New Horizons for Poverty Alleviation: Beyond Microcredit

In the next posts we want to draw your attention to how microcredit in combination with other sectors like business, insurance, and healthcare can boost the efficacy of poverty alleviation initiatives and advance the second Microcredit Summit Campaign goal of ensuring that 100 million families rising above the US $1.25 per day purchasing power parity threshold by 2015.

Grameen’s latest cutting-edge initiatives pivot on Prof. Muhammad Yunus’ model of social businesses created to solve specific social problems without using charity. He distinguishes the model between two types: a “non-loss, non-dividend company … owned by investors who reinvest all profits in expanding and improving the business” and “a profit-making company owned by poor people, either directly or through a trust” (Yunus, 2010).

Grameen Danone Foods, Grameen-Veolia Water Ltd., and BASF Grameen, Ltd. are Type I social businesses because their primary goal is to solve a problem, not make a profit. Grameen Danone Food fights child malnutrition through an affordable nutrient-enriched yogurt called Shokti Doi. Grameen-Veolia Water Ltd. improves access to clean drinking water by selling low cost, locally treated water to rural villages in Bangladesh. BASF Grameen combats malaria and child and maternal malnutrition by selling bug-repellent impregnated mosquito nets and dietary supplement sachets.

These three businesses were created with investment funds, which will be returned to the investors’ at zero interest. Success will be measured on their effectiveness in solving the targeted social problem, not on their financial return. However, each business will have to be managed efficiently to be sustainable and replicable.

As of last year Grameen Danone Foods, which began selling Shokti Doi yogurt in 2007, has not broken even. As Yunus described in his book Building Social Business, start-up social ventures require a steep learning curve and “growing pains” are inevitable. After analysis, Grameen Danone concluded that they needed to repackage their product and develop a two-tier system to sell the yogurt at an affordable price for the urban and rural populations. The 60 gram container is sold at 7 taka (USD 0.10), reasonable in the rural area, and the 80 gram container is sold at 12 taka (USD 0.16), high for the rural regions, but affordable in the capital Dhaka.

Check back in two weeks when we discuss Type II social business.

Source
Yunus, M (2010): Building Social Business: The New Kind of Capitalism that Services Humanity’s Most Pressing Needs, New York: Public Affairs.

Record 128 Million of World’s Poorest Received a Micro-Loan in 2009

Monday, March 7th 2011, the State of the Microcredit Summit Campaign Report 2011 was launched during a press conference organized by the Microcredit Summit Campaign at the National Press Club in Washington, D.C. The report shows that, as of December 31, 2009, more than 128 million of the world’s poorest families received a microloan—an all-time high—and, in total, more than 190 million people (of which 140 million are women) received a microloan. (Download here.)

The Campaign was pleased by the turn-out; including several journalists from the US and international media, as well as Campaign members.

Campaign Director Sam Daley-Harris moderated the panel composed of report author Larry Reed, U.S. Ambassador-at-Large for Global Women’s Issues Melanne Verveer, Nobel Peace Prize Laureate Professor Muhammad Yunus and Spanish Secretary of State of International Cooperation Soraya Rodríguez.

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The Report’s analysis is based on data collected from more than 3,500 microfinance institutions since 1997, and 93% of that data is current and verified by a third party. At the press conference Mr. Reed summarized the report and its significance.

In a nutshell, the importance is that we are reaching 128 million of the poorest families in the world. Take 5 family members, and that is [641] million people or more that we are reaching. That is the size of the population of Europe—or more than Europe—that we are reaching.

Also featured in the report, the Campaign’s Bangladesh study [1] empirically describes how microfinance can be a powerful poverty reduction tool and that between 1990 and 2008, 2 million households in Bangladesh moved above the threshold of poverty.

Despite these successes and microfinance’s global reach, the panel declared that there is still a great deal of work ahead—both for the microfinance field at large and to achieve the Campaign’s two goals. By 2015, the Campaign aims 1) to reach 175 million of the world’s poorest families with access to credit for self-employment and other financial and business services and 2) to ensure that 100 million families rise above the US$1.25 a day threshold, which, according to Mr. Reed, “is still much of a challenge.”

Among the panellists, there was consensus that microfinance still needs improvement. Secretary Rodríguez stated that industry actors were “aware that much remains to be done regarding management and measuring the effectiveness of the microcredit system around the world.” Echoing the 2011 report’s opening lines, Ambassador Verveer added, “Microfinance alone is not enough. It is critical when tied to insurance to protect the poor from catastrophes that can wipe away their economic progress over night."

