Poor people do, but at the end of the day: we all do. I will first highlight the evidence that supports the conclusion that microfinance serves as a reliable means to better include the financially excluded poor, and then discuss the often overlooked positive impact that microfinance has on regional, and ultimately global economies.
The Poor aka "the Unbankable"
As an initial matter, microfinance is defined as the wide array of financial services (e.g., credit, insurance, and savings) that are provided to those who do not have the credit history or collateral ("the unbankable" aka the poor) to qualify for these standard services generally provided by banks. To give you a better idea of what current financial services in a developing country look like, here is a snapshot of a country that widely uses microfinance - Vietnam, a developing country with a largely financially excluded population:
Only 31% have a bank account at a financial institution.
Only 2% have a credit card.
Only 27% have a debit card.
Only 18% have borrowed money from a financial institution.
Only 15% have a saved money at a financial institution.
What would life look like if you didn't have a formal savings account, if you couldn't swipe plastic to pay for day to day purchases, if you couldn't take out a loan for a house, for school, or for your new business? You would be severely limited in terms of your upward mobility. These are the circumstances poor people face every day.
Evidence of the Positive Impact of Microfinance on the Poor
Unfortunately, the poor are generally uninteresting to large financial institutions looking to earn a profit. Enter microfinance. Credit unions, government institutions, NGOs and private microfinance institutions all serve as sources of microfinance. These organizations provide services that allow the poor to plan for a disaster, improve their health, obtain education for their children and start or improve their business. Here is evidentiary support of the positive impact microfinance has had in Vietnam:
Studies show credit has helped increase poor, rural, household incomes in Vietnam by 30%.
In Vietnam, credit has had "a positive impact on household welfare as represented by per capita expenditure[.]"
Here is similar evidence of the positive impact microfinance has had in countries around the world:
"A South Africa study that looked at expanding access to consumer credit found increased borrower well-being: income and food consumption went up, measures of decision making within the household improved, borrower’s status in the community improved, as did overall health and outlook on prospects and positions."
"[M]icrocredit both spurred new business creation and benefitted existing microbusinesses in Mongolia and Bosnia."
"[A]ccess to microcredit increased the ability of microentrepreneurs to cope with risk (the Philippines and Mexico)."
"A randomized evaluation in rural western Kenya found that access to a new commitment savings service enabled female market vendors to mitigate the effect of health shocks, increase food expenditure for the family (private expenditures were 13% higher), and increase investments in their businesses by 38–56% over female vendors without access to a savings account."
"Recent randomized evaluations in India and Ghana of weather-based index insurance showed strong positive impact on farmers because the assurance of better returns encouraged farmers to shift from subsistence to riskier cash crops."
"In Ghana, insured farmers bought more fertilizers, planted more acreage, hired more labor, and had higher yields and income, which led to fewer missed meals and fewer missed school days for the children."
"[M]icrocredit borrowers are about 50% less prone to consumption fluctuation than their counterpart non-member poor households in Bangladesh."
"[M]icrofinance accounted for about 40% of the overall reduction in moderate poverty in rural Bangladesh[.]"
Evidence of the Positive Impact of Microfinance on Regional & Global Economies
It is clear that microfinance has benefited and will continue to benefit the poor, as demonstrated above, but what is often overlooked is the regional and global economic benefits of microfinance. Beyond the immediate benefits of microfinance to the poor, microfinance fosters job creation, greater spending, higher incomes, removal of borrowers from social assistance programs, and entrepreneurial ventures, which all serve to benefit both the regional and the global economy.
Microfinance fosters small business growth which often results in new jobs and greater spending, resulting in a positive net impact on the economy. Wealthy, developed nations derive great economic benefit from small businesses. The Census Bureau indicates that in the United States, small businesses - defined as having less than 500 employees - create 90% of net new jobs, with the Small Business Administration noting that around 90% of employers have less than 20 employees. Similarly, small businesses are responsible for creating almost 70% of all new private sector jobs in Canada. Additionally, Accion USA, one of the largest microlenders in America, enabled small businesses to create an average of 1.7 new jobs per business. Microfinance thus allows developing nations to support the growth of small businesses in order to eventually achieve the same level of prosperity as developed nations.
Higher incomes, which permit greater spending and investments in the economy, are also a common result of microfinance programs. For example, the Grameen Foundation in the United States, named after Muhammad Yunus's (aptly dubbed the father of microfinance) Grameen Bank, generated $1.56 million in wages annually through its work with Project Enterprise in New York City. Additionally, monthly profit increased by 42% on average after borrowers received a microloan. Accion USA is another prime example of the ability of microfinance to help grow borrowers' incomes. Accion USA's average loan allowed small businesses to increase family income by 18%.
Therefore, when it comes to the question of who cares about microfinance, the answer is actually: we all do!
#Microfinance #financialinclusion #economicdevelopment #innovation #regionaleconomy #globaleconomy #poverty #SocialImpact