19 November 2004
Microfinance Can Help Poor People Move beyond Day-to-Day Survival, Says Secretary-General at Launch of International Year of Microcredit
Speakers Underline Huge Potential for Microfinance Growth, Note Remaining Challenges
NEW YORK, 18 November (UN Headquarters) -- Access to microfinance could enable poor families to earn more, build up assets and better protect themselves against unexpected setbacks and losses, Secretary-General Kofi Annan said today at a Headquarters gathering to launch the International Year of Microcredit.
Speaking in a video presentation to the launch ceremony, held under the auspices of the Second Committee (Economic and Financial), the Secretary-General said microfinance could help the poor to move beyond day-to-day survival, plan for the future, and invest in better nutrition, housing, health and education for their children. However, microfinance was in no way charity; rather, it offered the same rights and services to low-income households as everyone else and recognized that they were the solution, not the problem. Microfinance built on their ideas, energy, and vision, grew productive enterprises and allowed communities to prosper.
Underscoring that point, Mark Malloch Brown, Administrator of the United Nations Development Programme (UNDP), pointed out that microfinance was more than just an income-generating tool. It provided job opportunities, particularly to women, allowing them to manage household budgets and send their children to school. The International Year should encourage governments, financial institutions and donors to build on the extraordinary knowledge and experience already gained in the microcredit field to reach out to the poor.
Other speakers agreed on the need for efforts to expand microcredit since the sector still faced key challenges, including a dearth of access for the poorest of the poor. Iftekhar Ahmed Chowdhury (Bangladesh), Vice-President of the General Assembly, speaking on behalf of General Assembly President Jean Ping, noted that some 400 to 500 million poor people worldwide still lacked credit facilities. Governments must provide microfinance training, increase the private sectors role and improve legal and regulatory frameworks to boost microcredit governance and accountability. Jose Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs, added that several institutions had tried to provide poor people with loans, savings, insurance and other services. However, that depth of outreach depended on flexibility and a broad range of financial services.
Similarly, Princess Mathilde of Belgium, Spokesperson of the International Year of Microcredit, stressed that the International Year should focus on the reasons why people with modest incomes were considered unworthy of credit. The poor created businesses, repaid loans, saved money and offered their families better living conditions when given access to financial services. By encouraging the spirit of entrepreneurship, the international community would mark a crucial step toward eradicating poverty and giving poor people a better stake in the fabric of societys economic and financial life. While the International Year would be vital in promoting the concept of microcredit, the international communitys commitment must go beyond the Year. Only a long-term effort would produce long-term results, she stressed.
Recounting her personal experiences, Titiek Winarti, the Indonesian winner of the Global Microentrepreneurship Award, said that banking services were too complicated, adding that she had been financed by cooperative units, which catered to women business owners and had a keener understanding of the needs of women-owned micro and small businesses. Housewives would typically receive training and then credit from cooperatives, which helped them to increase their families income and to lift themselves out of poverty.
During an afternoon panel discussion under the theme Microfinance outlook: Where will we be in 2015? and moderated by Elizabeth Littlefield, Chief Executive Officer of the Consultative Group to Assist the Poorest, speakers noted the huge potential for the future growth of microfinance. Maria Otero of ACCION International said that microfinance institutions had grown at a sometimes dramatic rate, and that their earnings compared favourably to those of organizations in conventional markets. That trend should continue, with conventional banking becoming increasingly involved in the sector and pushing growth even further. Moreover, massive markets, such as those of China and India, were now entering the microfinance field, which would affect it in ways that were currently unimaginable.
Other participants highlighted the challenges that remained, including the need to diversify microbusinesses and to introduce microfinance-friendly policies. Rupert Scofield of the Foundation for International Community Assistance said that making credit widely available could flood the market for certain businesses, causing a dramatic drop in earnings. To keep profits high for both entrepreneurs and microfinance institutions, clients must be helped to branch out into other, less popular areas.
