Micro-finance — the provision of credit and other financial services to micro-entrepreneurs and small businesses that lack access to mainstream banking — has proven to be a remarkably effective way to reduce poverty in cities across the developing world. The principle is simple: through access to credit and related resources, the urban poor are empowered to pull themselves out of poverty. Still, as with all matters of finance and investment, the details matter — especially since the goals of justice and financial inclusion have been so elusive in the past. Read on to learn about micro-finance solutions from Dhaka, Mumbai, Cairo, São Paulo, and Bogotá, and then join the discussion below.
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The Asian University for Women Writing Team, Dhaka Community Managers
Grameen Bank is one of the most successful experiments in extending credit to Bangladesh’s poor. Many have used microfinance to pull themselves out of poverty. The beginnings of Grameen Bank can be traced back to 1976, when Professor Muhammad Yunus, the head of the Rural Economics Program at the University of Chittagong, launched a research project to examine the possibility of designing a credit delivery system to provide banking services for the rural poor. This research project grew, and as of 2011, Grameen Bank’s 23,144 employees serve 8.349 million borrowers (97 percent of which are women) in 81,379 villages, covering more than 97 percent of the total villages in Bangladesh. Borrowers own 90 percent of the bank’s shares, while the remaining 10 percent is owned by the government.
The Grameen Bank’s loan system is divided into several steps. The first step is to encourage the poor to believe that they can succeed as an entrepreneur. The poor attend a training program, and then draft a credit proposal. Only then do the beneficiaries receive the funds for investment. The rest of the process includes fund collection, returns, operations, and credit cost.
Grameen’s methodology encourages borrowers to strive for specific goals in social, educational, and health sectors, known as the “sixteen decisions”. These include helping others in need, drinking clean water, and educating children. Grameen therefore does not limit itself to providing credit, but also works on other development goals.
Grameen Bank’s work shows how transformative a small amount of money can be in breaking the cycle of poverty. Microfinance has shown to be one of the most effective means of “developing from below,” leading not only to increased income but also to empowerment.
Photo credit: Schipul
Carlin Carr, Mumbai Community Manager
Shaila Satpute and her husband have been running a footwear shop in Mumbai for the last 15 years. Their $130 monthly profit goes to taking care of household expenses and the family’s future — educating their three children, providing them with opportunities Shaila and her husband were unable to access. The Satputes always had aspirations to grow their small business, but were unable to save enough to invest in more stock. That all changed when Shaila took a small loan from Mumbai-based microfinance organization Swadhaar FinServe. Now on her third loan cycle, Shaila’s monthly profit has doubled.
While the city is full of formal financial institutions, Shaila is one of millions of urban poor who lack the collateral or documentation to access bank loans. In an effort to fill this gap, Veena Mankar launched Swadhaar as an NGO in 2005 to bring the same microcredit services to urban areas that were taking off in rural India. The pioneering organization became Swadhaar FinServe Pvt. Ltd. in 2008. Swadhaar’s clients are nearly all engaged in Mumbai’s large informal economy, running micro-businesses such as food stalls, small general stores, and tailoring services.
“For a long time, the focus has been on the rural poor, but now, MFIs are also looking at providing financial support to the urban poor,” says an article in DNA, “A micro initiative with a macro objective.” “Now, for the first time, a whole section of Mumbaikars no longer have to rely on local money lenders.”
Urban microfinance initiatives were slow to enter the market because of misconceptions about the clientele. Poverty in India’s cities is largely from migrant populations who lenders see as “risky,” says an article in the Economic Times. “While it is true that several people from the cities have come from the hinterland, a sizable majority have been around for years, staying in the same place, with the same neighbors,” says the article. “Several of them own the places they stay in. Hence the apprehension that they would vanish without a trace is rather misplaced.”
The other misconception is that the model of group lending does not work with the individualistic nature of cities. While most Indian villages have formed tight-knit communities, slum areas — by virtue of their close proximity or perhaps their shared determination against all odds — also have developed a strong sense of “oneness” over time. The Economic Times article quotes a microfinance banker: “People who have stayed in the same neighborhood for years, even in cities, have a natural tendency to support each other, as much as their rural counterparts. The social mores of groups are pretty much the same wherever they are.”
