on his data,
Khandker concluded that microfinance accounted for 40 percent of the
entire reduction of moderate poverty in rural Bangladesh.
These findings
become even more significant when viewed alongside data from the UNDP’s
Human Development Report 2005. The report compares India and
Bangladesh in its discussion of how low incomes need not be a barrier to
progress on the Millennium Development Goals.
At a lower level of
income and with far lower growth, Bangladesh has overtaken India [in
reducing its child mortality rate]. These differences matter. Had
India matched Bangladesh’s rate of reduction in child mortality over the
past decade, 732,000 fewer children would die this year [in India].
The Human
Development Report goes on to explain that those countries which are
first in being connected into global markets are not necessarily seeing
those benefits trickle down.
Integration into
global markets has manifestly enhanced wealth creation, generated
economic dynamism, and raised living standards for many millions of
people in India and China. At the same time the human development
benefits of economic success have been slow to trickle down to large
sections of the population.
In a section focused
on Bangladesh’s moderate growth and rapid human development, the report
cites four factors in transforming Bangladesh’s human development
landscape: 1) active partnerships with civil society, 2) targeted
transfers, 3) extended health programs, and 4) virtuous cycles and
female agency. This last area is described as follows:
Improved access
to health and education for women, allied with expanded
opportunities for employment and access to microcredit, has expanded
choice and empowered women. While disparities still exist, women
have become increasingly powerful catalysts for development,
demanding greater control over fertility and birth spacing,
education for their daughters, and access to services.
These remarkable
findings link with Professor Sach’s earlier comment on the dramatic
change in outlook and possibility among BRAC microfinance clients who
wanted only one or two children instead of the six or seven that had
been the norm a generation earlier.
As mentioned above,
however, refuting the myths piecemeal will not convince the critics.
That is why the Campaign commissioned a paper in 2001 entitled “Ensuring
Impact” published in Pathways Out of Poverty: Innovations in
Microfinance for the Poorest Families, which is focused on refuting
the myths as a group. The paper highlights two case studies, the Society
to Help Awaken Rural Poor (SHARE) in India and Credito con Educacion
Rural (CRECER) in Bolivia. A CGAP study found that 72.5 percent of
SHARE’s entering clients were living on less than US$1 a day.
Micro-Credit Ratings International Ltd (M-CRIL), a rating agency based
in India, found that SHARE was 100 percent financially self-sufficient.
A US Agency for International Development (USAID) Assessment of the
Impact of Microenterprise Services (AIMS) team found that one-third of
SHARE’s mature clients, clients who had taken loans for three years or
more, were no longer poor. Last year, ICICI Bank, the second largest
commercial bank in India, purchased US$4.3 million worth of SHARE’s
portfolio, a further indication of this Indian MFI’s strength.
But all of these
myths die hard. A donor agency official who visited a microfinance
program in India several years ago admitted during his visit that, if he
hadn’t seen it with his own eyes, he wouldn’t have believed that clients
as poor as the ones he was meeting could be reached successfully with
microcredit.
Some of the
lingering debate is muddied by imprecise definitions and lack of clarity
about which poverty groups are being discussed. Initially the argument
centered on the perceived requirement that only the “economically active
poor” be targeted because they were the only group who could use a loan
successfully. The phrase “economically active poor” was meant to refer,
for example, to clients who at least had a stall in a market. It was
also meant to exclude the very poor. The economically active poor
argument always seemed weak given that virtually all people in very poor
countries are, of necessity, economically active in one way or another.
Even begging is an economic activity.
It became increasingly clear, through studies such as the one of SHARE
mentioned above, that if nearly three-quarters of entering clients were
below US$1 a day, certainly some institutions had found a way to reach
the very poor sustainably, while showing social progress among the
clients. At that point the argument shifted to an assertion that surely
the “poorest of the poor,” those living on US$0.05 or US$0.10 a day,
could not make good use of a loan. They would only want and need a safe
place to keep their savings. It must be noted that the Microcredit
Summit Campaign does not use the term “poorest of the poor.” We use the
terms “poorest” or “very poor,” to refer to entering clients living
below US$1 a day or in the bottom half of their nation’s poverty line.
We use the term “poor,” to mean those living in poverty above US$1 a day
or in the upper half below their nation’s poverty line. In any event,
the argument that the “poorest of the poor,” those living on US$0.05 or
US$0.10 a day, cannot benefit from a loan, often inadvertently strips a
billion others, all living below US$1 a day, of access to this
intervention. In other words, when it is said that the “poorest of the
poor” cannot use microcredit and it is not clear which poverty group is
included, it is easy to write off all of the very poor, including
everyone living on less than US$1 a day.
The argument for
excluding the so-called “poorest of the poor” is further eroded in the
wake of experiments in Haiti, Bangladesh, and elsewhere that are
committed to finding ways to reach the most vulnerable, even beggars,
with loans as small as US$3 along with other financial and non-financial
services.
Grameen Bank's
‘Struggling Members Program’
[Note:
This section was written by Professor Muhammad Yunus, founder and
Managing Director of the Grameen Bank.]
Grameen Bank was
started in 1976 as an experimental project to combat rural poverty by
providing credit to the very poor. As of July, 2005, Grameen Bank
disbursed US$4.95 billion in loans to 5 million borrowers, 96 percent of
them women.
In late 2002,
Grameen Bank embarked on a new program, exclusively targeted for the
beggars in Bangladesh. Begging is chosen by many poor people in
Bangladesh, as a result of river erosion, divorce, death of the earning
member in the family, unemployment or disability. For many, it becomes
a lifetime occupation. Beggars in Bangladesh are not reached by most of
the poverty alleviation programs and subsist on the margins of society.
The Struggling (Beggar) Members Program is a new initiative taken by
Grameen Bank both to challenge a sustained campaign that microcredit
cannot be used by the people belonging to the lowest rung of poverty, as
well as to reinforce the Grameen Bank's belief that credit should be
accepted as a human right.
