On the 6th of June the June Conference Call was held, entitled ‘For richer, for poorer: Is our love affair with micro finance over?’ You can listen again to the recording here.
Microfinance is an International Development success story, with steady growth since the 1970’s and its emergence as a key tool to fight poverty, recognized with a Nobel Peace Prize in 2006. These days, though, there are a growing number of concerns with the microfinance sector: lack of regulation, the influx of private capital and the pursuit of microfinance as an investment tool. This is why we decided to make microfinance the focus of our June Conference Call, to reclaim microfinance and ask more complex and nuanced questions. The guest speaker on the call was Tom Sanderson, UK director of Five Talents, a Christian Microfinance charity.
The main points of the discussion were the following:
- Tom first discussed the positive aspects of microfinance, and what makes certain forms of microfinance ‘good’. Micro financial efforts are based on longevity and create mechanisms for further long-term changes. The loans have a recycling quality form a cost efficient chain between lenders. A hundred pounds can rotate between 6-12 customers, even at an 85 percent repayment rate. The revenues can then be used to finance other family necessities. Furthermore it creates dignity and self-esteem among the clients, as well as a sense of ownership.
- There have been difficulties in academia to make reliable conclusions about the sector, especially where positive results are of a qualitative, personal and social nature, which are hard to measure and prove. Another problem is the polarisation towards profit models rather than poverty alleviation caused by the commercialised sector. Even some NGO’s have increasingly started to resemble banks and financial institutions, side tracking poverty alleviation. Commercialisation is not always bad, Tom notes. It has allowed for successful clients to scale up with higher capital flows and offers clients more choices while pressing down prices. But the inherent dangers of commercial ventures need to be continuously considered and kept in check.
- Tom notes a lot of positive changes in the sector. This includes a new emphasis on transparency and for investors to know their clients. Positive practices are encouraged more extensively with “seals of excellence” while the Grameen Bank has developed a progress out of poverty index which measures effects on poverty alleviation. Finally there is a renewed emphasis and interest in training and saving, not just credit availability. Micro loans continue to fill the market gap created by banks that reject the poor as customers by using communal practices, excluding formal check-ups and putting value on the social collateral within communities.
If you would like to know more about microfinance and take action, please read the documents on our monthly action page here and take the action to contact your MPs. There are two ways of taking this month’s action – though you can of course do both. You can write to your MP to explain the issue and ask them to take action, and/or you can join the RESULTS team. Please contact us in the office if you require further assistance with either way of taking action.