Urban poverty poses its own unique challenges, and as with Swadhaar’s model, lending to the poor requires more than just a loan. In addition to its three tenets: flexibility, convenience and choice, Swadhaar also provides financial literacy programs and supports women in starting or expanding businesses. Urban microfinance has great potential to give greater independence and opportunity to the urban poor, especially women, and hopefully more organizations will continue to see this potential.
Photo credit: Meanest Indian
Howaida Kamel, Cairo Community Manager
Microfinance has proven to be one of the most effective, targeted tools to promote pro-poor economic growth. Inclusive growth is one of post-revolutionary Egypt’s goals, and microfinance is indeed effective in creating growth that focuses on increasing social justice, closing the income gap, and creating new job opportunities. There are over 400 micro-finance institutions (MFIs) currently operate in Egypt, positioning microfinance services as key tools for impacting the poor.
The Cairo Economic Livelihoods Program (CELP) is one example of a successful microfinance organization that serves Cairo’s poor. A joint effort between the Aga Khan Foundation and the Canadian International Development Agency, CELP concentrates its efforts on the residents of Darb el Ahmar, a district characterized by its poverty, as well as its production of oriental crafts like wood inlaying and tent making. CELP provides microcredit for local residents to develop their crafts, and also provides employability services.
The microfinance arm of Aga Khan Foundation in Egypt, the First MicroFinance Fund (FMF), works with CELP to provide financial and business development services to help existing businesses with pricing, record keeping, and other necessary business skills. The FMF also helps connect the artisans to buyers of their crafts by organizing exhibitions. These exhibits are located in the more affluent areas of Cairo as well as around the world, including in Italy and Canada. CELP also publishes an online catalogue that displays the work of the Darb el Ahmar community.
By creating these market linkages and providing business development services in addition to microcredit, FMF has contributed to Cairo’s inclusive growth, providing the poor of Darb el Ahmar with a new source of income. Furthermore, CELP runs its own economic program that coordinates both the vocational training programs and job counseling and placement unit. Vocational trainings are designed to teach the skills needed develop a small business, such as carpentry, plumbing and electrical maintenance. The career center offers advice, and connects residents to jobs based on their skills. To date, CELP has ensured new employment opportunities for over 350 individuals, 40 percent of which are women.
To highlight the success of microfinance programs as a solution for inclusive growth strategies in Egypt, the Ministry of Planning and International Co-operation published the IMPACT quarterly report in October 2011, in which CELP was featured as a case study. The now former Minister, Mrs. Fayza AboulNaga, emphasized the ministry’s vision to promote inclusive growth and participatory development during Egypt’s political, social and economic transition. While the document emphasizes microfinance as the main tool for Egypt’s inclusive growth strategy, the numbers indicate otherwise. Of the 50 billion Egyptian pounds spent, only 2 billion pounds were earmarked for employment support activities. The rest was allocated for increasing minimum wage, ensuring that temporary workers receive permanent worker status, and increasing the budget for consumer subsidies. While these other solutions are important, they lack the participation of the poor that is inherent to microfinance. CELP’s work in Darb Al Ahmar shows that with a small boost of funding and training, the poor can pull themselves out of poverty.
Photo credit: Oliver Wilkens/AKDN
هويدا كامل – مديرة وحدة القاهرة
أثبت التمويل الأصغر المعروف ب’microfinance’ أنه من الأدوات الأكثر فعالية لتشجيع الفقراء على النمو الاقتصادي. من إحدى أهداف ما بعد الثورة في مصر هو النمو الذي يشمل جميع فقات الشعب، و قد يخلق التمويل الأصغر النمو الشامل الذي يؤدي إلى زيادة فرص العمل وإنتشار العدالة الإجتماعية. هناك حاليا أكثر من ٤٠٠ مؤسسة للتمويل الصغير في مصر، مما يجعل التمويل الأصغر من الخدمات الرئيسية التي تساعد الفقراء.
منظمة (CELP) من احدي منظمات التمويل الأصغر الناجحة التي تخدم الفقراء في القاهرة. أنشئت (CELP) من خلال جهد مشترك بين مؤسسة الآغا خان والوكالة الكندية للتنمية الدولية، وقد يركز برنامجهم على مساعدة سكان منطقة الدرب الاحمر، وهي منطقة معروفة بالفقر والصناعات اليدوية الشرقية. لتطوير حرف السكان المحليين في الدرب الاحمر، يوفر برنامج (CELP) القروض الصغيرة و خدمات التوظيف لهم.