In a second panel discussion, themed What are the constraints to an inclusive financial sector? and moderated by Raghuram Rajan, Economic Counsellor and Director of Research at the International Monetary Fund, speakers stressed that large banks were reluctant to manage small loan projects valued at less than $1 million due to the high cost of administering them. Microfinance was largely seen as charity when, in fact, it could be a money-making business, despite its cost and management aspects. The International Year provided an excellent opportunity to dispel those myths and create awareness of the merits of microcredit in reducing poverty and as a sustainable, profitable business.
Addressing that panel, Leonor Velasco, President of Fundacion Mundo Mujer-Popayan in Colombia, noted that microbusinesses made up 80 per cent of the formal business sector in Latin America, but only 15 per cent of the population had access to credit. Some low-scale microcredit projects in Chile, Haiti, Venezuela and Colombia had proven profitable, stirring the interest of larger institutions in the business. However, national frameworks were needed to regulate interest rates and loan limits as well as to help clients mitigate risks in a sustainable manner.
In concluding remarks, Mr. Rajan said the International Year of Microcredit aimed to make people more aware of the potential of microfinance, encourage governments and international financial institutions to set up appropriate environments and convince non-governmental organizations to increase financial services for poor people. In attaining that goal, governments must ensure that legal, fiscal and regulatory environments encouraged, rather than stunted, microfinance and that multilateral institutions and donors treated it as a vital addition to the current financial system. Also necessary were better means to demonstrate that microfinance could reliably reduce poverty by accurately measuring its growth and impact.
Also speaking during the morning ceremony were representatives of Qatar (on behalf of the Group of 77 developing countries and China), the Netherlands (on behalf of the European Union), Switzerland and the United States.
This afternoons panellists also included Nancy Barry of Womens World Banking; Marilou van Golstein Brouwers of Triodos International; Rudjito of Indonesias Bank Rakyat; Rene Azokli, Chief Executive Officer of PADME in Cotonou, Benin; Stanley Fisher, Vice-Chair of Citigroup in New York; and Charles Konan Bani, Governor of the Central Bank of West African States in Dakar, Senegal.
The Second Committee will meet again at a date and time to be announced in the Journal.
The Second Committee (Economic and Financial) met today for a ceremony and a series of panel discussions to launch the International Year of Microcredit. Scheduled speakers included United Nations Secretary-General Kofi Annan, (by video), General Assembly President Jean Ping , Princess Mathilde of Belgium (Spokesperson of the International Year of Microcredit), Jose Antonio Ocampo, Under-Secretary-General for Economic and Social Affairs, and Mark Malloch Brown, Administrator of the United Nations Development Programme (UNDP).
The afternoon session would include two-high-level panel discussions -- the first under the theme Microfinance outlook: Where will we be in 2015 and the second entitled What are the constraints to an inclusive financial sector?. There would also be an advisors group round table and summary, as well as a screening of the documentary Small Fortunes, Microcredit and the Future of Poverty.
KOFI ANNAN, Secretary-General of the United Nations, said that a small loan, a savings account, an affordable way to send a pay-cheque home, could make all the difference to a poor or low-income family. With access to microfinance, they could earn more, build up assets, and better protect themselves against unexpected setbacks and losses. They could move beyond day-to-day survival towards planning for the future. They could invest in better nutrition, housing, health, and education for their children. In short, they can break the vicious circle of poverty.
However, microfinance was not charity, he cautioned. It was a way to extend the same rights and services to low-income households that were available to everyone else. It was recognition that poor people were the solution, not the problem, a way to build on their ideas, energy, and vision. It was a way to grow productive enterprises and allow communities to prosper. When businesses could not develop, countries could not flourish.
MARCO BALAREZO (Peru), Chairman of the Second Committee, underscored the poverty-reducing impact of microcredit and microfinance in the developing world and their positive contribution toward attainment of the Millennium Development Goals. The International Meeting on small island developing States, to be held in Mauritius next year, and next Septembers high-level General Assembly meeting to review progress over the last five years in attaining the Millennium targets would be important forums for the promotion of microfinance and microcredit.