The key features of
this program bypass the rules and regulations that apply to the regular
Grameen Bank members. The struggling members are not required to form
any microcredit group. While they may be affiliated with a regular
group, they are not obliged to attend the weekly meetings. The regular
group members act as mentors to the struggling members, providing
guidance and support to them. The bank treats its struggling members
with the same respect and attention as regular members and refrains from
using the term "beggar" which is socially demeaning.
A typical loan to a
beggar member amounts to 500 Bangladesh Takas (US$8). It is
collateral-free and there is no interest charged on it. The repayment
schedule is flexible, decided by the struggling members themselves. The
installments are to be paid according to their convenience and earning
capability. Installments must not be paid from money earned from
begging, but from money earned from their new businesses.
The goal of the
program is not only to economically empower, but also to boost the
morale and dignity of the beggars. They are given identity badges with
the bank's logo as physical evidence of the bank's support. The
struggling members sell items such as bread, candy, pickles, dry fish,
betel-nut, betel-leaf, eggs, and toys to supplement their begging. They
also use the money to produce puffed rice, hand fans, baskets, and other
goods to sell.
The struggling
members are welcome to save with Grameen Bank if they wish. They are
covered by the life insurance and loan insurance programs without paying
any premiums. Under the life insurance plan, their families receive a
small sum for taking care of burial expenses. With the loan insurance
plan, their outstanding loans will be fully repaid in case of death.
The Grameen Bank
provides struggling members with blankets, quilt, woolen shawls,
mosquito nets, and umbrellas on credit to be repaid as interest-free
loans. Although there is no compulsion for the struggling members to
give up begging, there are nearly 1,000 beggars who have done so and
moved on to making a living instead by selling products.
As of July 2005,
31.10 million Bangladesh Takas (US$500,000) have been disbursed to
47,454 struggling members, of which 15.39 million Bangladesh Takas
(US$250,000) have been repaid. Meanwhile struggling members have saved
in their personal savings accounts 2.23 million Bangladesh Takas
(US$34,000) from their own income. Grameen Bank estimates the number of
struggling members will exceed 55,000 by the end of 2005.
The Economics of
Microfinance
Further discussion
on who can and who cannot successfully use a loan is found in Beatriz
Armendariz de Aghion and Jonathan Morduch’s book The Economics of
Microfinance:
Debate arises,
though, with the relatively new (and wrongheaded in our belief) argument
that in fact the poorest customers need savings facilities only—that
making loans to the poorest is a bad bet. The argument has been made in
a variety of CGAP documents, but the most nuanced articulation can be
found in a 2001 paper by Marguerite S. Robinson, in her discussion of
“financial services in the poverty alleviation toolbox.” Marguerite
Robinson argues that neither credit nor savings accounts are appropriate
for “extremely poor” households (instead, she argues for job creation,
skills training, relocation, and provision of adequate water, medicine,
and nutrition). Providing savings accounts and credit makes sense only
for the “economically active” poor (and richer groups), she continues.
But, she argues, only savings is right for the poorest among the
economically active population. While we strongly agree that access to
financial services will not be the answer for everyone, we see neither
systemic evidence nor theory that allows us to conclude that savings is
more appropriate than credit for the poorest who seek financial
services.
A New Law and
an Opportunity to Expand the Breakthrough
Over the last
several years, this report has heralded a new US law, which requires the
US Agency for International Development (USAID) to develop and certify,
by October 2006, two or more cost-effective poverty measurement tools
that measure US$1 a-day poverty. The new tools are to replace the size
of a client’s loan, which is currently used, but has proven to be
inadequate for accurate poverty measurement.
After the newly
mandated tools are certified, institutions receiving microenterprise
funds from USAID must use one of the tools and report the number of
entering clients who live on less than US$1 a day. The law is an effort
to bring accountability and transparency to the long-standing
Congressional commitment to have at least half of USAID microenterprise
funds benefit very poor clients.
The new law could
have a profound impact on all of development, not just microfinance, by
assisting leaders in fields such as health and education in their own
efforts to ensure that the very poor are not left out. In addition, the
law could have an equally profound impact on the Microcredit Summit
Campaign’s new goal seeking to ensure that 100 million of the world’s
poorest families move from below US$1 a day, adjusted for Purchasing
Power Parity (PPP), to above US$1 a day by the end of 2015. This new
Microcredit Summit goal is central to achieving the MDG on halving the
number of families living below US$1 a day by 2015.
One of the papers
commissioned for the Global Microcredit Summit to be held in Halifax,
Canada in November 2006 will address the measurement challenge
directly. The paper is co-authored by Thierry van Bastelaer, Director
of the Enterprise Development Group at the Center for Institutional
Reform and the Informal Sector (IRIS) at the University of Maryland, and
Manfred Zeller, an IRIS Consultant and Professor for Rural Development
Theory and Policy at the University of Hohenheim in Germany. Van
Bastelaer and Zeller are chief developers of what will possibly become
the new USAID poverty measurement tools. Their paper for the Halifax
Summit is titled: “Achieving the
Microcredit Summit and Millennium Development Goals of Reducing Extreme
Poverty: What is the Cutting Edge on Cost-Effectively Measuring Movement
Across the US$1/Day Threshold?”
If the potential
impact is to be fully realized, however, the new law’s requirements must
be embraced by other leading development institutions. This was
attempted in late 2003 when more than 700 parliamentarians from the
United States, the United Kingdom, Canada, Japan, Australia, India, and
Mexico wrote to the heads of the World Bank, the three regional
development banks, and UNDP with such a request.