يعمل فرع التمويل الأصغر لمؤسسة الآغا خان في مصر(FMF) مع (CELP) لتقديم خدمات التنمية المالية والتجارية لمساعدة الشركات في حفظ السجلات، والتسعير، وغيرهما من مهارات إدارة الأعمال الضرورية. تساعد أيضا منظمة ال-(FMF) الحرفيين على بيع مصنوعاتهم اليدوية من خلال تنظيم المعارض لهم. تقع هذه المعارض في المناطق الغنية في القاهرة، وكذلك في جميع أنحاء العالم، بما في ذلك إيطاليا وكندا. كما ينشر برنامج (CELP) كتالوج على الانترنت لعرض أعمال و فنون مجتمع الدرب الأحمر.
قد ساهمت منظمة ال-FMF في خلق النهضة الشاملة في القاهرة، وتوفير مصدر جديد للدخل لسكان الدرب الأحمر. وعلاوة على ذلك، تدير منظمة (CELP) برنامج إقتصادي خاص بها لتنسيق برامج التدريب المهني والإرشاد الوظيفي التي تعلم الحرفيين المهارات اللازمة لتطوير الأعمال التجارية الصغيرة مثل النجارة، والسباكة، والصيانة الكهربائية. و يقدم مركز توظيفهم المشورة المهنية لمساعدة السكان على إيجاد وظائف وفقا لمهاراتهم. وقد كفل برنامج (CELP) فرص عمل جديدة لأكثر من ٣٥٠ شخصا حتى الآن، بما في ذلك %٤٠ من النساء.
لإثبات نجاح برامج التمويل الأصغر في تحقيق النمو الشامل في مصر، نشرت وزارة التخطيط والتعاون الدولي تقرير(IMPACT) الفصلي في أكتوبر ٢٠١١, وشمل هذا التقرير برنامج (CELP) كنموذج دراسي. أكدت وزيرة التعاون الدولي السابقة، السيدة فايزة أبو النجا، دعم الوزارة للمبادرات والجهود التي تعزز النمو الشامل والتنمية التشاركية أثناء المرحلة الانتقالية السياسية, والاجتماعية، و الاقتصادية في مصر. تعرض الوثيقة خدمة التمويل الأصغر كأداة أساسية للنمو الشامل في مصر، ولكن الأرقام تبين خلاف ذلك: على الرغم من إنفاق الوزارة حوالي ٥٠ مليار جنيه مصري لتطوير المجتمع والوضع الاقتصادي، تم تخصيص ٢ مليار جنيه فقط للانشطة التي تدعم العمالة. خصصت بقية الميزانية لرفع مستوى الأجر الأدنى و ميزانية الاعانات للمستهلكين، و ضمان تلقي العمال المؤقتين وظيفة دائمة. قد تكن هذه الجوانب ذات أهمية كبيرة في مجال قطاع العمل ، ولكن هذه الحلول تتجاهل مشكلة عجز الفقراء في إيجاد فرص عمل, و خلافا لخدمات التمويل الأصغر لا تساعد الفقراء على الانضمام إلى القوة العاملة. تبين جهود (CELP) في الدرب الاحمر أن الفقراء يمكنهم تحسين وضعهم الاجتماعي ببساطة من خلال دفعة صغيرة من التمويل والتدريب.
Catalina Gomez, São Paulo Community Manager
Para muitos empreendedores dar início a uma microempresa é um grande desafio. É ainda um desafio maior para aqueles microempresários de baixa renda, os quais geralmente não tem como receber crédito do sistema bancário tradicional pela ausência de garantes, e quando conseguir, os juros do crédito estão acima da media.
Tendo em conta esta situação e para facilitar maior aceso ao crédito dos novos empreendedores, especialmente aqueles de baixa renda, em 2001 foi estabelecido São Paulo Confia, uma instituição sem fins lucrativos, que foi criada por entidades da sociedade civil e atualmente conta com apoio financeiro e gerencial da Prefeitura. Nos últimos dois anos, a instituição atendeu mais de 20 mil microempreendedores.
