Holistic microfinance – financial inclusion with training – is one of the most powerfully sustainable, inclusive and transformative strategies of poverty reduction.
Around the world, the Bankers to the Poor – microfinance institutions (MFIs) – and the clients they serve have been hammered by the economic impact of the Covid-19 pandemic. Just as we are struggling with this new reality, so are our Partners and clients – only their struggles are magnified several times over. They need our support now more than ever.
As eloquently argued by Muhammad Yunus in Banker to the Poor, Dambisa Moyo in Dead Aid and Robert Lupton in Toxic Charity, among others, international aid can often have negative impact in targeted communities.
Some of the more negative elements have included aid with strings attached to support the interests or biases of the donors or donor countries, tone deafness to local voices and realities, and the creation of long-term undignified dependency that ends up actually keeping people trapped in poverty.
Reflected in the light of the Black Lives Matter movement, there is little doubt that systemic racism has played a major role, both in creating the underlying conditions of poverty in the first place, and in the delivery of at least some international aid, which, as argued by the authors above, is often toxic, even if provided with the best of intentions.
A key limitation that Muhammad Yunas discovered was the lack of financial inclusion for the poor. Often illiterate and with no assets to serve as collateral, the poor could not access even small loans, savings or insurance. It was assumed that the poor would be unreliable clients, did not have the skills to start a business, would be too costly to service and would likely default on most loans – making the whole enterprise unsustainable.
Yunas and the Grameen Bank, along with other microfinance organizations including Opportunity International, proved all of these assumptions to be wrong. He convinced a bank president to trust him with just one branch, and financial inclusion for the poor was shown to be very sustainable, with a high rate of loan repayment, savings and growth. Yunas ultimately won the Nobel Peace Prize because of this.
In addressing the underlying systemic issues blocking financial inclusion, microfinance has become a powerful engine of economic empowerment, enabling the poor to break free from the injustice of grinding, dehumanizing poverty. I find this to be hopeful for the Black Lives Matter movement – addressing systems and assumptions around racism can bring about real change, resulting in a just and more inclusive world.
One of the most beautiful aspects of microfinance is how it speaks to human dignity. Whereas a handout creates dependency and erodes dignity, as a parent is forced to accept gifts to feed her family, a microloan treats her as a partner – as an entrepreneur. She is driven, bringing creativity, initiative and a strong work ethic to her business plan. And, she generates income to provide for her family, put away some savings, make loan payments, and invest in her business.
Key to the success of microfinance in bringing real change is strong in-country indigenous leadership. Successful MFIs are professional and highly competent organizations, with the discipline of a banker and the heart of an NGO. Often structured as Co-operatives or NGOs, these bankers to the poor are guided by a core mission of sustainable poverty alleviation. Opportunity International will be impactful in its mission to reduce poverty only to the extent that it listens to and works with these inspiring local Partners.
Financial inclusion is a profound catalyst for a journey of individual transformation and hope, as a client gains self-confidence and takes pride in providing for her family. And when these individual transformations are multiplied by millions of people across dozens of countries, the impact is poverty alleviation that is sustainable on a global scale.
Unfortunately, the impact of the Covid-19 pandemic is also global, multiplied by millions of lives across dozens of countries. As my colleague Atul Tandon, CEO of Opportunity International USA noted recently, 80% of our 17 million clients in 28 countries have experienced significant loss of income due to the economic impact of Covid-19. If they can’t work, they can’t feed their families, let alone put away savings or make loan payments.
And since they can’t make loan payments, this creates operational challenges for the MFIs that serve as the bankers to the poor. These are our Partners on the ground, without whom our mission would be impossible. Opportunity International won’t stand idly by and let the pandemic erase decades of gains made by this inclusive systemic solution to global poverty.
Through this pandemic, I have stayed in personal contact with the CEOs of each of our Partners to understand how we can best support them. I have been inspired by their compassion for their clients and their resiliency in adapting to the current challenges.
I am also heartbroken, as Covid19 claimed the life this past week of Juan Ulloa, the CEO of ASODENIC, our Partner in Nicaragua. Juan’s legacy is financial inclusion, empowerment and transformation for many thousands, and we are committed to building on his legacy.
But, as local economies start to open up, clients will need a fresh infusion of affordable loans, since they will have used up their savings. What our Partners and clients require now is an injection of liquidity and affordable loan capital. This is how we can best help.
At Opportunity International Canada, we are boldly and unapologetically asking our donors to consider generous “inspiring gifts” to help our Partners and clients survive now so they can thrive later. In the midst of this pandemic, don’t forget about the Bankers to the Poor.
Dan Murray