Microcredit helping self-employed poor
(691 words)
OBSERVER NEWS SERVICE

(MICROCREDIT)
By John Madeley in London

IN THE HILL villages that lie west of Kathmandu, most of the farming is done by women. On steep terraced slopes, against a Himalayan mountain background, they struggle to grow the crops essential for their families. Life for these women is hard, and, in a male-dominated society, they have no status. They are not allowed to inherit land and anyway lack the money to buy any.

But a part-government funded small loans credit project for such rural women is having a dramatic effect in changing their lives. One client is Thuli Kumari who took out a loan for 7,000 Rupees (about $155) to buy a buffalo, which yields two litres of milk a day, worth about 50 rupees ($1.10). ‘For the first time in my life, I have a cash income’, she says. And it's made a big difference to her life. That old leaky roof that hung over the family's home has been replaced with a slate roof and she’s bought a radio, ‘one of the first things many of us women do with money.’

Assisted by a grant from the UN's International Fund for Agricultural Development (IFAD), to date the project has made loans to over 10,000 Nepali women. Known as ‘microcredit’ or ‘microfinance’, IFAD has been providing such small loans to assist the poor in developing countries for over 25 years, bridging the gap caused by a banking system which turns down people who have neither security nor collateral, thus alleviating poverty and radically changing lives for the better.

Even though such a policy might seem very risky, according to IFAD economist Gary Howe, countries such as Bangladesh, Benin and the Dominican Republic have repayment rates as high as 97 per cent. But despite this, more than a billion of the world’s self-employed poor have no access basic financial services, which Mr Howe says deprives them of the necessary means to improve their incomes, secure their existence and cope with emergencies.

To further encourage such initiatives, last week (18 NOV) saw the launch of a UN-designated International Year of Microcredit for 2005 from stock exchanges in several key finiacial centres including New York and Milan.

IFAD president Lennart Bage stresses that despite the sector growing at an average rate of 25-30 per cent per annum, there is still a vast, unmet demand for basic financial services for an estimated 400-500 million households worldwide. ‘Although not a panacea for poverty alleviation, microfinance is an important part of fighting poverty, especially in rural areas’, he says. But things seem to be changing, with institutions such as Citibank and Deutsche Bank now moving into the sector, attracted by the ‘double bottom line’ of making a profit and reducing global poverty.

Currently, there are over 60 investment funds incorporating microfinance in their portfolios, of which around 70 per cent have entered the market in the past two years. International capital funds are also beginning to get involved. In July of this year, the first microfinance bond for $40 million was issued from US capital markets. The vast majority of microcredit clients are women, who make up some 70 per cent of the world’s 1.2 billion people living on less that $1 a day.

‘Microfinance has drawn millions of women into commercial economic activities for the first time,’ says Rachel N. Mayanja, a special adviser to the UN Secretary-General on gender issues. ‘When they earn and control their own income, women gain decision-making power and better status.’

A typical microcredit client is Benedete Nakayima, a 74-year old Ugandan grandmother of 35 orphans, most of whom have lost their parents to HIV/AIDS. With the help of a loan from the Uganda Women's Effort to Save Orphans, she has been able to improve her plantation, rear goats, grow crops for sale and engage in other trading to help her feed, clothe, educate and raise her grandchildren.

In September 2005, the UN General Assembly will hold a special session to look at progress towards the United Nations Millennium Development Goals, which include halving by 2015 the proportion of people living on less than $1 a day. ‘Giving the poor access to such basic financial tools as credit, savings, insurance and money transfers will help meet that goal’, says Mr Bage.