MARK MALLOCH BROWN, Administrator of the United Nations Development Programme, said that microfinance had the power to transform the lives of hundreds of millions of people, particularly women, enabling them to create jobs and businesses and lift themselves out of poverty. The 97 per cent microcredit repayment rate in developing countries was the envy of big banks and other financial institutions.
Microfinance had a central role to play in attaining the Millennium targets, particularly that of halving extreme poverty by 2015, he said. More than just an income-generating tool, it also provided people with choices, giving women job opportunities, more capacity to manage household budgets and to send their children to school. The poorest people lacked access to insurance, savings and financial services. The International Year should serve to encourage governments, financial institutions and the donor community to build on the extraordinary knowledge and experience already established in the microcredit field and to reach out to the poor.
IFTEKHAR AHMED CHOWDHURY (Bangladesh), Vice-President of the General Assembly, speaking on behalf of General Assembly President Jean Ping, said that microfinance was one of the most successful innovations in socio-economic development, and could contribute positively towards attaining the Millennium Development Goals. Poor people with access to microcredit had increased their incomes, built up their assets and used their savings to invest in better health and the management of household emergencies. Evidence also suggested that the poor used their increased incomes to improve their childrens education, health, sanitation and housing. Microcredit had also opened up opportunities for women to become active participants in economic activity, which had increased their confidence and well-being.
Increasing access to microcredit for the poor, however, would depend on how the sector faced several key challenges, including the need to reach the poorest of the poor, he continued. Some 400 to 500 million poor people still had no access. Capacity training, microcredit promotion, and an increased private sector role were needed to increase the reach of microcredit. Improvements to legal and regulatory frameworks were also necessary for better microcredit governance and accountability.
PRINCESS MATHILDE OF BELGIUM, Spokesperson of the International Year of Microcredit, said that when she visited microcredit beneficiaries in China next year she would have the opportunity to discuss those experiences at universities throughout the country. Microcredit was a powerful tool for fighting poverty, improving national heritage and household incomes. It could substantially improve housing conditions, create educational opportunities for children and promote gender quality within families. It was also crucial for the implementation of the Millennium Goals, particularly that of halving extreme poverty by 2015.
However, financial services were still not available to most people in developing countries, she said. During the International Year, it would be important to examine why people with modest incomes had not been considered worthy of credit. The poor did not want charity; they wanted opportunities to improve their lives. When given access to financial services, they created businesses, repaid loans, saved money and offered their families better living conditions, particularly their children. In encouraging the spirit of entrepreneurship, the international community would mark a crucial step toward eradicating poverty, giving poor people a better stake in the fabric of societys economic and financial life. The International Year would be vital in promoting the concept of microcredit, but the international communitys commitment must go beyond the Year. Only a long-term effort would produce long-term results.
JOSE ANTONIO OCAMPO, Under-Secretary-General for Economic and Social Affairs, noted that world leaders would be reviewing progress in achieving the Millennium Development Goals next year. Results were mixed and many nations were unlikely to reach those goals by 2015. The International Year of Microcredit had come at an opportune time and must be used to build on the success that microfinance had already achieved in reaching the millions of poor with no access to credit. In the past, many people would have said that poor people were bad risks, but perceptions were now changing. The poor were seen less as aid recipients and more as dynamic clients and entrepreneurs. Women, in particular, had become empowered and more productive members of their community through microcredit.
He said it was vital that approaches to microcredit and microfinance institutions take local circumstances into account. Several institutions had made efforts to provide loans, savings, insurance and other services to the poor, but the depth of outreach would depend on flexibility and a broad range of financial services. In addition, the private sectors role in microfinance should be promoted, and governments should provide enabling conditions and remove constraints on access to microcredit.