Two years later,
each of the five institutions has a new leader and the parliamentarians
are bringing their request to that new leadership: Paul Wolfowitz,
President of The World Bank; Haruhiko Kuroda, President of the Asian
Development Bank; Luis Alberto Moreno, President of the Inter-American
Development Bank; Donald Kaberuka,
President of the African Development Bank; and Kemal Dervis,
Administrator of the UNDP.
In their letters to
the new leaders, the parliamentarians ask for their partnership during
the United Nations International Year of Microcredit, “in ensuring that
the powerful intervention of microcredit be put to the fullest use in
fulfilling the Millennium Development Goals (MDGs), especially the goal
to halve the proportion of people living in extreme poverty by 2015.”
The parliamentarians acknowledge the revolutionary nature of
microfinance and make the following requests:
1)
Increased funding for microfinance:
Given the unrealized potential of microfinance to contribute to meeting
the MDGs, we find it perplexing that an institution such as the World
Bank invests less than one percent of its annual spending on
microfinance. In a case such as this, we believe resources should at
least be doubled given that scores of institutions around the world have
the capacity to reach tens of millions more of the very poor sustainably.
2)
At least 50 percent of funds reaching the poorest:
By December 31, 2006, we ask that your institution make the commitment
to having at least 50 percent of your microfinance investment reach
clients who are living below US$1 a day or within the bottom half of
those living below their nation’s poverty line when they start with a
program. We believe that it will take a clear mandate by your
institution to reach these very poor families. Just as a revolution in
banking was required in order for microfinance to even exist, we believe
that a revolution in development is required to ensure that the very
poor are reached, a revolution that will not come from incentives alone.
3)
Use of cost-effective poverty measurement tools to ensure meeting
the target of half of resources going to families who are living below
US$1 a day when they enter a program:
Perhaps most importantly, by December 31, 2007, we would like to see you
require that the microfinance institutions with whom you work use
cost-effective poverty measurement tools to determine the proportion of
their clients living below US$1 a day, and use the same or similar tools
to show which portion has moved above US$1 a day. Among the most
important developments in poverty reduction is a new US law requiring
the development and use of cost-effective poverty measurement tools by
programs receiving USAID microenterprise funds. Where else in
development assistance can we show that the very poor are being reached
with tools that can help them move out of poverty with dignity?
4)
An annual reporting of results:
By December 31, 2008, we would like to see your institution report, on
an annual basis, the amount of resources provided for microfinance and
the percentage of those resources that reach families who were living on
less than US$1 a day when they entered a program (based on use of the
US-certified tools that will be developed in the next two years).
The parliamentarians
close their letter with the following quote from an article co-authored
by Muhammad Yunus of Grameen Bank, and Fazle Abed of BRAC:
Why is there any
debate on whether donor priorities should be sharply on the
poorest?…. they are the first to be left behind. The recent US
law…specifies that half of US foreign assistance designated for
microcredit actually reaches those people living on less than US$1 a
day. We don't understand why anybody would object to this. By all
logic of foreign assistance and the Millennium Development Goals, it
is the right thing to do.
“We fully agree with
them,” the parliamentarians conclude, “and hope your response will show
that you do as well.”
The actions taken by
the new leaders at the World Bank, the regional development banks, and
UNDP will show whether there is indeed a new vision, one that truly
recognizes sustainable microfinance for the very poor as a powerful tool
for meeting the MDG on poverty reduction. Their responses will
demonstrate whether we have finally made the “break with business as
usual” that Kofi Annan calls for and whether we will “dramatically
accelerate and scale up action now.”
Will the leaders
commit to doubling financial resources with half reaching the very poor
or will they be mired in the myth of insufficient retail capacity? Will
they realize that it is half of their institution’s resources
that would need to reach the very poor and not half of each MFI’s
resources that need to reach the very poor?
Will they see that
all too often, the field of development fails to reach the very poor,
and that nothing short of a revolution will be sufficient to address
this failure? Will they see that incentives alone cannot spark this
revolution with the MDGs due in just 10 years?
Will they see, as
Freedom from Hunger’s Chris Dunford argues, that we measure what we
value and that we value what we measure and, as a result, will they give
the same importance to measuring the poverty level of entering clients
that they give to measuring the financial performance of the MFIs?
In short, will they
follow the visionaries, revolutionaries, and action researchers or will
they continue with business as usual?
More than Just Reaching the Poorest
The above discussion, focused primarily on the social side of
microfinance, does not provide a complete view of the Microcredit Summit
Campaign’s work. A glimpse of the
agenda for the upcoming Global Microcredit Summit to be held in Halifax
in November 2006 reveals the Campaign’s commitment to the wider
microfinance agenda. Papers are being commissioned for 40 workshops and
associated sessions and the following are just a sample:
The Future of
Microfinance: Visioning the Who, What, When, Where, Why, and How of
Microfinance Expansion Over the Next 10 Years:
We are at a critical point in the Campaign’s history, completing the
first phase and re-launching the Campaign with two new goals for 2015.
This is an especially important time to outline a vision for the next
ten years.
Overcoming
Regulatory and Legal Constraints to Savings Mobilization:
Building savings and other assets is essential to a sustained move out
of poverty, but many MFIs are constrained by law from accepting
savings.
Effective Micro-Life
Insurance and Micro-Health Insurance Programs to Reduce Vulnerability:
Insurance products are another key to reducing vulnerability and are
beginning to be offered around the world.
Remittances: What
are the Challenges and What are the Opportunities?:
Tens of billions of dollars flow each year from North to South,
sometimes at great expense to the remitter. MFIs are beginning to offer
remittance services and tap this flow of resources.
Good Practice in
Business Development Services: How Do We Enhance Entrepreneurial Skills
of MFI Clients?:
Business development services can be a boon or a burden for clients. At
their best, they can assist clients in improving their businesses and
accelerating their move out of poverty.
