Global Microcredit Summit
By Emily Allred
WCCN NICA Fund Manager
“We are no longer a footnote in the financial system of the world. We are part of the mainstream — and hopefully we’ll be the core of the mainstream.” This statement from Dr. Muhammad Yunus’ speech with which he addressed delegates at the opening ceremony of the Global Microcredit Summit would have seemed like an exaggeration before October 13, 2006, when the world learned that Yunus and the Grameen Bank won the 2006 Nobel Peace Prize. One month later the fact that microfinance has reached such scale comes at no surprise to the 2,000 microfinance leaders, practitioners, development workers and bankers from over 100 countries meeting at the Global Microcredit Summit in Halifax, Nova Scotia. In the State of the Microcredit Summit Campaign Report 2006, 113,261,390 clients are reported to currently be taking loans from 3,133 microcredit institutions as of December 31, 2005. Of these clients, 81,949,036 are considered among the worlds poorest, earning below US$1 a day.
As the Campaign plans for “phase II” over the next nine years, the two official Campaign goals are the following:
1) “Working to ensure that 175 million of the world’s poorest families, especially the women of those families, are receiving credit for self-employment and other financial and business services by the end of 2015.
2) “Working to ensure that 100 million of the world’s poorest families move from below US$1 a day adjusted for purchasing power parity (PPP) to above US$1 a day adjusted for PPP, between 1990 and 2015”
Last month I was privileged to attend the second Global Microcredit Summit where delegates seeking to reach these goals were gathered. In this forum we could share experiences and learn best practices. Leaders in the field spoke on how microfinance is expected to continue growing and what must be done to reach greater scale. We engaged in debates over the degree to which microfinance is accomplishing its purpose of poverty alleviation. Research was shared and strategies were created in order to reach more of the poor, attract more funding, and enhance positive social impact. Amidst all the study and discussion, there was a spirit of celebration and excitement.
Among the huge diversity of cultures displayed in traditional attire, I found the ones who preferred suits to be the most intriguing. Initially my attitude towards them apprehensive, especially after Yunus’ reminder that “Microcredit is not an area where we want to maximize profits. That’s not why we’re in microcredit.” I also assumed the frustration of the 98% of MFI’s who lack access to commercial funds in my sentiment toward the bankers.
On the other hand, the shortage of funds is obviously a major obstacle in achieving the goal of reaching 175 million families with credit. Certainly the NICA Fund partners demand far more the $6.4 million WCCN is currently able to lend. The participation of bankers in the Summit had suddenly become a promising sign.
The Summit revealed that the practice of microfinance is becoming part of the mainstream not only because it is viewed as an effective poverty reduction tool attracting philanthropists, but also because it is an emerging industry attracting business people. Sources of funding are becoming more diverse and instruments for directing funds are becoming quite sophisticated. Commercial banks are as enthusiastic about microfinance as NGO’s, despite their different reasons.
One can imagine that commercial funding alone could accomplish the first goal of the Microcredit Summit Campaign. However, the second goal of ensuring that 100 million families rise above $1 a day is more complicated. If we are to be effective in our efforts fighting poverty, NGOs and banks must work collaboratively. A development worker and a banker may not have had much in common in the past, but microfinance has presented a model where the talents and resources of both must be employed.
The commitment of NICA Fund investors has allowed WCCN to fund microfinance since 1991. WCCN focuses on the social impact of microcredit, through research such as the upcoming Social Impact Study, and continues to place social impact as the greatest consideration in decision-making. Our mission literally takes us to new frontiers where borrowers had no access to financial services before. In the meantime, our support has helped our partners to increase their portfolios and reach thousands of these new borrowers each year. In this way, we have helped prepare them to mobilize even greater amounts and reach the scale where they can obtain low cost funds from bankers. This is how microfinance becomes “part of the mainstream” and today at least two major international banks are funding microfinance in Nicaragua.
The emergence of banks in the microfinance industry is welcomed in Nicaragua where the demand for microcredit by the working poor is immense. However, as commercial banks join the industry, WCCN recognizes new challenges in ensuring that the development aspect of the microfinance industry remains at the heart of the movement. We remain committed not only to the much needed growth and expansion of the industry, but more importantly, echoing the sentiments of the Nobel Committee, to finding lasting peace and social change through poverty alleviation.