Microcredit: The World’s Most Powerful Weapon Against Poverty

November 01, 2008

<a href="http://www.eco-world.de/scripts/shop.prg/eco-world-buecher?product=199" title="Forum CSR International Magazine">Forum CSR International Magazine</a>
By: Sam Daley-Harris

In October 2006, the Norwegian Nobel Committee announced that the Nobel Peace Prize for that year would be awarded to Muhammad Yunus and Grameen Bank, “for their efforts to create economic and social development from below. Lasting peace,” the Committee said, “cannot be achieved unless large population groups find ways in which to break out of poverty. Microcredit is one such means. Development from below also serves to advance democracy and human rights.” With these words, 2006 became a breakthrough year for the microfinance movement.

A microcredit loan is often the only means by which impoverished people can climb up the economic ladder in their communities. Arguably the world’s most prestigious award, the Nobel Peace Prize celebrated a revolutionary effort to provide some of the poorest people on the planet with both the financial and non-financial tools necessary to create a dignified route out of poverty. I would argue that, while not a panacea, microcredit is the most powerful weapon we have against poverty. This can only occur when microcredit is targeted to the very poor and is well-run, a condition that not only includes strong financial performance, but also provides other client-centered interventions such as health services or health education and uses microfinance as a platform for other services as well.

Breaktrough innovation: Jamii Bora, Kenya

An example of groundbreaking change is the work of Jamii Bora, a microfinance institution (MFI), in Kenya. Ingrid Munro began Jamii Bora in 1999 with loans to 50 beggars in one of the worst slums of Nairobi, Mathare Valley. By August 2008, Jamii Bora had grown to 200,000 members. As Munro says, “We have fast climbers out of poverty and we have slow climbers, but everyone is a climber.” Joyce Wairimu is one of Jamii Bora’s fast climbers. Wairimu was one of the original 50 beggars and now
has 6 businesses and 62 employees. Another fast climber is Wilson Maina.

Micro health insurance

Jamii Bora is also doing groundbreaking work with the health insurance it provides, a breakthrough born out of necessity. In early 2001, when just over a year old, Jamii Bora decided to interview each of the clients who were not paying back and was shocked by what they found. Ninety-three per cent of the struggling clients had the same problem; they had a family member who was in the hospital. As Munro says, “Of course, you can’t expect that anyone will let their child die because they have to pay back their loan to Jamii Bora. So it was clear to us that this was something we could not compete with. This was something that we had to solve.” Jamii Bora asked local insurance companies to develop an insurance product. With 6,000 members at that time, the insurance companies were happy to oblige. Jamii Bora scoffed, however, when they heard that the cheapest product they could offer was 6,000 shillings a year, which came to about US$80 per year per family member. That was an impossible amount for Jamii Bora clients to afford, so they realised they had to create their own in-house product. Munro was warned that offering health insurance to such poor clients would surely ruin her young organisation. But with little research, Mr. Maina was a thief, one of the most wanted criminals in the slum. His first loan was for $20. Mr. Maina has started 4 businesses and has persuaded hundreds of young people to abandon their lives of crime. Munro challenges the conventional wisdom in microfinance in profound ways. She has upended the belief that one does not give loans to beggars and thieves. The end of poverty, however, will come from those who break the rules, people like Yunus and Munro, visionaries who accomplish what others see as impossible.

Challenge the conventional wisdom in international development

Munro joins Yunus in challenging the common belief among aid bureaucrats, that the very poor cannot use microcredit and need safety net programs first. When asked whether that analysis was correct, Munro replied, “I don’t agree with that at all, because in Jamii Bora we know that you can reach the very poor. Not just reach them, not just feel sorry for them, pat them on the head and say, we are going to help you to come above the poverty line. Our experience is that the most desperate are the ones that need microfinance the most, and they can handle it, we have proven that … The poorer they are, the more they need microfinance. And they don’t need charity, because charity is a way to keep people down. If we keep saying, ‘I feel very sorry for you because you can’t manage this yourself, ’you start thinking [to yourself] ‘I should feel sorry for [myself] because I can’t manage [on my own].’ But if we say to you, ‘You can make it. You have talents. God has given you talents like He has given everybody talents, and He wants you to use them.’ And [if] you see some of your friends who were begging beside you on the same street now walk around in nice dresses, their children are in school, they eat three meals a day, they live in a better house – then you also dare to dream that that is possible for [you, too].” other than discussions among staff, who were all current or former clients themselves, they decided they could cover all in-hospital costs and charge an annual premium of 1,000 shillings (about US$12 at the time) for an adult and four dependent children. The one condition was that members would pay the US$12 in small weekly payments (about 30 US cents). An extra US$2 a year was added for each additional child above the initial four. Jamii Bora started by partnering with one of the big mission hospitals in Nairobi. They gave the hospital a deposit for what they thought the costs would run for the first month. Their members would come with a letter letting the hospital know that the member had health insurance from Jamii Bora and that, if they are admitted to the hospital, Jamii Bora would pay all of the costs. Early in the process, Jamii Bora made another decision that they saw as critical. They decided that they would not ask for any donor funding because the donors, as Munro tells it, “would send a lot of consultants and they’d tell us it’s not possible to do what we had decided to do and they would also say, ‘So and so should qualify, and those clients should not qualify.’” Jamii Bora wanted the health insurance to be for everyone. They wanted to make sure it covered maternity costs, any kind of in-patient treatment, and would not exclude people with HIV and AIDS. If it did not cover everyone and everything, as Munro acknowledges, “then it was a useless insurance for us”. The program has grown to serve 120,000 clients and has always covered its cost without any donor funding.

The role for policy makers

Another cutting edge example of microfinance as a platform for other services is the work of Grameen Shakti (GS) in Bangladesh. Dipal Chandra Barua, Managing Director of Grameen Shakti discusses this innovative company that sells, finances and services renewable energy systems throughout Bangladesh. GS is committed to popularizing solar home systems (SHS) and other renewable energy technologies to millions of rural villagers. By May 2008 GS had installed 160,000 solar home systems and was installing new systems at the rate of 8,000 a month. They expect to reach their goal of installing 1 million SHSs by 2010, five years earlier than their original goal. The systems they have installed to date are eliminating 90,000 tons of carbon emissions per year. The Nobel Peace Prize brought the potential of microcredit to the attention of the world. Working with practitioners, business leaders and policymakers can help fulfill that potential throughout the world.