Meeting the Challenge of Reaching the Poorest:
One Year of the Microcredit Summit Campaign

Introduction

On February 2-4, 1997 more than 2,900 people representing 1,500 institutions from 137 countries gathered at the Microcredit Summit in Washington, D.C. Together they launched a nine-year 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 year 2005.

As the Microcredit Summit gathers for the first Meeting of Councils, it is time to review what has been achieved and reflect on the work still to be done. To this end the Summit Secretariat has undertaken a survey of microfinance programs involved in this global campaign. This survey reveals that while programs are reporting progress in reaching greater numbers of clients, there is still much work to be done in determining whether this growth represents an increase in the number of the poorest families being served. The survey reveals that among the most important, immediate challenges facing the global campaign is the development of simple, cost-effective measurements for determining the poverty level of microfinance clients.

At the Summit, nine central themes were extracted from the 55-page Declaration and Plan of Action and enunciated at the Summit Council meetings. These themes addressed a wide variety of issues, from underscoring that microcredit is not a panacea but part of a larger movement working to alleviate poverty, to warning against an indiscriminate flow of resources to programs that are not ready for the next level of growth. The essence of the Microcredit Summit, however, can be summarized in the following four points.

1. Reaching the Poorest: The Summit recognizes that the field of microfinance includes all those institutions providing financial and other services to constituencies that are overlooked by the traditional banking sector. The goal of the Summit, however, focuses on outreach to the poorest families, defined in the Declaration and Plan of Action as families in developing countries among the bottom 50 percent of those living below the poverty line. Within industrialized countries the Summit is focused on all of those living below the poverty line.

2. Reaching Women: Of the 1.3 billion people living on under US$1 per day, 900 million of them are women. Experience shows that women are a good credit risk, and that woman-run businesses tend to benefit family members more directly than those run by men. At the same time, through earning an income women achieve a higher status in their home.

3. Institutional Sustainability: Experience has shown that microfinance programs in developing countries can structure their interest rates and service fees to eventually cover their operating and financial costs. The Declaration and Plan of Action emphasizes the importance of programs in developing countries reaching financial sustainability. Though the economic context in industrialized countries is radically different, the Summit encourages programs in industrialized countries to explore ways of becoming self-sustaining so that, to the greatest extent possible, their operating costs will be covered through direct revenue from program services.

4. Impact on the Lives of Clients and their Families: While financial measures such as program repayment rates give an indication of the strength of a microcredit institution, the Microcredit Summit is committed to programs having a measurable, positive impact in the lives of the very poor families.

This report is based upon results from a survey undertaken by the Microcredit Summit Secretariat. As of June 15, 1998, 1,335 microcredit practitioners worldwide had joined the Microcredit Summit Council of Practitioners. In doing so, they embraced the Summit's goal and agreed to formulate a plan of action outlining how their institution would contribute to its achievement. Practitioners reported the number of borrowers they were currently serving as well as the number of borrowers they planned to reach in 2005. A sample Institutional Action Plan Summary (IAPS) is attached.

As self-reported data, the Summit can make no assurance as to the accuracy of the findings. Throughout this report, the Summit includes information on how the Summit is seeking to address issues and concerns raised by these findings.

The Data

As of June 15, 1998, 622 established microcredit practitioners had responded. These programs together report reaching 14,808,871 current borrowers. Most programs also reported the percentage of their clients who are in the bottom 50 percent of the population living below their country's poverty line. According to the information these programs reported, they are serving 8,127,504 of the poorest families.

Program Description	Total number of clients as of June 1998	Number of clients counted as "poorest" as of June 1998	Projected number of clients in 2005	Projected number of "poorest" clients in 2005
622 programs currently serving clients	14,808,871	8,127,504	55,224,473	32,944,552

It should be stressed that these numbers do not represent the total number of microcredit programs or clients in the campaign or worldwide. (More than 700 practitioner institutions in the campaign have not yet reported on their programs.) In addition they do not give a verifiable identification of how many of the borrowers are among the poorest. It should be noted that the absence of data on how many clients are among the poorest need not be an indication that the program does not intend to serve this clientele. Rather the absence of data points to one of the central challenges facing this global campaign in its first years–the lack of simple, cost-effective, reliable measurements to identify the poorest families beyond general indicators such as the poverty level of a country or the size of loans.

To fill this gap, the Microcredit Summit has established a Poverty Measurement Discussion Group to help identify simple, reliable, cost-effective poverty measurements applicable in different regions of the world. By collecting and disseminating this information, the Summit Campaign intends to support microfinance practitioners world-wide in reaching consensus and adopting the most effective techniques to assist them in identifying and reaching the poorest families. The Poverty Measurement Discussion Group papers 1 and 2 can be found at the website http://www.microcreditsummit.org/discussion.htm.

