Microfinance

Alleviating poverty one business at a time

By PDS | 7 August 2005

Trickle Up is a development charity which has been a long-standing advocate of the growing new paradigm in the development field - central to which is the belief in an enterprise-based approach to poverty reduction. Enterprise-based solutions are micro-economic and micro-political in a way that is more sustainable than grandiose macro-economic solutions based on state-to-state aid. The late twentieth century debt crisis was a result of government-to-government foreign aid loans spiraling out of control. It has taken decades for lenders to agree the outline of a debt write-off to undo the economic damage wrought by failed foreign aid policies. On the streets in the developing world the notional debts of governments led by dictators are largely irrelevant. Jobs, profits and opportunities for growth depend on individual enterprise and an economic climate that supports growth through trade.

Founded in 1979, the mission of Trickle Up is to help the lowest income people worldwide take the first steps up out of poverty, by providing conditional seed capital, business training and relevant support services essential to the launch or expansion of a microenterprise. This proven social and economic empowerment model is implemented in partnership with local agencies.

Trickle Up has supported over 130,000 businesses in more than 120 countries. Currently, Trickle Up is focusing its efforts in fourteen core countries. These countries are Bolivia, Burkina Faso, Cambodia, Ethiopia, Guatemala, Haiti, Honduras, India, Mali, Nepal, Nicaragua, Niger, and Uganda and the United States.

The Miracles of Barefoot Capitalism

By Anthony Batty | 29 July 2005

This book adequately captures the spirit of microcredit, and the institutions that foster its growth. Although much is said about the problems of the developing world, Africa in particular, this book also highlights many successes. Within are the stories of Masai women given a chance to take control of their lives, Bolivians who now have their children in University and many others.

Throughout, there are references to the guru of microcredit, Muhammad Yunus, and how he pioneered the movement through the flagship Grameen Bank. The book gives a good account of how microcredit works, and why it is needed. However the focus is primarily on the stories of the individuals that make microcredit work, from the woman selling meat and cheese, to the Lawyer who after a near death experience sets up a chain of pharmacies, taking in the administrators who devote their lives to improving the lot of others. It is through these stories and the circumstances surrounding them that the authors aim to educate us. While eschewing the benefits, the book also recognises that microcredit is not a silver bullet we can use to cure all problems - it is very comprehensive in this regard. All sides of the argument, including explinations of where microcredit is unworkable, are examined.

This book is well researched and contains lots of interesting statistics. Reading it, you get a sense how this marginalised area has transformed the lives of over 100 million people with support from just a few major players, a number of family foundations and many charitable donations. One criticism that can be levied is that despite decrying government aid and the damage it has done in many areas, the authors lament the relative decline in the funding of these schemes.

If you are looking for a brief overview of microcredit, particularly if you are thinking about donating to help the movement, then The Miracles of Barefoot Capitalism should definitely be on your reading list.

$100m for African entrepreneurs

By PDS | 8 July 2005

Amidst the billions promised today by G8 governments for African governments, a smaller but significant private sector / charitable NGO initiative organised by the Shell Foundation and announced last week should not be overlooked.

A $100m fund will be established to help overcome a huge barrier to eradicating poverty in Africa, where local banks have capital, but millions of would-be entrepreneurs lack the collateral and formal records to meet the banks' stringent lending requirements. Since only small enterprises are capable of generating the millions of jobs required to sustainably put Africa on the path to growth, its arguably more important that this type of grassroots funding happens than that the billions in top-down funding occurs.

Chris West, deputy director of the Shell Foundation, explained that the initiative would plug Africa's yawning finance gap between micro credit and multi-million dollar finance. He said:

"While there is currently finance available for families to set up tiny businesses to buy assets like sewing machines, this model will never reach the scale required to have a major impact on reducing poverty. The beauty of this new fund is that it makes it easier for start-up and new enterprises to gain access to the larger amounts of finance - between $50,000 to $1m - needed to make a real difference."

In the long-term this $100m will hopefully generate billions in returns. Wealth creation which will sustainably underwrite the raising of living standards in a way that a foreign aid handout, of whatever magnitude, never will.

BusinessWeek hails microcredit

By Alex Singleton | 8 May 2005

Dr Eamonn Butler on the Adam Smith Institute Blog discusses microcredit:

I learn from the Globalisation Institute's excellent daily news digest that Business Week has spotlighted the rise of microcredit. Quite right: it can be a powerful agent for economic development.

Recently a friend gave me a short paper on an interesting example, the Grameen Bank in Bangladesh, which (it explained) is owned by its borrowers, the overwhelming majority of whom are poor women. It takes no donor funds, but almost always turns a profit.

Small loans are available for housing, for education, and for micro-enterprises. For example, the Bank has provided loans to 90,00 women to buy mobile phones, which the borrowers then charge other people to use: an easily-managed business for a poor woman in Bangladesh. The Bank proudly claims that over half its customers have been helped to rise above the poverty line through its programmes.

All this happens without written loan agreements - most clients are illiterate anyway. But the Bank insists that borrowers should belong in five-member groups, which perhaps places some social pressure on them to use the money wisely. If someone cannot repay a loan, the Bank says its focus is to help them, rather than pursue them as 'defaulters'. There is an insurance plan so that loans are repaid on the death of a borrower.

The Bank even tries to help beggars out of poverty by providing interest-free loans to them. And it teaches borrowers the basics of self-reliance and sustainability: hygiene, cultivation, having small families and ensuring that children are educated.

Microcredit takes many forms, but it seems to work because it is built entirely around the needs of those who actually use it. And if it can provide poorer people with the small capital they need to educate their families or start micro-enterprises that will lift them out of poverty, that must be a good thing.

Microcredit key to development, says Spain's Queen Sofia

By Penny Hawthorne | 26 April 2005

Sub-saharan African is undercapitalized. People with ideas of how to improve their communities cannot get the finance to set up new businesses. The lack of capital means that African productivity remains low, and yet productivity increases are the cause of wage rises. Microcredit helps to rectify this. It is good to see that microcredit has been warmly endorsed, once again, by Span's Queen Sofia (writes BusinessWeek):

Awarding credit to potential small business owners who would not qualify through traditional banking avenues is an efficient tool for combating extreme poverty in Latin America and the entire world, Spain's Queen Sofia said during a microcredit conference here [Mexico] Monday.

In a little more than two decades, microcredits "have changed from being an activity perceived as marginal... to a key element for development," said the queen, who has promoted the issue in other countries as well.