Last month I was fortunate enough, through my work with Women’s World Banking in New York , to visit the headquarters of a Moroccan microfinance institution, Association Al Amana . What a wonderful time! It is incredibly inspiring to talk to people who truly make a difference, on a day to day basis, in the lives of individuals and families in my home country. I won’t bore you with the details of trends in microfinance in Morocco (unless I get comments asking me for more info!), but I did want to use this forum to spread the word, as it were, about this industry and the potential it has – something very much on my mind with the UN General Assembly gathering in New York this week resulting in lots of press and discussions about poverty and foreign aid.
So…the basics for those who are not familiar with microfinance: it is essentially the concept of providing certain financial services to low income clients with the goal of improving their income, and building their financial identity and knowledge, so that they can become financially self-sufficient in a sustainable manner. The products microfinance institutions (“MFIs”) offer can vary from microcredit (the making of small loans to poor borrowers in amounts a typical bank would not consider), to providing microinsurance or pooled insurance/guaranty products so that clients will have access to resources in the unhappy event of extraordinary hardship or calamity. Microfinance is a way to initiate microentrepreneurship among a demographic with limited to non-existent resources for financial security – check out “the girl effect for a fun example of what empowering one individual could do.
As we all know, men and women in poor communities face a number of challenges to earning income and improving the financial state of their families, especially if the job market, for one reason or another, is closed to them. Cultural, geographic and educational road blocks are only some of the challenges they may face if they were to seek a loan from a traditional bank to buy livestock, basic machinery or goods to start their own modest business. Imagine that an MFI (with the agenda of providing microloans to men and women in rural areas with viable business ideas) sends an agent to a rural village to explain the services the MFI is offering to potential clients. Out of a dozen neighbours he/she speaks to, perhaps 5 are friends, family, long-time neighbors etc., who like what this rep has to say. They agree to go in together on a pooled loan. This gives some credit assurance to the MFI since it will not be relying on just one person for repayment of the loan, and also increases the chance of repayment and proper use of the funds since it holds the group members accountable to each other! As these individuals develop a lender-borrower relationship with the MFI, hopefully they are able to develop their financial reputations with the MFI and further grow their businesses over time. The financial benefit they gain from being able to start a modest income-generating project, and perhaps using other programs the MFI has, like health insurance or savings accounts, can assist their families in improving their financial security.
Clearly, microfinance is simply a tool and as such, there is always a risk of it being abused or causing harm despite the best of intentions – the economic crisis attests to the pitfalls of credit use and there is a lot of work to be done to ensure fair practices and transparency, but I think it is something that has value and the potential for helping quite a few people. In fact, check out these MFIs in Africa for more examples of products and systems used: Poverty Eradication and Community Empowerment (Ethiopia), Gambia Women’s Finance Association , Kenya Women Finance Trust and Women’s World Banking Ghana .
If any of this piques your interest, two amazing books you can read if you’re interested in real life anecdotes and case studies of microfinance and other poverty-fighting projects are “The Blue Sweater” by Jacqueline Novogratz and “Half the Sky” by Nicholas D. Kristof and Sheryl WuDunn. Both have significant focus on Africa and are extremely well written.
In the middle of the “trade v. Aid” debate and the Millennium Development Goals discussions, it is easy to feel overwhelmed, disheartened and even angry. I deal with it by learning about what people are actually doing “on the ground” and, of those things, what has been embraced by local communities and demonstrated growth. I’m still learning, and I doubt I’ll ever stop. There is a lot going on and a lot of good people out there if you look for them. Especially in Africa.