In recognition of these and other challenges to the microfinance field, the 2011 report introduced the concept of the Seal of Excellence for Poverty Outreach and Transformation in Microfinance. The Seal is conceptualized as a “third initiative” building upon the Smart Campaign's focus on client protection and the Social Performance Task Force’s (SPTF) initiative on social performance indicators. Mr. Reed explained the rationale for the focus on poverty outreach in this initiative:

This Seal would focus on those microfinance institutions that seek to reach the poorest clients and to help them move out of poverty. We know that the movement out of poverty can be an arduous journey for many, and with this Seal we want to be able to highlight those organizations that demonstrate success in helping their clients make that journey.

As in any industry, there are examples in microfinance of good implementation models as well as others that actually do harm to “beneficiaries”. As the industry has expanded, it has been faced by questions such as, are we losing sight of our social mission? MFIs in Bosnia, Nicaragua, Pakistan and Morocco have failed spectacularly in recent years, and the common thread was over-indebtedness of clients, profit margins that were arguably too high, poor institutional management and, in effect, a forgotten social mission. Most recently, we have seen these problems in the crisis in Andhra Pradesh. Secretary Rodriguez affirmed the importance of the Seal.

We are aware that much remains to be done regarding the management and in measuring the effectiveness of the microcredit system around the world. In this sense, we view with great respect and expectation the possibility that a Seal of Excellence might be introduced, as proposed at the Microcredit Summit [Campaign], to certify best practices in this field. Although the proposal needs to be fine-tuned, we believe it is correct to take into joint account the viability and the economic and financial success of microcredit; however, at the same time consideration should be given to their social impact and the role they play in combating poverty and marginalisation, in accordance with the Millennium Development Goals set by the international community.

Read "Towards 'Fair Trade Microfinance'", a "Microfinance Voices" review of the Seal of Excellence for Poverty Outreach and Transformation in Microfinance concept note. To read the concept note and offer your feedback (deadline April 2), download the paper here.

In our next blog post, we will review the exciting innovations presented in the 2011 report and what they promise for the future of microfinance.

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[1] “Number of Microcredit Clients Crossing the US $1.25 a day Threshold during 1990-2008 – January 2011”

To Catch A Dollar: Muhammad Yunus Banks on America, Thursday, March 31 at 7:30 PM

Gayle Ferraro's film, "To Catch A Dollar: Muhammad Yunus Banks on America", will be shown on Thursday, March 31 at 7:30 PM in more than 225 theaters around the US. Audiences will see the 60 minute film, and also the important panel discussion introduced by Robert De Niro; moderated by CNBC's Maria Bartiromo; and featuring Suze Orman, President of Kiva Premal Shah, President of Grameen America Vidar Jorgensen, and Muhammad Yunus.

If this works well on March 31, the theatrical release will expand and continue. We only have one chance to make the launch a success. If March 31 does not work, we will have to try something else. For this to be a success, we just have to find 227 motivated people to each take the lead in filling one theatre. People can bring 5 or 10 of their friends, or come alone. Do what is possible!

Click here to see how you can host a screening

Click here to request a screening at a theater near you or contact Patti McClary directly at patti.mcclary@grameenresearch.org.

You can also provide your feedback on the documentary and the panel discussion, and your suggestions on how we can bring our message and work to a broader audience by emailing Muhammad Yunus at Yunus@grameenresearch.org.

Savings Groups: Alternative or Complement to Microcredit?

At a USAID-sponsored event this September, Kim Wilson, Malcolm Harper and Matthew Griffith spoke about the premise of their co-authored book, “Financial Promise for the Poor: How Groups Build Savings” wherein they discuss a phenomenon that has been overshadowed by the well-publicized microcredit side of the field, namely, that of savings groups.

In a savings group, women, and to a lesser extent men, begin their economic activity by first pooling their savings (pennies really); this is accumulated each week and each group member, in her turn, can take out a loan from the group fund. In Haiti and other parts of Africa and the Caribbean, one common type of savings group is called a ROSCA (rotating savings and credit association), with a more flexible version of this group called an ASCA (accumulated savings and credit association).

ROSCAs and ASCAs are two of many other types of savings groups, which are championed by such organizations as CARE, CRS, Oxfam America, Freedom from Hunger, the Aga Khan Foundation, and, of course, India's government agency NABARD. (The SEEP Network Savings-led Financial Services Working Group has recently published a paper, "Savings Groups: What Are They?" that lays out the geography of savings groups.)