TITIEK WINARTI, Indonesian winner of the Global Microentrepreneurship Award, said she had started her business of making clothing from textiles as a hobby, using $50 in savings from her husbands income. Concerned that so many disabled people lacked decent jobs despite local government training programmes provided for them, she had used her own money to train and fund their activities. Thus far, they had been able to conduct business independently despite their physical handicaps and their work had been valued and praised. In the last few years, she had exported products produced by the disabled to Brazil.
Describing bank services as too complicated, she said she had received financing from cooperative units. Cooperatives catered to women business owners and had more appropriate services, as well as a keener understanding of the needs of women-owned micro and small businesses. Housewives would typically get training and then receive credit from cooperatives, which enabled them to build savings. Mothers wished to contribute to lifting their families and communities out of poverty and that spirit of cooperation gave them the opportunity to increase their families incomes.
SULTAN IBRAHIM YOUSOUF AL-MAHMOUD (Qatar), speaking on behalf of the Group of 77 developing countries and China, said microcredit had allowed people to increase their incomes, acquire assets, reduce their vulnerability to crisis, and fight their way out of poverty with dignity. To reach the millions of poor people worldwide, however, microfinance institutions must be built and provided with an enabling environment, as well as adequate finances.
Member States, the United Nations, international financial institutions, the private sector, and civil society all had a role to play in moving microcredit and microfinance forward, he said. The International Year of Microcredit would give impetus to microcredit programmes and provide an opportunity to share ideas on innovative uses of microfinance schemes in broadening choices for the poor.
DIRK JAN VAN DEN BERG (Netherlands), speaking on behalf of the European Union, said that microcredit clients, particularly women, were able to translate increased incomes into improvements in education, health, nutrition, and better management of household emergencies. Access to such financial services as loans, savings and insurance could provide poor people with a vital cushion in times of economic shock and natural disaster and unemployment or personal crises such as sickness or the death of a family member. Women were able to attain new roles as cash income earners and managers of household incomes, increasing their confidence and equipping them better to overcome social, economic and cultural inequalities.
In La Paz, Bolivia, for example, one woman had sold flowers on the streets until 15 years ago, when she had been granted a loan allowing her to sell flowers in bulk at a much cheaper rate, he said. Today, she had her own business and had used her savings to pay for her childrens education. Such positive examples of microcredit suggested that it could contribute to sustainable development in many countries. However, it would only reach the maximum number of clients when it was recognized as a national priority and firmly integrated into the financial sector, which meant mobilizing savings, providing long-term capital, as well as prudent regulation.
REGIS AVANTHAY (Switzerland) said that in order for microfinance to be effective, it must be based on sound and sustainable policies tailored to the specific needs of each country. It was hoped that the International Year would be part of the multilateral dialogue on the Monterey Consensus. Cooperation and collaboration among governments, international organizations, civil society groups, microfinance and other industry stakeholders would be key to the Years success.
Microfinance and microcredit was indeed a powerful tool to improve the lives of women and rural populations in particular, he said. It empowered people economically and socially. Switzerland recognized the impressive work done in the field of microcredit and microfinance by the United Nations Capital Development Fund (UNCDF) and the United Nations Department of Economic and Social Affairs.
KATHERINE MCKEE (United States) said her country had been working with civil society and the business sector to promote microfinance for over 25 years, spending some $100 million per year in the field. It was important to support diverse partners in the microfinance area, including domestic banks, credit unions, leasing companies and even non-financial institutions, like agricultural suppliers. Commercial solutions must be found and a wide variety of players tapped in order to increase access to financial services. But the need went beyond simple credit to savings, insurance, remittance services and financial education.
Stressing that the United States aimed to build strong retail survivors, she said that more than 49 per cent of the institutions it had worked with were completely financially sustainable. It had worked mainly with the private sector, which had increasingly included banks, international investors and global corporate citizens. During the International Year, the United States planned to work on developing and implementing improved tools to assess the poverty level of clients. The only way to reach a deeper financial sector was to understand who was being served and to use that knowledge to develop better services for currently excluded households.
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