Microfinance
Investment Funds: What is the Role for Foreign Direct Investors and Are
We Measuring both Financial and Social Performance?:
Foreign direct investment is a field that is finally taking off and it
presents challenges and opportunities for investors and MFIs.
Corporate/MFI
Partnerships that are Profitable for the Corporation, the MFI, and the
Clients:
After decades of neglect, corporations are beginning to see the
opportunities for partnering with MFIs and their clients. This session
will look at cutting edge work in this area.
Innovations and
Challenges in MFI Ratings:
A nascent field at
the time of the 1997 Microcredit Summit, MFI raters are playing an
increasingly important role today.
Interest Rates:
Serving the Institution and the Clients:
Always a daunting challenge for the field, the MFIs must balance the
need to both cover costs and provide efficient financial services to the
poor and must address the challenge of government-imposed interest rate
caps.
With Transformation
to Regulated MFIs, What are the Models of Ownership that Protect the
Social Mission? :
Many leaders in the field are heralding the importance of transforming
non-governmental MFIs into regulated institutions. What is necessary to
ensure that the social mission is enhanced, and not eroded, in the
process?
Microcredit in
Post-Conflict/Conflict, Natural Disaster, and Other Difficult Settings:
MFIs have had to face Hurricane Mitch in Central America, floods in
Bangladesh, the tsunami in South and Southeast Asia, the earthquake in
Pakistan, and civil strife in Africa and elsewhere. What are the
lessons learned?
Survey
Methodology
Each year the
Microcredit Summit Campaign goes through a process of data collection
and verification leading to the publication of the State of the
Microcredit Summit Campaign Report. The process includes: 1)
circulating Institutional Action Plans (IAPs) to thousands of
practitioners with a request for submission of most recent data; 2) a
phone campaign to the largest institutions in the Campaign to encourage
submission; 3) a verification process seeking third-party corroboration
of the data submitted by the largest MFIs; 4) data compilation and
analysis; and 5) the writing of the report. For eight years now this
process has produced the largest primary source collection of data from
microfinance institutions available.
In most cases, the
data presented in this report is from individual institutions. We have
tried to avoid including data from network institutions to prevent
double counting. Network institutions have played a valuable role,
however, in facilitating data collection from their affiliates. As in
years past, we are especially grateful to the following institutions for
their active support in this data collection process: AFMIN (AEMFI,
AISFD-CI, APIMFT, APIM, AMFIU, GHAMFIN, REGUIPRAM, RIFIDEC, AMFI, APIM-BF,
RIM), APIMEC, CARE, Catholic Relief Services, COPEME, Developpement
international Desjardins, FINCA, FINRURAL, FORO LAC FR, Freedom from
Hunger, Grameen Trust, Katalysis, Opportunity International, PKSF, Plan
International, Pride Africa, Red Financiera Rural, REDCAMIF (REDIMIF,
REDMICROH, ASOMI, ASOMIF and REDCOM), Red para el Desarrollo de las
Microfinanzas en Chile, Save the Children, Women’s World Banking, World
Relief, and World Vision International. We are also indebted to the
institutions in Asia, Africa, and Latin America that host umbrella
meetings with our regional staff. Those meetings play a pivotal role in
Action Plan collection.
As of October 21,
2005, 6,600 institutions were members of
the Microcredit Summit Campaign’s 15 councils. Of that number,
4,257 institutions from 131
countries were members of the Microcredit Summit Council of
Practitioners, an increase of more than 400
in the last 12 months. In 2005, 781
practitioner institutions submitted an Action Plan, 238 of whom
had previously never done so. The 781
Practitioners that submitted an Action Plan in 2005 had 90
percent of all the poorest clients reported. This means that the
data in this report is 90 percent current and the other 10 percent is
one or more years old. Since we began collecting Action Plans in
1998, the Microcredit Summit Campaign has received plans from 3,164
practitioner institutions.
The Action Plan asks
for the following data: 1) total number of active clients (clients with
a current loan); 2) total number of active clients who were among the
poorest when they received their first loan; 3) what poverty measurement
tool was used, if any, to determine the number of poorest clients 4)
percentage of poorest clients who are women; 5) average size of first
loan; 6) total number of active savers; 7) average savings per saver; 8)
percentage of poorest clients who have crossed the poverty line; 9) what
impact measurement tool was used, if any, to determine the number of
clients who were very poor when they took their first loan and have now
crossed the poverty line 10) financial or business development services
offered, if any; and 11) percent financial self-sufficiency an
institution has reached.
In the 2005 IAP, on
which this report is based, practitioners were asked to provide the
above data for December 31, 2004 (actual), December 31, 2005 (proposed),
and December 31, 2006 (proposed). The report is then compiled using end
of 2004 data.
Each year, we
emphasize that this data is self-reported. However, Microcredit Summit
Campaign staff review all Practitioner IAPs that are received. Any
institution with questionable data is asked to clarify its responses,
and if the questions are not resolved, the questionable data is not
included in the report. In 2000, we took the further step of
independently verifying aspects of the data. The largest institutions
in Africa, Asia, and Latin America provide us with names of donor
agencies, research organizations, networks, or other institutions that
could verify the total number of clients reached, the number of poorest
clients, and the number of poorest women. A letter is sent to potential
verifiers asking them to confirm the data submitted by a given MFI. The
letter says, “By confirm, we mean that you have visited the program, met
with senior officials, reviewed aspects of the operation, they have
provided you with numbers, and you believe that the institution and the
numbers listed below are reliable and credible.”
Clients Reached
By December 31,
2004, 3,164 microcredit institutions
reported reaching 92,270,289 clients with a current loan, 66,614,871 of
whom were among the poorest (in the bottom half of those living below
their country’s poverty line or below US$1 a day) when they started with
the program. (Of these 3,164 institutions, 781 sent in their 2005
Institutional Action Plans. The 2,383 remaining institutions sent us
their data in previous years, and we have included those numbers in this
report.) Ninety percent of the poorest families reported are in Asia, a
continent that is home to some 67 percent of the world’s people living
on less than US$1 a day.
