Microfinance is good for those who borrow and those who lend: but who is who? As the industry matures, these roles are being reversed and evidence is starting to accumulate that the second generation has experienced lasting benefit.
Does microfinance lift families out of poverty, durably? This is the ten million dollar question. In fact, the question is worth 1.5bn dollars annually for Grameen bank alone. It is only now, thirty-five years after the industry started, that we are starting to see the long term results of microfinance.
So far the indications are good. Nobel prizewinner Professor Muhammad Yunus, speaking at the European Investment Bank on the occasion of the Luxembourg Microfinance Awards, described the increasingly frequent experience of meeting mothers and daughters (Grameen bank clients are 96% women): “Two ladies who look so similar: but the daughter is a doctor; her mother was illiterate.” Doctors, teachers or financially independent homemakers, the children of the first microfinance generation are starting to reap the benefits of a healthy diet and regular education.
Another trend emerges. Of the 1.5bn USD lent annually by Grameen, 1 bn USD comes from client deposits. Indeed, 20% of clients have more money in their MF savings account than the size of their loan. Professor Yunus enjoys telling loan officers “You are the borrower, not the lender.”
The European Microfinance Award was created in 2005 by the Luxembourg Minister for Development Cooperation and Humanitarian Affairs to highlight and stimulate initiatives that represent breakthroughs in the field of microfinance. The theme of this year’s award was innovation in the area of food security.
With 1/8 of the world’s population undernourished, these innovations count. The three projects short-listed for presentation at the EIB – from the Philippines, Bolivia and Kirghizstan - were an example of the very real contribution that microfinance can make to improving the daily diet and financial security of thousands of people. Professor Yunus spoke of others in his native Bangladesh and in Haiti.
Which makes one wonder that the press expends so much energy in condemning the (disgraceful) but minute minority of MF institutions that engage in irresponsible and abusive behaviour. “What do they want?” asked Professor Yunus, referring to the blanket press coverage of these cases, “ to close the industry down? Do they have a better idea?”
It’s been said before and we must say it again: microfinance alone cannot eradicate the evil of poverty, not least because so much of poverty is manmade. But for investors or donors looking for a project with measurable impact this is a good place to start. There are services available to help institutional and private investors identify the best from the good. ER