O São Paulo Confia oferece um crédito inicial de R$ 3.500 (US$1.900) podendo chegar até R$ 15 mil (US$8.300) de acordo com o desempenho dos beneficiários. O crédito pode ser acessado por todo cidadão maior de 18 anos que tem prova de residência em São Paulo. O empréstimo é concedido individualmente para grupos de três a dez pessoas que formam como “grupos solidários”. Nesses grupos são reunidas pessoas de diversos ramos de atividades que se comprometem a garantir o pagamento do crédito concedido a todos os integrantes. O objetivo dos grupos solidários é fazer com que cada empreendedor acompanhe o pagamento dos créditos dos demais participantes do grupo.
Anteriormente a receber o beneficio, todos os possíveis beneficiários tem que ter feito o curso básico de empreendedorismo oferecido pelo mesmo programa. O curso está dividido em quatro aulas de três horas cada uma, totalizando 12 horas. Na primeira aula, o empreendedor aprenderá a controlar seu dinheiro abordando temas como os cuidados com o caixa, com as contas a pagar e receber, e a prática desse fluxo de caixa. Na segunda e terceira aulas os alunos receberão noções sobre técnicas de vendas e de compras, e na quarta conhecerão a legislação Microempreendedor Individual. O acesso ao crédito é feito em 23 unidades operacionais instaladas em diferentes localidades da cidade. Nestas unidades tem serviços de acessória assessoria jurídica sem custo.
Recentemente o mês passado, a Prefeitura anunciou que a Caixa Econômica Federal será o novo agente operador do programa para tentar aumentar as linhas de crédito e oferecer melhores juros. Atualmente, a taxa de juros utilizada é de 3,9% ao mês, que é mais baixa que a media dos bancos comerciais.
Além de ampliar o número de beneficiários, o principal desafio desta instituição é conseguir beneficiar a aqueles empreendedores mais pobres e apoiar eles na sustentabilidade de seus negócios. Provavelmente as aulas rápidas iniciais ajudam bastante, mais esta população poderia precisar mais acompanhamento e apoio para garantir a sustentabilidade de suas empresas no longo prazo.
Foto: São Paulo Confia
Catalina Gomez, São Paulo Community Manager
For many entrepreneurs around the globe, starting a new business is a great challenge. Launching a new business is even harder for micro-entrepreneurs from low-income communities: they generally lack access to credit because they have no guarantors. When they do manage to get credit, the interest rate is often much higher than usual, limiting the possibilities to launch a business and to live off it.
In order to address this situation and to promote greater access to credit for entrepreneurs, especially those with less education and income, the institution São Paulo Confia (São Paulo Trusts) was established in São Paulo in 2001. This institution is a nonprofit initiative that was created by civil society organizations and is currently managed and financially supported by the city’s local government. In the last two years alone, the institution has benefited more than 20,000 entrepreneurs.
São Paulo Confia offers an initial credit of R$3,500 (USD $1,900) and increases to R$15,000 (USD $8,300), depending on the beneficiaries’ performance. This funding can be borrowed by any São Paulo resident over the age of 18 with a business idea. The loans are granted to individuals who then form groups of three to ten people, known as “solidarity groups.” These groups diffuse credit risk, since the members commit to assisting each other in case of financial difficulty. This group model also ensures that credit payment is carried out in a timely manner.
Before receiving the initial credit, all potential beneficiaries must complete basic training on entrepreneurship, provided by São Paulo Confia. The training is composed of four three-hour sessions. In the first one, the entrepreneur learns about basic terms and practices, including cash flow management. The second and third sessions cover buying and selling techniques. The last session is dedicated to learning about the local legislation on individual micro-entrepreneurs. These services are provided in 23 São Paulo Confia units all around the city, where there are also advisory services available on how to become a legal entrepreneur, as well as free specialized legal counseling.
The local government recently announced that São Paulo Confia’s new operator would be the Caixa Econômica Federal, a mixed-income bank. Caixa intends to increase the number of beneficiaries and offer new services and benefits, including lower interest rates. The credit’s current monthly interest rate is 3.9 percent, which is already lower than the average commercial banks.
