Microfinance Will Not End Poverty, Microfinance Institutions Will
9 February 2010 at 17:19 Sanjaya P 22 comments
Inspired by Nicholas Kristof’s latest blog post: The Role of Microfinance
Microfinance is “the most visible innovation in anti-poverty policy in the last half century.” Because of this, many have put such high expectations on the effects of microfinance and the pace at which it can have an impact on ending poverty. Some have even called it the panacea for poverty.
The truth is, microfinance alone cannot end poverty and anyone who is involved in microfinance will tell you the same. But before you start freaking out and withdrawing all of your Kiva credit, let’s look at what microfinance can do.
Microfinance is improving the lives of many borrowers because:
- Microfinance institutions provide credit at a lower rate than local money lenders.
- Even though the interest rates from microfinance institutions (MFIs) are high, they are considerably lower than local money lenders. This allows borrowers to save additional money.
- Microfinance gives people the opportunity to make large purchases.
- With a loan, a borrower who has limited savings can purchase a cow or a vehicle, which they can use in turn to generate more income. They can also use a loan to improve their living conditions immediately instead of saving for a year.
- Microloans can be used to help borrowers make it through rough times
- One of our loan products here at AMK is the emergency loan. A loan which can be applied for, approved, and disbursed in four hours. Clients often use this to help pay medical costs for family members.
- Borrowers could also use microloans to help rebuild their businesses after a disaster.
- Microloans are not a handout
- The reason “social entrepreneurship” has became a buzz word in development discourse is because what developing nations do not need are handouts. Handouts create a sense of dependency and prevent people from having a stake in their own future. By having people purchase items or take out loans, they have to actually want what is being given to them which will encourage them to make the most use out of it. Just think about how differently you use items you purchase versus ones you get free.
However as the article points out, “there is no evidence that microcredit has any effect on health, education, or women’s empowerment, at least right now, eighteen months after they got the loans.” The benefits of microfinance might just take more time, but is there a way we could speed that up? The answer is yes.
I believe that microfinance institutions can be the biggest players in the war on poverty, but not because of their ability to provide financing. MFIs are constantly trying to service more and more clients, so that their business can grow. Because of this, many MFIs have created these vast and rapidly growing networks of clients. These networks are VERY valuable. Also, since most microfinance institutions are profitable (which is not a bad thing), these networks are sustainable. AMK currently has operations in 50% of the villages in Cambodia. What AMK and many other MFIS are working on now is figuring out ways to use that network to do more.
Currently we are working on:
- Savings
- AMK is in the process of obtaining their savings license from the National Bank of Cambodia. Once we receive it we hope to promote savings in every village we operate in.
- Life Insurance
- AMK is looking into providing life insurance to our clients, which would help them significantly in the event of a family death.
- Currently, we already have a policy that if a client dies we will write off their existing loan.
- Non-Financial Products
- I’m actually working on this pilot. What we are trying to do is figure out a sustainable way to use our network to promote non-financial products that can improve the lives of our clients. In the initial pilot we are promoting solar lamps, water filters, and latrines. If this pilot is successful we can help eradicate the use of kerosene lamps and promote clean water and sanitation. Since we operate in half the villages in Cambodia, we could potentially help Cambodia achieve a millennium development goal:
Target 7.C: Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation
What if we went even further and figured out sustainable ways to use our network to do so much more:
- Health Insurance
- Cheaper Secondary School Education
- Business Development
- Providing Clients With Access To Larger Markets
The vast networks that microfinance institutions have are a very valuable asset in the war on poverty. As socially responsible MFIs figure out ways to sustainably use their networks to have a greater social impact, then they will have the tools that will do so much more to eradicate poverty than microfinance alone.
If you support the work that AMK is doing please lend to our clients or join our fan club!
Entry filed under: All, Angkor Microfinance Kampuchea (AMK), Cambodia, East Asia & the Pacific (EAP). Tags: AMK, Angkor Microfinance Kampuchea, Cambodia, Kiva, microfinance, Nicholas Kristof, Sanjaya Punyasena.
1. Let's Not Forget | Voice In The Dark | 1 November 2010 at 16:05
[...] Microfinance Will Not End Poverty, Microfinance Institutions Will … – If this pilot is successful we can help eradicate the use of kerosene lamps and promote clean water and sanitation. Since we operate in half the villages in Cambodia, we could potentially help Cambodia achieve a millennium development … [...]
2. Does the “microfinance community” suffer from groupthink? « | 10 October 2010 at 19:06
[...] I see unchecked optimism – see also “Poverty Museum”. When Kiva’s in-house blog opines that “Microfinance will not end poverty, microfinance institutions will”, I hear [...]
