Africana Plus
No64 June 2005.2
International Year 2005
Microcredit
“The International Year of
Microcredit 2005 stresses the importance of microfinance as an
integral part of our collective effort towards the Objectives of
Millennium Development. The lasting access to microfinancing
contributes to lessen poverty in generating revenues, creating
jobs, giving children access to school, allowing families to get
medical care and giving populations the means to make choices
that best correspond to their needs. The great challenge is to
face constraints that hinder full participation of populations to
the financial sector. Together we can and must build integral
financial sectors that help populations to better their living
conditions”. (General Secretary Kofi Annan, 29 December 2003)
In 1997 close to
3000 delegates coming from 137 countries met in Washington at the
microcredit summit. They launched this campaign so that the
poorest families in the world, specially women of these families,
might receive some credit and other financial and commercial
services that will allow them to carry on some independent
activity. The number of persons among the poorest, of whom 81%
are women, who received small loans allowing them to start or to
develop a small enterprise jumped from 7,6 millions in 1997 to 54
millions in 2003.The objective is to reach 100 millions families
by 2005’s end. The reason for launching this campaign is
that a fifth of the world’s population presently lives in
crushing poverty with less than 1$US a day. Microcredit programs
offer those people the hope and the opportunity to get out of
their dramatic situation,
In 1998 the
General Assembly of the United Nations proclaimed 2005 the
Microcredit International Year so as to recognise the
contribution of microcredit to the reduction of poverty. In
December 2003 the member States approved the project of the
General Secretary in his program of activities and invited the
Equipment Fund of the United Nations (EFUN) and the Department of
Economic and Social Affairs (DESA) to act as joint
coordinators of this event. The resolution [A/58/488] extended
the year’s mandate, “stressing that populations living
in poverty in rural as well as urban areas need microcredit and
microfinancing to increase their income, to build for themselves
a patrimony and to limit their vulnerability to misery.”
For most of us
words like finances, credit, savings, investment, call to mind
huge sums of monies, millions or even billions for a unique
account, the inaccessible image of a banker. The idea of “miniaturizing”
a financial transaction seems to be, for ordinary people, a
contradiction in terms. But lately it is no longer so. Finance
and poverty are no longer in conflict. On all continents dozen of
millions of families, who had been up to now living on the fringe
of society, have now access to credit, can save and invest –
on a strictly microscopic scale. It is for them that the word
microfinance has been created.
Everywhere in the
world local financial establishments have developed new
mechanisms to allow those who have traditionally been ignored by
the classical bank services to have access to credit and savings.
Those microfinancing institutions (MFI) have contributed in the
creation of original formulas of financial benefits for the
poorest among the poor and have reached population sectors that
had been up to now kept away from those mechanisms. Furthermore
they have proven that, contrary to common opinion, the poor are
trustworthy borrowers and have a very strong sense of saving..
The loans are
generally for very short terms: twelve months on average. But the
prospect of a renewal of a more important loan is a very strong
incentive to pay back. Although interest rates are relatively
high, the average repayment is remarkable and the applications
for loans are constantly increasing, which proves that for the
poor the possibility of permanent access to credit is a
consideration more important than the interest rate. From the
outset the MFI gave preference to credit and there was a tendency
to neglect savings, which is just as vital, if not more, for the
most destitute rural families. This is no longer the case to-day:
the accent is now on voluntary savings and this allows financing
a greater number of loans.
Divide by two the number of people living
in extreme poverty
Many efforts to
propose financial services to the most destitute populations will
help attain the objective of dividing by two the number of people
living in extreme poverty before 2015. We are talking here of
people whose income is less than a dollar a day and of those who
suffer from hunger. The Secretary general quotes the estimates of
the World Bank: they indicate that in developing countries the
proportion of people living with less than one dollar a day has
decreased from 29.6% to 23.2% between 1990 and 1999, that is
about 123 million people out of misery, while during the same
period the population of those countries has increased by 15%,
attaining 5 billion.
Studies on the impact of microfinance have
shown that:
- microfinance allows poor families to
provide for their vital needs and protect them against life’s
trials;
- the use of financial services by families
with little income helps improve the viability of home economy
and the stability and growth of enterprises;
- in encouraging the economic participation
of women, microfinance gives them some influence, thus favouring
the equality of sexes and helping the viability of homes;
- this impact is all the stronger as the
length of the access to those financial services for clients is
increasing.