Besides expanding the already high number of beneficiaries, the greatest challenge this institution faces is improving its targeting to the poorest populations. São Paulo Confia also needs to improve its support to clients, especially regarding long-term sustainability. The existing 12-hour crash course is a good start, but expanded, longer-term counseling would be ideal to provide additional support.
Photo credit: São Paulo Confia
Jorge Bela, Gestor Comunitario de Bogotá
La exclusión financiera es uno de los principales frenos para la salida de la pobreza, especialmente en el caso de las poblaciones más vulnerables, como madres solteras, desplazados, indígenas o afrodescendientes. En Bogotá, las empresas medianas, pequeñas, micro y familiares constituyen el 98 por ciento del total, pero de éstas tan solo el 29 por ciento tiene acceso al crédito que ofrece la banca comercial. Aunque el sector de los microcréditos ha aumentado de forma significativa en Colombia, duplicándose la cartera en el periodo 2006 al 2012, en parte gracias al apoyo del gobierno, las altas tasas de interés y los requisitos de garantías e idoneidad exigidas por las entidades privadas hacen muy difícil el acceso al crédito precisamente a los sectores más desfavorecidos. Las ONGs no disponen de fondos suficientes para cubrir la demanda, y las microempresas y empresas familiares quedan en muchos casos sujetas al sector financiero informal, conocido como “gota a gota,” con tasas de interés exorbitantes.
Como forma de paliar este problema, la Alcaldía de Bogotá ha lanzado una iniciativa innovadora: la creación de un banco de primer piso, con una inversión inicial de 250.000 millones de pesos (unos 137 millones de dólares). El objetivo de este banco es ofrecer microcréditos, microseguros, además de otros servicios financieros como créditos de vivienda y consumo, especialmente dirigidos a poblaciones vulnerables. Aunque la participación municipal en la ayuda de la obtención de microcréditos no es novedosa, sí lo es la creación de un banco de primer piso con un enfoque integral.
Para el Secretario de Desarrollo Económico de Bogotá, Carlos Simancas Narváez, la ayuda pública es la única forma de conseguir que las poblaciones más vulnerables tengan acceso al crédito, aunque ve la intervención municipal como una fase temporal, destinada a ser suprimida una vez que las entidades privadas y las ONGs tengan la capacidad suficiente para cumplir plenamente esta función. Respecto al banco de primer piso, estima que la mejor forma de proceder es la compra de una entidad financiera, lo que permitiría ofrecer desde un primer momento atención integral, lo que constituye una prioridad para la Alcaldía. En este sentido, la cantidad aprobada por el Concejo de Bogotá no permite la adquisición de un banco, centrándose la búsqueda en una corporación financiera. Si bien este tipo de instituciones, a diferencia de los bancos, no pueden abrir cuentas corrientes, si puede captar recursos mediante certificados de depósito. Esto permitiría aprovechar parte de los ingentes recursos financieros de Bogotá que ahora se depositan en entidades financieras comerciales, según afirma Simancas.
La única forma de que una iniciativa de este tipo funcione es ofrecer a las microempresas un acompañamiento integral, con una revisión previa de los planes de negocio, formación, seguimiento y la utilización simultánea de otros servicios, como los microseguros, que ofrecen una garantía adicional de cobro en caso de fallecimiento. La estructura liviana y ágil de las corporaciones financieras permite cumplir estos objetivos con una mayor eficiencia y menores costes. Las corporaciones financieras están en todo caso sujetas a la regulación y supervisión de la Superintendencia Financiera.
Aunque el futuro del banco de primer piso es ún incierto debido a la compleja situación política de Bogotá, la Alcaldía sigue impulsando otras vías innovadoras de apoyo al microcrédito, en conjunto con ONGs y operadores financieros. Para el año 2013 cuentan para este fin con un presupuesto de 38.000 millones de pesos (unos 21millones de dólares), que se convierten en 63.000 millones (unos 35 millones de dólares) si se le suman las aportaciones que hacen las entidades privadas. Una cantidad pequeña para una ciudad tan grande, pero crítica para las poblaciones a las que se dirige, que pueden de esta forma escapar del gota a gota y en última instancia cumplir el objetivo final de estas políticas: que escapen también de la pobreza.