Microfinance Works – For the Rich

By Raquel Martinez, Inter Press Service

Jesús Guerra, a volunteer at this week’s Fifth Global Microcredit Summit in this Spanish town, was nonplussed by the expensive gold watch sported by a banker from a developing country.

“When I volunteered to help at the Summit I thought this was different,” Guerra told IPS. “I believed that everybody who worked in microfinance wanted to end social injustices, but here I am listening to a lot of people saying that the goal is to make profits.”

Another volunteer, Susana Balet, was impressed by the dedication of some people working in microcredit. She indicated to IPS a presentation made by Ingrid Munro where the focus stayed on the reality of poverty and the importance of alleviating it.

Munro, who founded in 1999 the Jamii Bora Group, a Nairobi-based microfinance organisation, firmly believes that any family, no matter how hopelessly poor, is capable of emerging out of poverty.

“Human development does not work without people listening to each other, especially those at the bottom of the pyramid,” said Pilar Vereda, in-charge of Institutional Relations of the Fundación Iberomericana de Desarrollo (the Iberoamerican Foundation of Development).

But such a dialogue between the providers and recipients of microcredit was missing even at the Nov. 14-17 Summit with the poor figuring largely in presentations and videos.

“The people at the bottom of the pyramid have not had their own voice at this Summit although the Spanish platform of non-government organisations had proposed better participation by cooperatives or other beneficiaries of microfinance,” Vereda said.

“Finally, their voices were represented through the videos that we produced and broadcast at the Summit,” she said.

Muhammad Yunus, founder of Bangladesh’s Grameen Bank, told IPS that a small group of borrowers is participating in the Summit and has even managed to participate in different events.

“At this big Summit there was only a small group of borrowers because we want to be sure that they are comfortable and for them to avoid this big crowd of people from around the world,” Yunus explained. “But at the annual regional summits there are usually meetings between borrowers and other participants,” he added.

“We have to believe in the potential of people. To be confident that each person knows what microcredit is about. Each person is as capable as anybody in the world because creativity exists in all of us,” Yunus claimed when he inaugurated the Summit.

The truth is that the main goal of the participating experts and institutions was how to get more clients and make more money, and this does not always coincide with the idea of making microfinance a tool to fight poverty.

For example, U-IMCEC, a Senegal-based cooperative represented at the Summit, aims to contribute to improving incomes and the well-being of families and micro entrepreneurs.

Working with 72,000 members, U-IMCEC works by providing access to financial services and creating income-generating activities, especially for the women, poor and vulnerable.

“My institution works in the rural areas surrounding the cities, where the neediest live. We have improved their lives with programmes which allow people to receive remittances from abroad without moving to big cities, where the financial institutions are,” Diao El Hadji Moussa, U-IMCEC deputy director, told IPS.

“It also has a positive effect on the family and micro business because they reduce costs,” he told IPS.

Last year, banks showed great interest in the potential of microcredit, as indicated by numerous Summit participants.

“When corporate banks begin to work in microfinance they have to learn and specialise,” said Alejandro Soriano, senior executive at Banco de Desarrollo de América Latina (CAF).

“They need to understand that this (specialisation) is essential to guarantee sustainability and that microfinance has a high social impact,” Soriano told IPS.

“There are too many examples of banks working with inadequate methodology. When they stop being profitable they drop countries and communities and this causes huge damage to the borrowers, because they do not have any more access to credit,” Soriano added.

CAF is a development bank that promotes a model of sustainable development through credit operations, grants and technical support and offers financial structuring to public and private sector projects in Latin America.

“Sometimes big banks learn from developing countries’ experiences,” said Estela Cañas, researcher at the Central American University.

“This was the case of the Santander bank in El Salvador which invested half a million dollars to learn and spread this knowledge. It was a positive practice,” Cañas told IPS.

At the Summit, there were innovative institutions dedicated to encouraging development by promoting self-sustainability and connecting responsible individuals with people from emerging countries in need of microcredit.

Angel Aranda, a social entrepreneur, told IPS how it works. “Individuals can make a donation of around 27 dollars and we mediate between them and the microfinance institutions that we have carefully selected.

“They can choose a project from our website where complete information of the project is available and they can follow the process of micro businesses in the Southern countries.”

Despite such good practices on the one hand and the problems faced by microfinance institutions on the other, the Summit was still about maintaining a system that maximises profits for some.

The Poor Need Insurance Too

By Inés Benítez, Inter Press Service

Poor families are well aware of the devastating effects of unforeseen expenses on their lives. Microinsurance, a recent microfinance tool, has the potential to limit their vulnerability and combat poverty, experts say.

The death of a family member, a health problem or an accident can give rise to sudden costs that the poor find hard to face, as they tend not to have available savings and are thus forced to sell off their belongings, their home or the goods they depend on for their living to meet their obligations.

“Microinsurance is a very powerful approach that generates substantial social impacts,” María Jesús Pérez, the head of research and innovation at the Spanish anti-poverty foundation CODESPA, told IPS at the Global Microcredit Summit running Nov. 14-17 in Valladolid, in north-central Spain.

This type of insurance is similar to traditional insurance policies available on the market, but is adapted to the spending power of people with low incomes, Pérez said.

In the Dominican Republic, CODESPA and its local partner the ADOPEM Bank have developed a “very successful three-in-one” microinsurance policy that covers life insurance, disability and funeral expenses, Pérez said. Health and agricultural insurance are now also being offered.

The microinsurance policy, which has been taken out by over 2,000 people in the Caribbean nation, provides nearly 1,000 euros (1,375 dollars) of cover and can be acquired by a single annual payment.

