Microfinance and the MDGs

Microfinance, and the impact it produces, goes beyond just business loans. Poor people use financial services not only for business investment in their microenterprises but also for health and education, managing household emergencies, and meeting the wide variety of other cash needs that they encounter. The availability of financial services for poor households is therefore a critical factor for the achievement of the Millennium Development Goals.

Microfinance services help to increase income and assets and decrease vulnerability of microfinance clients. CRECER (Credito Con Educacion Rural) in Bolivia found that incomes of two-thirds of its clients had increased after joining the programme. And in Zimbabwe clients were able to maintain consumption levels in the face of rising food costs. Experience shows that this impact on poverty alleviation intensifies the longer clients stay with a given programme, thus reinforcing the benefits of continuing in the programme. Clients of BRAC (Bangladesh Rural Advancement Committee) who stayed in the programme for more than four years increased household expenses by 28% and assets by 112%. SHARE (Society for Helping Awakening Rural Poor through Education) in India documented that 75% of its clients who participated for longer periods saw significant improvements in their economic well-being and that half of the clients moved out of poverty.

One of the first things poor people all over the world do with new income from microenterprise is invest in their children's education. BRAC (Bangladesh), SEWA (Self-Employed Women's Association, India) and Save the Children (Honduras) saw that clients' children were more likely to go to school, stay in school longer, and have lower drop-out rates. In fact many MFIs are developing new credit and savings services specifically tailored to meet school expenses.

Families of those accessing microfinance services have better health than those who do not. Larger and more stable incomes generally lead to better nutrition, living conditions, and preventive healthcare. Increased earnings and financial management options allow clients to treat health problems promptly rather than waiting for conditions to deteriorate. Some MFIs also provide health education, usually in the form of short, simple preventive care messages on immunisation, safe drinking water, and pregnancy related care. Clients of FOCCAS (Foundation for Credit and Community Assistance) Uganda, who received instructions on breastfeeding, preventive healthcare and family planning, had much better healthcare practices than non-clients. Almost 95% of clients engaged in improved health practices for their children compared to 72% of non-clients. And 32% of clients had tried at least one AIDS-prevention practice compared to 18% non-clients.

MFIs have generally targeted women both because they are considered better borrowers, but also to break the traditional exclusion of women from such services. Many design their services to address prevailing gender inequalities. A positive effect on women's empowerment, with women owning more assets and playing a more active role in family decision-making processes is seen in many countries including Nepal, Bangladesh, India, Bolivia and Ghana.

The MDGs include halving the number of those living in absolute poverty - the estimated 1.2 billion people living on less than one dollar a day. While it may seem financially unfeasible for MFIs to reach those in absolute poverty, innovative programme design has been able to counteract the additional costs per dollar lent, for servicing the very small loans that are usually lent by these organisations.

Not all but most of the extremely poor can use small loans effectively and a growing number of MFIs now serve such clients and still cover their costs through simplified, cost-effective banking approaches. With strong management and efficient operations, the massive scale required to reach the billion people targeted by the MDGs is possible.

No single intervention can defeat poverty. Poor people need employment, schooling, and health care. Some of the poorest require immediate income or relief to survive. Access to financial services forms a fundamental basis on which many other essential interventions depend. Moreover, improvements in healthcare, nutritional advice and education can be sustained only when households have increased earnings and greater control over financial resources. And the beauty of microfinance is that, when programmes achieve financial sustainability, they can reach far beyond the limits of scarce donor resources.

Syed Hashemi, Senior Microfinance Specialist, Consultative Group to Assist the Poor (CGAP)

The World Bank 1818 H Street, NW, Washington DC 20433 USA To learn more about this author, visit id 21's Website.

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