3. Petra | 30 June 2010 at 08:07
It is said that hygiene (i.e. good ways to get rid of number ones and number twos, plus rubbish; plus safe and clean drinking water and food) has contributed most to the health and increase in life expectancy in Europe.
NOT better health care, or fancy hospitals.
So I expect a lot from your plans to increase hygiene levels in half of Cambodia; I expect that it will keep people healthier for longer, which in turn makes their life and business more successful.
They are small things, but they will lead to big changes!
4. Investing in Haiti « A Sustainable Future for Haiti | 8 March 2010 at 19:15
[...] http://fellowsblog.kiva.org/2010/02/09/microfinance-will-not-end-poverty-microfinance-institutions-w... [...]
5. The Sustainable Leadership Forum » Investing in Haiti | 19 February 2010 at 19:40
[...] http://fellowsblog.kiva.org/2010/02/09/microfinance-will-not-end-poverty-microfinance-institutions-w... [...]
6. Beatrice | 10 August 2011 at 08:26
I’ll try to put this to good use iemmiadtely.
7. Teresa Dunbar | 16 February 2010 at 19:45
Thanks for providing a view from the field. Each MFI is different, but they all have the power to use their networks wisely. When choosing to lend always research the MFI because which MFI you lend through truly makes a difference.
8. Eugene | 15 February 2010 at 11:57
A good post! I’m glad to know that AMK is expanding their operations and focusing on clean water initiatives.
9. Paul | 15 February 2010 at 07:21
“Currently, we already have a policy that if a client dies we will write off their existing loan.”
Does this policy include returning to Kiva lenders the balance of any funds loaned by them? Many lenders would willingly forgive repayment in a case of death, hardship or disaster. It is quite another thing to force it upon lenders.
10. Sanjaya P | 16 February 2010 at 21:15
We do not force it upon Kiva lenders and have been returning the entire loan amount to Kiva lenders.
11. Gemma | 11 February 2010 at 20:02
Awesome post Sanajaya, I want to come visit AMK!
12. Evan | 11 February 2010 at 07:32
Very interesting post
I like how you can draw correlations between these ideas and tradition businesses, like startups in the valley.
MFI’s can become channel partners for distribution of other services and programs.
One of the biggest values they can bring is a close relationship with their customers, and an understanding of their needs. Up until now, no businesses have spent the time or energy to develop these relationships, and MFIs can have a big head start!
13. Kieran Ball | 11 February 2010 at 03:44
Great great post, very clear and well written. I like to think I taught you everything you know. Made me feel so proud of AMK. Cambodia is lucky to have you.
14. david oglaza | 11 February 2010 at 03:28
We are thinking of doing a latrine project ourselves in Nepal. Any tips?
15. Sanjaya P | 16 February 2010 at 21:13
What exactly are you planning on? Find a partner who knows how to build low cost latrines and also figure out what exactly triggers latrine demand in Nepal.
16. v.chandra devi | 11 February 2010 at 01:14
I want to get loan from Kiva.Please! help me.
17. Microfinance: Neither Miracle Nor Menace « | 10 February 2010 at 21:21
[...] those of us who are can find all of this a little confusing, I find a new statement released by Kiva, as well as a recent New York Times article, strike about the right tone of neutrality, pointing [...]
18. marydear | 10 February 2010 at 20:21
really informative post- thank you! The network factor is so key, I have seen it do tremendous things at ASKI in the Philippines.
19. Raf Manji | 10 February 2010 at 19:45
Great post. It’s amazing how MF is being criticised because it hasn’t eradicated poverty overnight. There is no cure for poverty only opportunities for people to create the lives they want to lead.
Access to capital is one clear route towards that goal.
I hope Kiva will continue to get in behind this process and evolve as the situation dictates and as feedback comes from those on the ground.
Make no mistake Kiva has done something very special.
20. antonio r | 10 February 2010 at 16:13
I think this is brilliant– not just providing more financial services (which needs doing) but also providing non-financial assistance of one kind or another… Once you build the network and have an open connection to a borrower, what else can you send over that connection? I also think there would be value in doing analytics on your borrowers’ behavior, if that’s permissible– are there regions/activities/specific behaviors that correlate with borrowers who succeed or fail? are there emerging needs, untracked health issues etc.?
21. Jan & John, KivaFriends | 10 February 2010 at 16:06
Thanks Sanjaya. We’re rooting for AMK and for all the other MFI’s out there working for sustainability and not just for-profit. There really is enough to go around, it’s all about sharing. jan
22. Premal Shah | 10 February 2010 at 12:19
Huge fan of this post and very close to my own personal views. Thanks for writing so clearly on the subject.