“Dominicans pay four euros (5.5 dollars) a year, the cost of two sodas, for life insurance worth 1,000 euros,” said Pérez.

More than 2,000 delegates from nearly 100 countries are taking part in the Microcredit Summit.

Paloma Pérez, a Spanish volunteer who spent two months in the Dominican Republic, said the three-in-one microinsurance product was in great demand, as it is low-cost and covers essential needs, although she said there is “competition from informal insurance arrangements.”

Microinsurance should be very low cost, with policies issued quickly and easily, and they should offer adequate cover, without administrative red tape hampering access.

“One of the aspects valued by poor families is speed in receiving insurance pay-outs,” said Pérez, who stressed the importance of building trust in the service.

In her view, the challenges are to convince insurance companies that it is feasible to develop profitable microinsurance with social goals, and to encourage people to buy the policies.

Microfinance has a longer track record and is more widely known than microinsurance, which is still relatively new.

According to the latest State of the Microcredit Summit Campaign Report, published Nov. 10, over the last 13 years the number of extremely poor families with a microloan has grown more than 18-fold, from 7.6 million in 1997 to 137.5 million in 2010.

Assuming an average of five persons per family, these 137.5 million microloans benefited more than 687 million family members, which is greater than the combined populations of the European Union and Russia.

In contrast, some 150 million people worldwide have access to microinsurance, Isabel Cruz, head of the Latin American and Caribbean Forum on Rural Finance (FOROLACFR), told IPS.

Microinsurance is less widespread, partly because the insurance industry is “very traditional” and not very innovative, and because of a lack of understanding on the part of potential beneficiaries, said Cruz.

“Poor people don’t know what microinsurance is, and they need to have the concept introduced gradually by other mechanisms, with the help of financial education,” said Cruz. This requires insurance companies to change the way they operate, and “they aren’t too willing to change.”

Another reason for the slower growth of microinsurance is the lack of channels for delivering it to the population, because until now this has always been done through microfinance. But in Cruz’s view, microloans do not always “understand the poor,” and they also “link insurance to loan protection, instead of shoring people up against risks.”

Cruz, who is from Mexico, said “microinsurance does not just mean small insurance policies; an entire new institutional architecture of insurance companies is needed, as well as concepts such as microinsurance networks.”

Moreover, “regulators don’t always understand microinsurance, because the turnover is smaller than for traditional insurance.”

In her view, specific professional architectures are needed to make microinsurance attractive to customers. “Insurance must be given value; instead of being sold just as a financial product, it must be given value that is appreciated by the customer. And legal reforms are also needed.”

In Brazil, for instance, the “very innovative” concepts of licensed microinsurers, social brokers and microinsurance correspondents have been created.

Most microinsurance worldwide is life and funeral insurance; catastrophe and crop microinsurance is less well developed, although according to Cruz, “they are much more important.”

Estela Cañas, head of the Small and Micro-Business Management Centre at the José Simeón Cañas Central American University, in El Salvador, told IPS that “microinsurance growth is essential.”

The high level of violence against ordinary citizens in El Salvador makes life microinsurance policies crucial, and natural disaster insurance is also important, she said.

In Honduras, COMIXMUL (Mixed Cooperative of United Women), a savings and loan cooperative, has 21,500 borrowers who are served by 13 offices around the country, its coordinator Magda López told IPS.

As well as having access to specific microinsurance, the women members make a small monthly payment for each loan, and a solidarity fund pays out death benefits and health insurance for members, she said.

Microfinance Grows Up

By Sam Daley-Harris, Inter-Press Service

The original Microcredit Summit was held in 1997. When delegates gathered nine years later at the Global Microcredit Summit in Halifax, Canada in 2006, it had just been announced that Muhammad Yunus would share the Nobel Peace Prize with Grameen Bank, the institution he founded decades before. A year earlier, the United Nations had celebrated the Year of Microcredit, and just one year later, the Microcredit Summit Campaign surpassed its goal set in 1997 of reaching 100 million of the world’s poorest families with credit for self employment and other financial and business services. Those were indeed heady times for microfinance, writes Sam Daley-Harris, co-founder of the Microcredit Summit Campaign anf founder of RESULTS, which seeks to create the political will to end poverty.

Now, some five years later, 2,000 delegates will gather in Valladolid, Spain from November 14-17, for the 2011 Global Microcredit Summit. However, this time delegates will gather in a more challenging environment from those of previous Summits. Earlier this year, Muhammad Yunus was forced to resign from Grameen Bank as a result of a set of bone-chillingly brazen acts by the Bangladesh government that many fear could set the clock back on women’s empowerment in that country for years to come.

For many years, microfinance has been heralded as an exciting new way to attack poverty. Nobel Peace Prize Laureate Muhammad Yunus wrote the following in his book Banker to the Poor while reflecting on the first Microcredit Summit in 1997:

In teaching economics I learned about money and now as head of a bank I lend money, and the success of our venture lies in how many crumpled bank bills our once starving members now have in their hands. But the microcredit movement, which is built around, and for, and with money, ironically, is at its heart, at its deepest root not about money at all. It is about helping each person to achieve his or her fullest potential. It is not about cash capital, it is about human capital. Money is merely a tool that unlocks human dreams and helps even the poorest and most unfortunate people on this planet achieve dignity, respect, and meaning in their lives.

(*) Sam Daley-Harris is co-founder of the Microcredit Summit Campaign, which seeks to reach 175 million poorest families with microcredit and founder of RESULTS, which seeks to create the political will to end poverty.