Editorial in ACP/EU Microfinance Newsletter #2

January 30, 2012

Larry Reed, director of the Microcredit Summit Campaign, published an editorial in the January Newsletter for ACP/EU Microfinance. In it, he likens the steady growth in the microfinance sector since 1997 to a mighty river. A river gives life and prosperity, but it can also destroy by overrunning its banks. In this analogy, microfinance's overflow is market saturation, over indebtedness, and harsh collection practices, and we need to take appropriate measures "to build strong banks for the river of microfinance, harnessing its power in ways that enable millions of families to lift themselves out of poverty." 

"The river of microfinance" by Larry Reed

Microfinance is like a river. A river that flows within its banks provides life and livelihoods to all the communities it passes through. But a river that overflows its banks can leave destruction and devastation in its wake.

Last year microfinance institutions reached 137.5 million of the world’s poorest families, according to the reports submitted to the Microcredit Summit Campaign. The number of clients reached has grown steadily since 1997, when microfinance institutions reported reaching 7.6 million of world’s poorest. What started as a small stream in the 1970s has now turned into a mighty river.

Yet we have also seen the river overrun its banks in some places. Markets in Bosnia, Pakistan and Morocco have both gone through repayment crises fueled by rapid growth of MFIs, market saturation and the erosion of lending disciplines. Last year in Andhra Pradesh over-lending and harsh collection practices led to strict controls from the state government that have virtually closed the microfinance market in that state, collapsing a source of finance for more than 6 million families.

A strong river needs firm banks that can control the force of the flow. At the Microcredit Summit we share ACP/EU MICROFINANCE’s concerns and have joined the Smart Campaign Principles for Client Protection and are working with the Social Performance Task Force to develop universal standards for social performance. We are also working with others to develop the Seal of Excellence for Poverty Outreach and Transformation in Microfinance. Working together on these initiatives we can build strong banks for the river of microfinance, harnessing its power in ways that enable millions of families to lift themselves out of poverty.

Larry Reed
Director, Microcredit Summit Campaign

To read the rest of the newsletter, download the ACP/EU Microfinance Newsletter #2.