In India, the largest contributor to the Microcredit Summit Campaign’s data collection is a government agency, NABARD, which links savings groups to banks (last reported more than 38 million women living on less than US $1.25 a day with access to credit).

Additionally, the Bill & Melinda Gates Foundation has funded a 3-year multi-million dollar, multi-organization initiative to pilot three savings methodologies in Africa: Oxfam America’s “Savings for Change,” CARE USA’s “Village Savings & Loan Associations,” and Catholic Relief Services’ “Savings and Internal Lending Communities.”

What is the difference, then, between these types of savings groups and village banking schemes in microfinance? For Wilson, who has done considerable research in Haiti, savings groups are unique because unlike microcredit, they generally fund emergencies while microloans fund productive business activities. That way, if one group member has a medical emergency, she can take out a loan from her ROSCA to pay for her hospital bill.

According to Wilson, these savings groups are not old-fashioned and its members are not naive, rather these locally-occurring, locally-forming groups have arisen in response to the poverty they face and the uncertainty of their daily lives. Wilson contends that even when promoted by both local and international and NGOs, these savings groups are sustainable (“promotion” referring to different NGOs starting their own savings groups using a previously developed model).

Griffith spoke to the potential danger of these different “brands” of savings groups, faulting many for not adapting enough to the specific environment of each group but rather competing with other “brands.” Griffith, who studied pastoral communities in Ethiopia, highlighted the importance of pacing with regards to groups taking on greater financial capabilities than they can handle too quickly, overburdening groups and frustrating members.

These savings groups, which Wilson sees as a complement to microcredit, are to Harper rather an alternative to microcredit programs. Frankly, he said, people do not have unlimited time to attend meetings for both microcredit and savings groups. In contrast to serving as a time-consuming add-on to microcredit, savings groups provide an alternative that is more empowering than microcredit because it is owned and operated by its members, and is very similar to what people are already doing.

“Classic microfinance is just about putting people in debt,” said Harper, and in many cases, it is exploitative because it requires a continual involvement on the part of the microfinance institution and has massively expanded debt among the rural poor.

As with Harper, for Ingrid Munro, founder of the Kenyan microfinance institution Jamii Bora, saving is an integral first step in borrowing, because it teaches people how to manage money. Munro, who spoke at the 2010 Africa - Middle East Regional Microcredit Summit in Nairobi this past April, cited how many people must first take the important step of learning how to save:

"When you are a beggar you have learned that if you get some money from some nice tourist, then you buy food and you eat it with your kids right away; then nobody can steal it from you. So they were not used to saving, and we had to teach them how to save before they could borrow. [our emphasis] So we insisted you can borrow twice as much as you have saved, but you have to save first. And that has been a blessing actually for us; that has taught everybody how to handle it."

This panel examined savings groups from many angles and in their multiple capacities, and through different points of view, discussed the usefulness of them as a complement or an alternative to microcredit programs. The latter argument criticizes microcredit programs for allowing clients to access money that they had not first saved. This is all well and good when group members diversify their economic activities, so the argument goes, so that if one member’s crops fail, she can take out a loan from her fellow members who raise chickens. However, what happens when there is a disaster that affects all group members at once?

The effects of the Haiti earthquake on ROSCA members will be a test case of the “complement or alternative” debate. Though women kept up their group meetings in the spirit of solidarity, Wilson was unsure whether all group members were in need of loans from the communal fund—and there not being sufficient for everyone. Perhaps in the presence of an external fund, women would be able to access a greater amount of capital in case of emergencies.

The experience of Fonkoze, Haiti’s largest microfinance institution, and FINCA Haiti demonstrates the positive role external aid when clients have died or have lost their homes or businesses. Only with the help of a grant from the Citi Foundation could FINCA Haiti write off one third of its loans and take on 1,000 new clients. Fonkoze wrote off 10,000 loans with donations from the Red Cross and other charities, and in fact expanded to more inclusive financial and nonfinancial services (see the New York Times article).

Cases like the Haiti earthquake highlight the need for financial services for poor people that include savings as a means of empowerment but the ability to access a greater amount of capital in times of emergency.

Ten More Workshops Authors Announced for the 2011 Global Microcredit Summit

We are delighted to announce the next ten authors of workshops papers to be presented at the 2011 Global Microcredit Summit to be held from November 14 to 17, 2011 in Valladolid, Spain.

