WASHINGTON, DC – More than 128 million of the world’s poorest families received a microloan in 2009–an all-time high, according to a report released today by the Microcredit Summit Campaign. Assuming an average of five persons per family, this means that loans to 128 million poorest clients affected some 641 million family members, which is greater than the combined population of the European Union and Russia. Microloans are used to help people living in poverty start or expand a range of small businesses, such as selling basic staples, producing handicrafts, and delivering cell phone services to remote villages.
Nobel Peace Prize Laureate Muhammad Yunus participated in the news conference by video link from Dhaka, Bangladesh. He is featured in the report in the box on social business.
“Microcredit has very effectively lifted millions of poor women and their families out of poverty,” said U.S. Ambassador-at-Large for Global Women’s Issues Melanne Verveer. “With the 100th anniversary of International Women’s Day being celebrated on March 8th, it is gratifying to see that over 81 percent of the very poor who received microloans were women–that is more than 100 million people. Women entrepreneurs are one of the smartest investments in microfinance. Not only have they shown strong returns in the success of their businesses, but they consistently have demonstrated high loan repayment rates and they re-invest in their families and their communities.”
Overall, more than 190 million people had a microloan in 2009; however, the Campaign focuses on the 128 million poorest. In the 12 years since the Campaign’s founding, the number of very poor families with a microloan has grown more than 16-fold from 7.6 million in 1997 to 128 million in 2009. The report includes data from over 3,500 institutions with more than 93 percent of the information collected last year and verified by a third party.
“I have joined you from Spain to demonstrate my government’s strong commitment to microfinance programs that help people work their way out of poverty, ensuring both financial and social inclusion,” said Spanish Secretary of State for International Cooperation Soraya Rodriguez Ramos. “The Spanish government is pleased to be hosting the Global Microcredit Summit in Valladolid, Spain in November of this year, providing an opportunity for all 2,000 delegates to share their innovations, forge solutions to the challenges, and deepen their commitment to this very critical work.”
The State of the Microcredit Summit Campaign Report 2011 also announced the development of a Seal of Excellence for Poverty Outreach and Transformation in Microfinance which has been under discussion for 11 months and will continue to evolve throughout this year and beyond with input from a broad range of stakeholders. The Seal will recognize those institutions doing the most to help families lift themselves out of poverty. Acknowledging the range of critical initiatives in the microfinance field, Campaign Director Sam Daley-Harris said, “The Seal is working to build on the Smart Campaign’s client protection principles and the work of the Social Performance Task Force and is discussing ways to implement the seal that would use the systems that have already been developed for understanding the social performance of microfinance institutions.” Download the draft concept note and a request for feedback.
“With such incredible growth in microfinance there is a need for some certification, some objective measurement that makes it clear to the outside world that these are the goals of those microfinance institutions that are committed to reducing poverty and these are the institutions reaching those goals,” said Chuck Waterfield, founder of MicroFinance Transparency. “Efforts such as a Seal of Excellence on Poverty Outreach and Transformation are needed–and needed now.”
The report also addresses the debates in the microfinance sector over the initial public stock offerings (IPOs) at two microfinance institutions: Compartamos in Mexico and SKS in India. Those in favor of this move argue that commercial finance is a critical source of funds for the field. They also believe that the large profits generated for investors and senior management will attract additional commercial investors. Critics worry, however, that investors profiting from an industry created specifically to benefit those in poverty undermines the perception, purpose, and integrity of the microfinance field.
In the report, leaders from Compartamos and SKS write in favor of the IPOs and critics respond. Vikram Akula, founder of SKS and a leading IPO advocate, argues that, “From a client perspective, it does not matter whether the investors are earning very high profits or not. What matters to them is, are they getting a loan on time, can they generate income, and can they get their families out of poverty?” But David Porteous, President of Bankable Frontiers, worries about the long-term consequences of negative publicity that includes some cases of abusive collection practices and of people getting rich by providing loans to the poor.
In an extended interview in the report, Sir Fazle Abed, the founder of BRAC in Bangladesh, who was knighted last year by Queen Elizabeth for his work in ending poverty, speaks of the great hope and the troubling concerns in the field today.
“Microfinance is the most exciting thing that has happened to poor people over the last 30 years in terms of social inclusion,” he affirmed. “By ensuring financial inclusion we have worked with the poor in a way that honors their dignity, and we have shown that poverty alleviation needs a multi-pronged approach.” When asked about his concerns he replied, “There is a lot of greed coming into microfinance. A lot of people wish to make a lot of money out of it, and that worries me. Although I understand the rationale–when return on investment is high, more money will flow into the sector, but people should not take advantage of it and make money out of poverty.” He also stressed that the sector needs to address the issue of over indebtedness that may be affecting some segments of the borrowers and not lose sight of its development focus.
Nobel Peace Prize Laureate and Microcredit Summit Campaign co-founder Professor Muhammad Yunus hopes that microfinance institutions will remain committed to their mission of helping the poor by charging low interest rates and that appropriate laws will be adopted for MFIs to access local deposits and to be able to lend out those deposits rather than seeking loan funds from commercial investors. In the report, Professor Yunus focuses on a new category of business named social business. This is a non-loss, non-dividend company dedicated to solving social or economic problems. With Danone, the French yogurt maker, Grameen companies have launched one such business to address child malnutrition in Bangladesh, producing a very low-cost yogurt that contains all the micro-nutrients that children are missing. With Adidas, the German shoe manufacturer, Grameen has initiated another social business that will provide shoes for less than US$1.50 per pair to poor people in Bangladesh.
“This will have an enormous impact on health,” said Prof. Yunus, “because poor people suffer from diseases like hookworm that come through the skin of their feet. We want to make low-cost shoes that children and adults can afford to wear all the time.”
“It’s important to note that microfinance is so much more than just credit for microentrepreneurs,” said Larry Reed, the report’s author and former CEO of the Opportunity International Network. “Some of the most compelling impact data is coming from savings programs for the poor and very poor, and there is a lot of promise in outreach to rural areas, including agriculture finance and insurance, especially when integrated with other development efforts.”
Janet Bett a client and staff member of the microfinance institution Jamii Bora in Kenya exemplifies the transformational dimension of microfinance. When the abuse in her home became unbearable, she left her husband to live on the streets. She cared for her six children as best she could and survived by begging. After seven years of homelessness she met Jamii Bora founder Ingrid Munro who arranged a place for Janet and her children to stay. Munro encouraged Janet to start a weaving business. After saving $5-$10 dollars each, a total of 50 women beggars received their first loans from Munro, and Jamii Bora was born. Today, Janet serves as a senior manager at Jamii Bora and all of the members on her team have been beggars themselves at one time. When they meet a potential member who does not believe that his or her life can change, Janet tells them, “If I could do it, you can, too.” Janet is proud of her children who have finished university. Three are teachers, one is a pharmacist and the other works in a medical clinic.
In 1997, fewer than 8 million of the world’s poorest were receiving microloans. Now Janet Bett has played a part in helping to reach more than 128 million very poor clients. The Microcredit Summit Campaign aims to reach 175 million of the world’s poorest families by 2015 and ensure that 100 million of those families move above the World Bank’s $1.25-a-day poverty threshold.