In the 2000 State
of the Campaign Report, 78 institutions, representing two-thirds of
the poorest clients reported, had their data verified by a third party.
In 2005, we were able to verify the data of 330 institutions,
representing 58,450,926 poorest families or 87.7 percent of the total
poorest clients reported.
Table 1 shows results of the verification process over the last six
years:
Table 1:
Year
|
Number of
Institutions Verified |
Number of
Poorest Clients Verified |
Percent of
Total Poorest Clients |
Total Number
of Poorest Clients Reported |
2000
|
78
|
9,274,385
|
67
|
13,779,872
|
2001
|
138
|
12,752,645
|
66
|
19,327,451
|
2002
|
211
|
21,771,448
|
81
|
26,878,332
|
2003
|
234
|
35,837,356
|
86
|
41,594,778
|
2004
|
286
|
47,458,191
|
87
|
54,785,433
|
2005
|
330
|
58,450,926
|
88
|
66,614,871
|
The growth from 54.8
million poorest clients at the end of 2003 to 66.6 million poorest
clients at the end of 2004 represents a 21.6 percent growth rate over
the year. The growth from 7.6 million poorest at the end of 1997
to 66.6 million poorest at the end of 2004 represents a growth of 776
percent during that seven-year period. In order to reach 100 million
poorest by the end of 2005, the Microcredit Summit Campaign needs to
sustain a growth rate of 38.1 percent per year. Currently, we
average just over 36 percent per year.
Growth Resulting
from Institutions Reporting for the First Time
Each year the
Campaign makes a concerted effort to include institutions that have not
yet reported. In 2000, 22 percent of the growth came from institutions
reporting for the first time. In 2001, 57.8 percent of the growth came
from institutions reporting for the first time, although a significant
portion of that growth came from the National Bank for Agriculture and
Rural Development (NABARD) in India, which had expanded dramatically
over the previous four years. (NABARD is the apex development bank in
India for agriculture and rural development. NABARD has played a
central role during the last decade in pioneering the Self Help Group ((SHG))
movement in India, under which poor and poorest women organize
themselves into groups. The SHG members save and lend among themselves
and also manage the affairs of their groups. The mature SHGs are linked
to the formal banking system, which has an extensive branch network
throughout the country, to bolster their resources. Although 2001 was
the first time NABARD’s clients were included in the State of the
Campaign Report, its large number of clients is the result of
dramatic growth within the NABARD program itself.) In 2002, 33.8
percent of growth came from institutions reporting for the first time.
In 2003, 27.5 percent of growth came from institutions reporting for the
first time, including India’s Society for Empowerment of Rural Poor (SERP).
In data representing end of 2004 figures, only 5.8 percent of the
growth is a result of institutions reporting for the first time.
Table 2 shows progress over the last seven years:
Table 2:
Year |
Number of Programs Reporting |
Total Number of Clients Reached |
Number of ‘Poorest’ Clients Reported |
12/31/97 |
618
institutions |
13,478,797 |
7,600,000 |
12/31/98 |
925
institutions |
20,938,899 |
12,221,918 |
12/31/99 |
1,065
institutions |
23,555,689 |
13,779,872 |
12/31/00 |
1,567
institutions |
30,681,107 |
19,327,451 |
12/31/01 |
2,186
institutions |
54,932,235 |
26,878,332 |
12/31/02 |
2,572
institutions |
67,606,080 |
41,594,778 |
12/31/03 |
2,931
institutions |
80,868,343 |
54,785,433 |
12/31/04 |
3,164
institutions |
92,270,289 |
66,614,871 |
Figure 1 shows the
trajectory of growth in poorest clients reached since 1997 versus growth
that is required to reach 100 million poorest clients by 2005.
Figure 1:
The size of the
institutions reporting data varies greatly. Table 3 shows the breakdown
in size of the 3,164 institutions whose data are included in this
report.
Table 3:
Size of
Institution
(in terms of
poorest clients) |
Number
of Institutions
|
Combined
Number of Poorest Clients |
1 million or
more |
8 |
22,451,770
or 33.7 % of total |
100,000-999,999 |
41 |
10,037,363
or 15.1 % |
10,000-99,999 |
276 |
7,195,883
or 10.8 % |
2,500-9,999 |
515 |
2,498,206
or 3.8 % |
Fewer than
2,500 |
2,321 |
1,258,301
or 1.9 % |
Networks |
3 |
23,173,348
or 34.8 % |
Of the
66.6 million poorest clients being served, 55.7
million of them, or 83.6 percent,
are being served by the 52 largest individual institutions and networks
reporting, all with 100,000 or more poorest clients.
The three large networks are: 1) Association of Asian
Confederation of Credit Unions (ACCU); 2) Bangladesh Rural Development
Board (BRDB); and 3) National Bank for Agriculture and Rural Development
(NABARD) in India.
Women Clients Reached
Of the
66.6 million poorest clients reached at
the end of 2004, 83.5 percent or 55.6 million are women. The growth in
the number of very poor women reached has gone from 10.3 million at the
end of 1999 to 55.6
million at the end of 2004. This is a 440
percent increase in the number of poorest women reached from
December 31, 1999 to December 31, 2004. The increase represents an
additional 45.3
million poorest women reported as receiving microloans in
the last five years.
The Use of Poverty Measurement Tools
As mentioned
earlier, the Microcredit Summit Campaign’s greatest challenge lies in
bridging the gap between our commitment to reaching the poorest families
and the lack of a sufficient number of quality poverty measurement tools
in use.