The 622 established programs plan to be serving 33 million very poor borrowers by 2005. These programs represent only half of the programs that are expected to submit Institutional Action Plans and do not yet include many hundreds - if not thousands - of practitioner institutions that have not yet joined the campaign. Experience tells us that while some of these programs may fail or fall short of their projected targets, some programs will exceed their targets, and that new programs will spring up.

Analysis By Region

Continent	# programs	# current borrowers	# current borrowers "poorest"	# projected for 2005	# projected borrowers "poorest"
Africa	232	1,281,376	826,322	14,723,191	11,306,774
Latin America & Caribbean	101	651,185	183,335	4,603,447	2,305,781
Asia	239	12,784,618	7,079,561	35,277,392	19,100,043
Developing World Totals	572	14,717,179	8,089,218	54,606,035	32,712,598
North America*	31	56,860	23,986	356,213	174,177
Europe & NIS*	19	34,832	14,300	262,225	57,777
Global Totals	622	14,808,871	8,127,504	55,224,473	32,944,552

*The Summit Declaration anticipated that the majority of borrowers would be in the developing world, however microcredit has proven to be effective in industrialized countries as well, despite a radically different economic context.

The field is still dominated by large programs in Asia, with five of the ten largest programs in Bangladesh. The ten largest programs together account for 10,821,069 borrowers.

The Summit expects the early years of the Campaign to be characterized by the modest growth of many small programs and the establishment of new programs. While growth in the number of borrowers is welcome, the Summit is more concerned to help these new and expanding programs focus on reaching the poorest, especially women; develop sustainable institutions; and adhere to the principles of best practice.

Funding

In the Summit Declaration and Plan of Action, it was estimated that reaching 100 million of the world's poorest would require US$21.6 billion in grants, low-interest loans and commercial loans.

While an indiscriminate flow of resources to programs that are not ready for the next level of growth would damage the quality of programs, the Summit notes those institutions that are committing resources toward fulfillment of the Summit's goal. At the Summit, the United Nations Development Programme committed US$40 million over 18 months toward its MicroStart program. Since then, the African Development Bank committed US$21.45 million over two years to the African Development Fund Microfinance Initiative for Africa, the World Bank committed US$105 million to the Palli Karma Sahayak Foundation in Bangladesh in 1997, United States Agency for International Development obligated US$111 million to microenterprise programs during 1996, and the International Fund for Agricultural Development is providing US$130 million annual funding for microfinance activities, half of which is targetted to the poorest families.

Among other commitments were US$40 million funding from the Government of Argentina for Fondo Fiduciario de Capital Social, and US$16 million of capital from the private sector and NGO sources for MIBANCO in Peru. This sampling of commitments from seven organizations, which total over US$460 million, are an indication that multilateral donors and UN agencies are devoting resources to microcredit programs and increasingly targeting the poorest in their activities.

Conclusion

The campaign survey shows growth in the number of clients being served by microcredit programs. Determining whether this growth in the number of programs and borrowers represents an increase in the number of the poorest families being served is among the most important, immediate challenges facing the global campaign. The development of simple, cost-effective measurements for determining the poverty-level of microfinance clients will therefore continue to be addressed by the Microcredit Summit through the Poverty Measurement Discussion Group.

One of the functions of the Microcredit Summit Campaign is to help existing practitioners share experience and knowledge with each other, and with new and fledgling programs around the world. Through the newsletter Countdown 2005, the annual Meeting of Councils, the website, and active contact with practitioners worldwide, the Summit Campaign disseminates information on best practices.

It is important to recognize that the cornerstone of microcredit is the irrepressible desire and innate capacity of people to improve their situation and to succeed, for themselves and especially for their children. Access to credit for self-employment and other financial and business services gives the poorest families the opportunity to achieve their own triumph over the cruelties of extreme poverty. The Microcredit Summit chose to focus on the poorest people, especially women, because experience has shown that they are most likely to be left out of poverty eradication programs.

In the words of Melchora Jihuallanca, a borrower from FONDECAP in Huallatayre, Peru, "I don't know how to read or write, but I have a head with which to think. Before the credit, I was just in my house, taking care of my children and my animals. I did not know anything about business and I only looked at my husband's face. My children did not go to school because there was not enough money. Now that I have started to take credit with FONDECAP, I have learned how to run my own business. My husband respects me and now I talk with him. I count on my money to send my children to school."