The workshops include Initial Public Offerings: The Field's Salvation or Downfall with one paper by Vikram Akula, CEO of SKS Microfinance, and another by Sanjay Sinha, Managing Director of M-CRIL; What is the Low-Bar and What is the High-Bar on Client Protection? by Beth Rhyne, Managing Director of Center for Financial Inclusion at ACCION International; and Is Transparency Enough: What Is Fair and Ethical When It Comes to Interest Rates in Microfinance? by Chuck Waterfield, CEO & President of MFTransparency.

With the workshops released last week, this brings our total to twenty workshops and authors announced. To see a complete list, click here.

Working Group Formed on Microfinance in Industrialized Countries

A working group has been formed to identify workshop titles relevant to practitioners and other stakeholders working in industrialized countries. Members of the working group are:

• Chair: Maria Nowak, President, L'Association pour le droit à l'initiative économique (ADIE), France
• Vice Chair: Connie Evans, President & CEO, Association for Enterprise Opportunity (AEO), USA
• Grzegorz Galusek, Executive Director, Microfinance Centre (MFC), Poland
• Mikhail Mamuta, President, Russian Microfinance Center, (RMC) Russia
• Nazrul Chowdhury, Microfinance Consultant, ICO, Spain
• Philippe Guichandut, Executive Director, European Microfinance Network (EMN), France
• Wendy Bauman, President & CEO, Wisconsin Women's Businesses Initiative Corporation (WWBIC), USA

Guest Post: Miracles in Kenya

The following is a guest post from Sister Giant participant, Cathy Michael, who attended the Africa - Middle East Microcredit Summit in Nairobi, Kenya in April 2010. She along with hundreds of delegates to the Summit went on field visits organized by local organizations to showcase innovative projects and client success stories.

The reflections that Cathy shares with us is about her visit to the slums with the Jamii Bora team. To access her photos posted on Facebook, click here.

"For all of my friends everywhere who care about making this a more peaceful world and for my Sisters from Sister Giant, who could not make it to Kenya, this is for you. I have tried to recreate the experience as best as I could...

"A note to all of you who are not familiar with my recent trip to Nairobi, Kenya. I attended the African Regional Microcredit Summit in Nairobi last week. I had the fortune to go as part of a delegation from SisterGiant/RESULTS. The 3 day conference was sandwiched between 2 field trips to the slums and the new model community, Kaputiei Town. We had the opportunity to meet, hug, listen to and speak with the people whose lives have been transformed by the microfinance grassroots organization Jamii Bora. We also had private meetings with Muhammad Yunus, 2006 Peace Prize Recipient; Ingrid Munroe, the visionary behind Jamii Bora; and Sam Daly Harris, RESULTS founder and organizer of this conference."

MIRACLES IN KENYA

We walked through the slums of Nairobi expecting to find the downtrodden -- human beings without hope, children crying and begging. Instead to our surprise we found smiles and laughter and pride. Children were serenading us in their high pitched voices, “How are you, How are you?” Everyone was proud and pleased to welcome these “wasungu” -- white foreigners.

Who were these lovely beings we found squashed inside their one room huts? Families of five or even fourteen crammed themselves with all their belongings into a 10 x 10 space. Mattresses piled one upon the other, stuffed between storage containers reaching to the ceiling. Each night the mattresses are pulled back out of the stack and laid upon the floor for all to sleep. No bathrooms. . .no toilets. . .no running water. . .no kitchens. . . maybe a cooking stove run on kerosene shoved in the corner. Outside the door are plastic buckets to wash and bathe in. Two foot wide dirt paths separate the shacks and morph into mud paths during the rainy season.

Strangely, strolling through this community warmth and happiness radiated with an intensity that both captivated and energized us. What beautiful faces! Never in my experience as I’ve traversed through villages in other foreign lands have I felt such warmth and love. What is this magic that caught us off guard and warmed our hearts? These were authentic smiles. These were people who walked with their heads held high, people filled with dignity! The love and warmth they exuded were contagious. We all felt it. Walking on rural or city streets back home in the US, I have never experienced such a feeling.

The secret recipe of that magic is called Jamii Bora which means “good families” in Swahili, is a grassroots microfinance organization. It transforms lives by integrating ingredients including micro-loans starting at $10, a mandatory savings program and weekly support groups, affordable health care and life insurance, education, training and counseling, all with an astonishing loan default rate of only 1% and without Government support. Private donations are used minimally to initiate projects to develop infrastructure. This holistic approach provides an opportunity, not a handout, for the world’s poorest to take responsibility for their own lives. Individuals who repays their loan can access larger loans and are then energized to mentor others in the street.