Beginning in 2000,
the Campaign asked practitioners to indicate what poverty measurement
tool they used, if any, to target or identify poorest clients. Of the
institutions reporting that year, two-thirds (341 out of 512
institutions submitting an Action Plan in 2000) reported using a tool
other than an estimate. Thirty percent of that group (or 104
institutions) told us they were using one of the two tools in the
Poverty Measurement Tool Kit: Participatory Wealth Ranking or the
CASHPOR House Index.
This year, of the
781
institutions submitting data in 2005, 540, or
69.1 percent, reported using a
poverty measurement tool other than an estimate. Of this group, 22.8
percent (or 123 institutions)
told us they are using one of the two tools from our Poverty Measurement
Tool Kit.
Regional Data
Of the
3,164
institutions that have reported to us, 994
are in Africa, 1,628 are in Asia,
388 are in Latin America and the
Caribbean, 48 are in North America, 72
are in Europe and the Newly Independent States (NIS), and 34
are in the Middle East.
Table 4 shows the
regional breakdown of data:
Table 4:
Region |
Number of Programs Reporting |
Number of Total Clients in 2003 |
Number of Total Clients in 2004 |
Number of Poorest Clients in 2003 |
Number of Poorest Clients
in 2004 |
Number of Poorest Women in 2003 |
Number of Poorest Women in 2004 |
Africa |
994 |
6,438,587 |
7,004,840 |
4,725,912 |
|
3,180,419 |
3,271,510 |
Asia |
1,628 |
71,585,413 |
81,009,798 |
48,797,590 |
59,939,638 |
41,272,188 |
51,212,061 |
Latin America & Caribbean |
388 |
2,519,299 |
3,854,401 |
1,121,324 |
1,429,360 |
719,191 |
1,020,992 |
Middle East |
34 |
106,464 |
168,575 |
54,039 |
92,568 |
22,785 |
61,804 |
Developing World Totals |
3,044 |
80,649,763 |
92,037,614 |
54,698,865 |
66,523,732 |
45,194,583 |
55,566,367 |
North America |
48 |
53,147 |
56,911 |
24,817 |
28,638 |
10,782 |
17,696 |
Europe & NIS |
72 |
165,433 |
175,764 |
61,751 |
62,501 |
37,360 |
38,343 |
Industrialized World Totals |
120 |
218,580 |
232,675 |
86,568 |
91,139 |
48,142 |
56,039 |
Global Totals |
3,164 |
80,868,343 |
92,270,289 |
54,785,433 |
66,614,871 |
45,242,725 |
55,622,406 |
Figure 2 shows the
relationship between the number of families living in absolute poverty
in each region (i.e., those living under US$1 a day adjusted for PPP)
and the number of poorest families reported reached in each region at
the end of 2004.
Figure 2:
Reaching 100
Million Poorest by the End of 2005
Between 1997 and
2003, data released by the Microcredit Summit Campaign has showed an
average annual growth rate sufficient to reaching 100 million of the
world’s poorest families with microloans by the end of 2005. Our 2005
report, however, outlines the first decline in that estimate. While it
is clear that more than 100 million families will be reached by the end
of 2005, the 100 million poorest benchmark may not be achieved
until the end of 2006 or 2007. That said, progress to date remains
remarkable and is one of the bright spots in the field of international
development.
In the new edition
to his book, The Price of a Dream, author David Bornstein writes,
“[The progress of the Microcredit Summit Campaign] represents one of the
few times that a major development promise is going to be fulfilled—and
remarkably close to schedule.”
The reason we can
say that the 100 million poorest goal will be reached when
attempts at reaching other development goals all too often fail is
because microfinance uniquely addresses two of the greatest constraints
to reaching international development targets: 1) insufficient funds and
2) the failure of many development initiatives to reach the very poor.
The funding
constraint was powerfully addressed in 1997 in a statement by Michael
Chu who was President of ACCION at the time. Quoted in the
Declaration and Plan of Action for the 1997 Microcredit Summit,
Michael Chu said, “The confirmation that microenterprise credit can be
managed to achieve economic viability is an accomplishment of
revolutionary proportions. This permits an activity motivated by social
impact to break free of the structural paradox of most humanitarian
efforts, in which the cost of reaching every additional person brings
the program closer to its economic limits. Successful microfinance, on
the contrary, becomes more self-sufficient with scale."
While there
certainly are financial constraints in microfinance, especially in the
start-up phase, they are dramatically different from those faced when
attempting to reach goals such as vaccinating all children or ensuring
primary school enrollment for all. These vitally important activities
cost more with each additional child vaccinated or enrolled in school,
while microfinance, in Chu’s words, “becomes more self-sufficient with
scale.” This traditional barrier, insufficient funds, will not be the
same kind of constraint to achieving the Microcredit Summit’s goal as it
is for achieving other development goals.
The second barrier,
the challenge of reaching the very poor was made clear in a statement by
Peter Adamson, who for many years wrote the State of the World’s
Children Reports with and for James Grant of the United Nations
Children’s Fund (UNICEF). In December 1990, Peter Adamson participated
in an international conference call to discuss the latest UNICEF
report. The World Summit for Children had been held three months
earlier and he was asked which of the seven key goals from the
Children’s Summit was least likely to be reached. Would it be the goal
to reduce child deaths that would present the most difficulty or would
it be goals to cut illiteracy or increase access to clean water and safe
sanitation? Peter Adamson’s response was stunning in its clarity.
“None of the goals will be hardest to reach,” he replied, “it’s the
bottom 20 percent of the population that is most likely to be missed.
It’s not a goal that will be hardest to reach, it’s a group.”
The bottom 20
percent of the population Peter Adamson spoke of are the 1.2 billion
people living below US$1 a day. That is the group the Microcredit
Summit Campaign is committed to reaching and the group targeted by the
Millennium Development Goals, especially the goal of halving absolute
poverty by 2015.
The field of
microfinance is already overcoming this barrier through the ongoing and
expanding focus on reaching the very poor discussed earlier.
