The new challenges of microcredit
By Jacques Attali
In a relatively short time, microfinance has become a major tool of international development. But too many potential entrepreneurs still have little or no access to financing. Innovation and government policy have a central role to play in correcting this imbalance.
For several months the humanitarian crisis in the Horn of Africa has epitomised the socio-economic and environmental inequalities that exist at world level. At the same time, the financial crisis we have witnessed since 2008, the Arab Spring and, more recently, the crisis in Greece remind us that these inequalities do not only affect the very poor. Their effects are felt both by the poor and increasingly by the middle classes in both emerging and advanced economies. Either a cause or the consequence of these crises, the vulnerability of millions of micro-entrepreneurs and the growing precariousness of salaried employment for the middle classes are the two major challenges facing socially sustainable development and economic growth.
At the global level, some 3 billion people are excluded from the traditional financial system. As a general rule, these people have created their own jobs, which are often precarious and in the informal sector. This means that they have very limited access to the market, social protection and education.
Since the late 1970s, microfinance has fulfilled the role of helping poor populations, who are excluded from the banking system, develop an income-generating activity by supplying financial services such as microcredit, savings and micro-insurance, and non-financial services like training and awareness-raising. The increase in income and the stabilisation of income flows make it possible to better manage the growth of an enterprise (cash flow, stock management, investment), to improve housing, to cover health and education expenses, and to better prepare for unexpected external shocks through savings. In particular, microfinance made it possible for many women to become entrepreneurs, enhancing their role in the family unit, which for far too long has been dismissed by society.
Today, an estimated 190 million people are funding activities through microfinance. However, 500 million micro-entrepreneurs are still excluded. To help them gain access, microfinance must not limit itself to supplying financial services but must expand to address the challenges of sustainable development. Only a few microfinance institutions (MFIs) are currently developing an integrated approach in collaboration with other actors. The priority for the other MFIs in many cases is still to consolidate their growth and increase their scope of action. This is the mission of PlaNet Finance, an organisation promoting international solidarity and specialising in microfinance, created in 1998.
Microfinance must find new resources to finance training and capacity building in MFIs, addressing such issues as governance, new products, management of social performance, management information systems, legal transformation. Funding “Microfinance Plus” programmes, which incorporate into microfinance a development component such as education, health or the environment, is also a priority. These projects, pursued
as part of an integrated approach, can have greater impact on success rates by increasing value added at the local level by enhancing micro-entrepreneurs’ ability to negotiate with intermediaries, by putting know-how to work on environmental protection policies, etc.
Broadening the scope of microfinance institutions depends on technological innovation, which helps lower the transaction costs of MFIs, particularly in rural areas where microfinance is still not developed enough to meet the demand of potential entrepreneurs. Mobile banking, which is a highly developed activity in Kenya, the Philippines and Senegal, shows that it is possible to reach out to large numbers of customers. Approximately 4 billion people currently own a mobile phone, making the potential for growth in mobile banking enormous. But mobile banking is subject to a specific regulatory framework, which is why the leverage effect will doubtless take time. In Africa, PlaNet Finance is helping MFIs in this area.
These challenges call for new forms of action on the part of the microfinance sector, governments and international organisations in order to support the estimated 20-30% a year growth in the sector and to foster synergies between public and private development actors.
The political challenge must not be neglected: governments have an essential role to play in ensuring healthy growth in the sector and avoiding slippage. In far too many cases, preparations for G20 meetings limit financial inclusion to small and medium-sized enterprises and exclude microfinance, despite the fact that the latter concerns millions of jobs. In July 2011, the G20 Microfinance Conference organised by the Bank of France was a positive development on this front.
The role of governments and international organisations is above all to establish a prudential regulatory framework that will promote the sector’s development. Peru is often cited as an example in this respect. Governments must also explore new, simplified and adapted legal frameworks for microenterprises which are not destined to remain in the informal sector forever. Finally, governments can support the sector through incentive mechanisms designed to promote access to banking services, as in Brazil where the government of President Lula da Silva has enabled millions of Brazilians to open a bank account. Indeed, the role of banks, and in particular post office banks, should not be underestimated as it complements that of microfinance. Here, too, PlaNet France has a role to play.
Today, microfinance is recognised as an effective tool with which to fight poverty. The sector still does not quite have enough resources to ensure its professionalisation and regulation. It will have to meet many challenges in order to secure its survival and enhance its impact. Its key challenge will be to constantly find new resources to ensure the continued existence of jobs as well as that of microentrepreneurs and salaried employees, because if people have no income then inequality will simply grow wider and revolt will continue to spread.
©OECD Yearbook 2012
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