Jamii Bora, with the guidance and vision of Ingrid Munro, who had lived in Africa for over 20 years working in housing development, looks for the poorest of the poor, families earning less than $1.25 per day. They search for street beggars, prostitutes, gang members and thieves. Ingrid Munroe believes and has shown beyond a shadow of doubt that any person on this globe, no matter how destitute or downtrodden, once empowered will discover and ignite their own individual creativity and motivation to lead a life of contribution with dignity.

The miracle is one of transformation, both personal and social. A favorite mantra that we heard from the Jamii Bora members is that “it doesn’t matter where you come from, what matters is where you are going”. Personal transformation generates social transformation in a reinforcing and self-sustaining reaction. Helping the poorest stand up is a central element in this process of transforming a culture. Many microfinance organizations have found that women are particularly responsive, trustworthy and responsible. As the saying goes, give a woman a loaf of bread and she will share it with her family and if anything is left, her community. Give the man a loaf and he will eat it himself or sell it for something else.

I have been asked, “How many people can this possibly touch?“ Another miracle of Jamii Bora is that this social model is replicable. Jamii Bora has given over a hundred thousand loans totaling almost $3 Billion. Jamii Bora has grown and spread throughout Kenya.

In Bangladesh, Grameen Bank, the microfinance institution begun by Muhammad Yunus, recipient of the 2006 Nobel Peace Prize, has designed a similar program which has spread into Asia and Africa, now reaching millions of people. Another organization called BRAC, also begun by a Bangladeshi, Sir Fazle Hasan Abed, has built an organization of several billion US dollars. BRAC is also spreading throughout Asia and Africa. Multitudes of other Microfinance groups, based on similar principles of savings and support groups are cropping up throughout the poorest communities of the world.

Muhammad Yunus has declared that microcredit is about making “The Impossibles Possible!” Leaders of the microfinance movement have said that we have the knowledge to end poverty within this generation. What we need now is not only the political will, but also compassionate commitment within the Institutions that serve the poor to make their first goal serving the poor not their bottom line, nor their investors. Jamii Bora, Grameen Bank and BRAC are outstanding examples of service in the name of the people. Reasonable interest rates and integrated support systems must be the accepted benchmark as we move forward. Institutions that charge 80% and 100% interest rates with the sole goal of profitting off of the world’s poorest are an absolute outrage.

People working in the field know that compassionate microfinance is the best tool that we have for obliterating poverty and obliterating poverty is the best tool we have to rid the world of terrorism.

Cathy Michael

To access the photos of the amazing people and their homes visit my Facebook page.

For more information on the organizations mentioned click on:
http://www.jamiibora.org/membersvoices.htm
http://www.grameen-info.org/
http://www.brac.net/index.php?nid=69
http://www.results.org/

Nairobi Summit Highlights & Submitting Your Action Plan

Africa - Middle East Regional Microcredit Summit

"Quite informative and relevant to my line of work. Bravo all panelists."

1,200 delegates from 81 countries

Opened by Kenyan President Mwai Kibaki, HM Queen Sofia of Spain, HRH Princess Máxima of The Netherlands, and Nobel Peace Prize Laureate Muhammad Yunus, delegates from around the world discussed microfinance and its relation to the environment, agriculture, and health with a strong focus on empowering the world's poorest families, especially the women of those families.

Sam Daley-Harris challenged delegates to change our way of thinking. He said, "The technical side of microfinance is important, but only if it serves the transformational dimension...[to effect] redemption that restores peoples' honor and worth" and sets them free.


Delegates discussed the importance of:

• Supportive regulatory environment for MFIs
• Tools for greater outreach to rural areas and urban slums
• New technology to increase efficiency and decrease costs
• African and Middle East practitioners to commit to the goals of Campaign

Campaign staff will be uploading the powerpoints in the coming weeks to http://regionalmicrocreditsummit2010.org. 

What Delegates Said

• "Topics of plenaries and workshops very relevant. Excellent panelists and good representatives from Africans as well as westerners. This is very important!"
• "Sessions were so educative and they made people know more innovative ways to fight poverty."
• "The Jamii Bora presentation and success is a sure example that we in Microfinance can do something for the urban poor even in better in their living environments."

Share Your Pictures from the Summit

Campaign staff took hundreds of photos. What about you? Send your photos to info@microcreditsummit.org to be added to the Microcredit Summit Campaign PhotoBucket public album at http://photobucket.com/AMERMS_2010.

Notice: By posting your photos to this public album, you give the Microcredit Summit Campaign permission to use your photos in our materials. MCS will credit you and/or your institution.