Which Clients
Are Not Being Counted?
While the Microcredit Summit Campaign counts 66.6 million poorest
families reached by the end of 2004, there are families that are not
included in this assessment. Who are those families?
·
Clients who have graduated from the program successfully:
Some leaders in the Campaign have argued that our benchmark, clients
with a current loan, may omit millions who have graduated successfully
from a microfinance institution. While this is likely true, the
Campaign has no way of determining whether a client’s departure is the
result of success or failure and therefore maintains its focus on those
with a current loan.
·
Clients in Large Government Programs in China and Thailand:
There are large
programs in China and Thailand that have never reported to the Campaign
and their data is therefore not included in our reports. It is hoped
that the State of the Microcredit Summit Campaign Report 2006
will reflect this data.
·
Programs that Reported One or More Years Ago, But Did Not Report in
2005:
There are more than 2,000 institutions that have reported to the
Campaign in previous years, but did not report during 2005. In these
cases we have used their old data, which account for only 10 percent of
the 66.6 million poorest reached. Some of these MFIs may have
disbanded, but many others may have grown dramatically. This too is not
reflected in our latest data.
·
Institutions We Have Not Yet Identified:
No other agency has
collected data from 3,164 institutions as has the Microcredit Summit
Campaign, but there are perhaps thousands of other MFIs, mostly small
ones, that have not yet submitted an Action Plan to us. Our efforts,
especially those of our Regional Organizers, our Washington, DC-based
staff, and our network partners around the world will remain focused on
identifying these MFIs and collecting their data.
Re-launching the
Microcredit Summit Campaign to 2015 with Two New Goals
Earlier this year,
the Executive Committees of the Microcredit Summit Campaign and of
RESULTS Educational Fund agreed to extend the Campaign to 2015 with two
new goals. (The
Microcredit Summit is a project of RESULTS Educational Fund, a US-based
non-governmental organization, which has been responsible for the
Campaign since its inception in 1995.) The decision reflects a
commitment to deepen the Campaign’s contribution to fulfilling the
Millennium Development Goals, especially the goal of cutting absolute
poverty in half by 2015. The two new goals are:
1. Working to ensure that 175 million of the world’s poorest families,
especially the women of those families, are receiving credit for
self-employment and other financial and business services by the end of
2015. (With an average of five in a family this would affect 875
million family members.)
2. Working to ensure that 100 million of the world’s poorest families
move from below US$1 a day adjusted for purchasing power parity (PPP) to
above US$1 a day adjusted for PPP, by the end of 2015. (With an average
of five per family this would mean that 500 million people would have
risen above US$1 a day nearly completing the Millennium Development Goal
on halving absolute poverty.)
As exciting as these
new goals are, one in particular presents a significant measurement
challenge. In fact, twice now the Microcredit Summit Campaign has set
goals for which there were no widely-known, cost-effective ways to
measure progress. This was certainly true regarding cost-effective
poverty measurement tools when the Summit was launched in 1997 with its
“100 million poorest” goal. The lack of such tools stood as a critical
barrier to achieving the Microcredit Summit’s poverty-focused goal.
When a quantifiable goal is set without ways to measure progress, the
goal can be rendered meaningless.
The Campaign,
however, has worked tirelessly to answer this challenge and this work
has been one of our greatest contributions to the field. For example, a
Poverty Measurement Discussion Group in 1997 led to the creation of a
Poverty Measurement Tool Kit in 1998, which includes the tools discussed
earlier: 1) Participatory Wealth Ranking (PWR) and 2) the CASHPOR House
Index (CHI), and their dissemination.
With the new goal to
have 100 million of the world’s poorest families move above US$1 a day
adjusted for PPP, we are faced with a new measurement challenge—the need
for cost-effective tools that measure whether a family moves from below
US$1 a day to above US$1 a day. It is a challenge we will meet over the
next several years.
One difference
between the 1997-2005 challenge and the 2006-2015 challenge is the new
US law that requires development and certification of cost-effective
poverty measurement tools that measure US$1 a day poverty. These new
tools might both provide reasonable assessment of whether a family
starts below US$1 a day and, if applied on a consistent basis,
whether the family moves above US$1 a day. (The goal, of course, is
not merely to move families above US$1 a day, but to have that move be
the beginning of continuous progress in the well-being of those
families.)
If this is so, it
will likely have two results: 1) provide much needed impetus to the MDG
on halving absolute poverty by 2015 and 2) upset impact purists who
would argue that more rigorous and costly impact measurement tools are
required in order to establish causality. “Just because a family starts
below US$1 a day,” they might argue, “doesn’t mean their progress above
US$1 a day is a result of their involvement in a microfinance program.
A low-cost tool will not be able to determine causality.”
This has always been
the trade-off: having a sense of both the poverty level of entering
clients and of their progress provided by a less rigorous, but
cost-effective, tool or having no sense of the social progress being
made unless a government agency has paid for a more costly impact
assessment. For years this trade-off left many practitioners not
knowing the poverty level of their entering clients beyond anecdotal
evidence.
USAID has
commissioned the IRIS Center at the University of Maryland to develop
accurate yet cost-effective poverty measurement tools in response to the
new US law. A team of researchers has tested over 700 basic indicators
against the more rigorous Living Standards Measurement Study (LSMS), the
more costly tool used by the World Bank and others to determine US$1 a
day poverty, to see which of the low-cost indicators correlates most
closely with the more rigorous tool. The accuracy tests have been
completed successfully and the practicality tests have begun. More
information on the project is available at
www.povertytools.org or on the USAID Microenterprise Division’s
website
www.microlinks.org.
Regional and Global Meetings 2004-2006
In 2005, the
Microcredit Summit completed the third in its most recent series of
regional meetings. In February 2004, more than 1,200 delegates from 47
countries attended the Asia/Pacific Microcredit Summit Regional Meeting
in Dhaka, Bangladesh co-hosted by the Palli Karma-Sahayak Foundation (PKSF).