One has to mention
here the innovative character of microcredit. It is not like a
junior bank, but a revolution in the banking world. To attain
success, many rules have had to be re-examined. When banks loaned
to the rich, pioneers of microbank loaned to the poor. When banks
loaned to men, those pioneers loaned to women. When banks
conceded important credits, pioneers conceded small ones. When
banks wanted guarantees, pioneers asked for none. When banks
filled tons of paper, pioneers did not ask their clients to fill
any forms. When customers went to the bank, microlenders went to
the clients.
“Let us be
clear: microfinancing is not charity. It is a way of allowing
families with low income to have the same rights and services as
all other people. It is a way of recognising that the poor are
not the problem, but the solution. It is a way to take advantage
from their ideas, their energy and their way of seeing things. It
is a way to help productive enterprises and therefore to help
communities prosper.” (Kofi Annan)
Microloans are
used in many commercial activities including enterprises
requiring little technique such as rice trimming, sewing, small
business.
An African woman with a commercial
project and microcredit
Like all business
owners, Thérèse Nougbognonhoun wanted to expand her business
but did not have the needed capital to increase her stocks and
attract new customers in her stall at the central market of
Nikki, a town in the North of Benin. Many voracious creditors had
offered her loans with excessive rates, but she knew that if she
borrowed from them, all her profits would disappear when she gave
back the loans. When a small microfinance non-profit-making
institution, called FECECAM, came to town, offering loans at an
attractive rate, Thérèse perceived a chance to expand her
business.
Thérèse did not
start from very high, but this was enough to launch her. With a
loan of about 30 dollars, she could replenish the stocks of her
store with vegetables, food stuff and toilet products, for her
faithful customers. With the sale of her increased stocks, she
could provide to her own needs while paying back the loan in less
than six months. She then borrowed a little more, paid it back
quickly and is now at her third loan. She is proud of the way
that her business is getting regularly bigger. It is true that Thérèse
has no business diploma, but she has a commercial project. She
knows her customers and also what sells. To-day thanks to an
attractive credit, she is reaching her goal. “I pay back
each loan before the deadline”, says she proudly. “Each
loan allows me to multiply my capital and this means that I can
now sell a wide range of products in my stall.”
The Equipment Fund
of the United Nations (EFUN) reckons that lending small sums of
money to poor people to help them create or expand their small
business is an effective way to combat poverty. This Fund
supports microfinance institutions (MFI) so that they may expand
their services to entrepreneurs who are not normally eligible for
loans. In most cases owners of small businesses cannot borrow
from commercial banks because they lack guarantees. MFI is often
the only solution against voracious and unscrupulous creditors
who loan without conditions. The EFUN works hand in hand with the
MFI on a series of services so that small entrepreneurs like Thérèse
might build up a capital, lessen risks and reduce their economic
vulnerability. The financial support from EFUN to microfinance
institutions guarantees their longevity well beyond the framework
of the United Nations’ assistance.
Benin is one of
the poorest countries in the world. The Third Conference on the
least advanced countries tackles the question of economic
isolation and extreme poverty of more than 650 million people
living with less than a dollar a day. Thérèse has immediately
felt the advantages of an opportunity. “There are many
opportunities to seize on the market, but if you don’t have
money, you cannot take advantage of them. When you are poor, even
if you have good ideas, you have no resources and cannot open a
small business.” She is ready to work hard and take on the
responsibility to pay back the loans. She says: “The
possibility to get a credit enables you to get out of your
problems. But you also have to remember the importance to make
the repayments; otherwise you can loose everything and lead other
people to fall with you.”
Microcredit: the key to attain the
objectives of the millennium
Most world
nations, among them Canada, approved and signed the Objectives of
development of the millennium (ODM) in September 2000. Those
objectives are the guiding lines of the programs of international
development everywhere in the world.
However the
support from Canada to microcredit is declining. The Canadian
International Development Agency (CIDA) spent about 70 million
dollars in microfinance four years ago, but this sum has gone
down to 35 million in 2003. CIDA thinks that another drop has
occurred in 2004, collapsing to 25 million. This is a serious
decline and the tendency has to be reversed now.
At her press
conference in Ottawa on 10 December last the minister of CIDA,
Aileen Carroll, announced that the closing conference of the 9
year campaign of the summit of microcredit will be held in
Halifax, Canada, in November 2006. This is a major event: more
than 2000 delegates from more than 100 countries are expected for
the biggest international congress ever held in Atlantic Canada.
With 2005 being proclaimed by UNO as “the international year
of microcredit”, these two events represent a great
opportunity for asking CIDA to give more importance to
microcredit and improve both the quantity and quality of its
microcredit programs.
Michel Fortin, M.Afr.