No64 June 2005.2
International Year 2005
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 2005s end. The reason for launching this campaign is that a fifth of the worlds 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 years 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 lifes 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 dont 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.
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