In October 2004, 650 delegates from 75 countries participated in the
Middle East/Africa Microcredit Summit in Amman, Jordan that was
co-hosted by the Arab Gulf Program for United Nations Development
Organizations (AGFUND) in Saudi Arabia. And in April 2005, more than
1,100 delegates from 38 countries came to Santiago, Chile for the Latin
America/Caribbean Region Meeting co-hosted by BancoEstado and other
leading Chilean institutions.
Each gathering is
organized to forward the Campaign’s learning agenda as expressed in the
following statement by Anne Hastings, Director of Fonkoze in Haiti,
immediately after the Latin America/Caribbean meeting: “It was
brilliant! It was so wonderful to be at a conference where at the
opening ceremonies the tone was set: 'Microcredit is not the goal, but
the means — The goal is to end poverty!’”
The Campaign’s
learning agenda will be dramatically enhanced when 2,000 delegates from
more than 100 countries gather at the Global Microcredit Summit in
Halifax, Nova Scotia, Canada, from November 12-15, 2006. End of 2005
data will be released at the Halifax Summit. Information on the Global
Microcredit Summit 2006 can be found at:
http://www.globalmicrocreditsummit2006.org
Conclusion
You know that
mantra, "Give a man a fish, he'll eat for a day. Teach a man to fish,
he'll eat for a lifetime?" It's missing something: microfinance is the
fishing rod, the boat, the net, etc. Cash and dignity, side by side….
Maybe the mantra should be: "Give a man a fish, he'll eat for a day.
Give a woman microcredit, she, her husband, her children, and her
extended family will eat for a lifetime."
Bono, lead singer,
U2
We close this report
with the story of
Susan grew up in a
poor, rural area of Kenya. She was the only one of her siblings to
attend school but was forced to drop out after fourth grade when her
family could no longer afford the school fees. Her parents kicked her
out when she became pregnant at 17. Hoping to find work, Susan and her
infant son moved to Nairobi, where she married and had a daughter. Her
husband left her when they learned she was HIV-positive. Unable to find
work and with no means to support her two small children, Susan ended up
in prostitution.
Susan learned about
Jamii Bora, a Nairobi-based microfinance institution, from neighbors in
her slum. She completed their business training, which improved her
business skills and gave her the confidence to begin her clothes mending
and sales business. The microfinance services enabled her to quit
prostitution and move her family from a shack in their crime- and
disease-ridden slum into a safer house.
Susan sometimes
struggles to pay the higher rent and occasionally must skip meals, but
feels her children’s safety justifies the difficulties. Their house has
a floor, running water, a waterproof roof and locking door—all luxuries
they did not have previously.
With each increasing
loan, Susan buys more raw materials in bulk at lower costs, thus
increasing her business’s profitability. She is convinced she would not
be alive without Jamii Bora’s medical insurance and access to HIV
medication, and can’t imagine what would become of her children, as
there is no one else to care for them. Susan has savings for the first
time and is striving to earn enough to ensure her children’s educations
so they can break free from the chains of poverty.
When the Microcredit
Summit Campaign was launched in 1997, there were 7.6 million clients
like Janet and Susan, the women whose
lives are described in this report. These 7.6 million very poor clients
affected 38 million family members. By the end of 2004, 66.6 million
very poor clients were reached by microfinance institutions, bringing
hope to some 333 million family members.
The aspirations of
this Campaign and of our partners and their clients are powerfully
expressed in the following excerpt from George Bernard Shaw’s Man and
Superman:
This is the true
joy in life, the being used for a purpose recognized by yourself as
a mighty one, the being a force of nature, instead of a selfish,
feverish little clod of ailments and grievances complaining that the
world will not devote itself to making you happy. I am of the
opinion that my life belongs to the whole community, and it is my
privilege to do for it whatever I can. I want to be thoroughly used
up when I die, for the harder I work, the more I live. I rejoice in
life for its own sake. Life is no brief candle to me, it is a sort
of splendid torch which I've got a hold of for the moment, and I
want to make it burn as brightly as possible before handing it on to
future generations.
Members of this
Campaign, including tens of thousands of microcredit staff members and
tens of millions of clients, devote each working day to realizing the
true joy in life—being used for a purpose recognized by themselves as a
mighty one, working to end the scandal of global poverty. And when we
see positive changes in the lives of the hundreds of millions of family
members, we know that we are holding the splendid torch of life and
truly making it “burn as brightly as possible before handing it on to
future generations.”
Sam Daley-Harris
is Director of the international Microcredit Summit Campaign in
Washington, DC, founder and President of the RESULTS Educational Fund,
and a member of the Advisory Board of Global Urban Development. He is
the author of
Pathways Out Of
Poverty, and Reclaiming Our Democracy. His article is adapted
from the 2005 Microcredit Summit Campaign Report, and is
reprinted by permission of the author.
[1]
The
Microcredit Summit Campaign defines “poorest” as those who are
in the bottom half of those living below their nation’s poverty
line, or any of the 1.2 billion who live on less than US$1 a day
adjusted for purchasing power parity (PPP), when they started
with a program. As stated in past reports, the Campaign’s
greatest challenge lies in bridging the gap between its
commitment to reaching the poorest and the lack of a sufficient
number of effective poverty measurement tools in use.
Therefore, every mention of the term poorest within this report
should be read within the context of this dilemma. Our work to
expand awareness about and use of cost-effective poverty
measurement tools is described throughout this report.
[2]
For the purpose of this report, the 1997 Microcredit Summit, and
the Summit’s nine-year fulfillment campaign, any mention of
“microcredit” refers to programs that provide credit for
self-employment and other financial and business services
(including savings and technical assistance) to very poor
persons.
Return to top |