Reflections on the Global Microcredit Summit 2011

I’ve just come back from the 2011 Global Microcredit Summit in Valladolid, Spain, which was attended by Queen Sofia of Spain, Muhammad Yunus, Founder of the Grameen Bank, and around 2000 delegates from all parts of the globe. This was the 15th summit organised by the Global Microcredit Campaign and it came at a critical time for the world of microfinance. There is a sense of the field being at a transitional point, facing considerable economic, ethical and PR challenges, as well as tremendous opportunities offered by technology and partnership working, between microfinance institutions, with business, and with others.

I thought I’d share some quick reflections on the summit and implications for us as community development workers…
 
Microfinance is now big business! The number of poor families receiving microcredit has over the last 14 years grown more than 18-fold from 7.6 million to 137.5 million. The number of poor women reached between 1999 and 2010 increased from 10.3 million to 113.1 million. There are cases of unscrupulous and poor practice; but despite the media attention they attract, they represent a minority. A new ‘Seal of Excellence’ scheme has been launched, aiming to drive up quality and consistency in the field.

Developments in technology offer exciting opportunities to reach people, especially those in rural areas which have typically been neglected by some microfinance institutions. Mobile banking (in its various forms) and use of ‘cloud’ banking are now widespread; however they are far from being a panacea. Illiteracy in and mistrust of technology can be barriers. Security issues have not been consistently dealt with, and big questions about the potential impact of major environmental or political disruption remain unanswered.
 
Issues of environmental sustainability and food security were touched on during the summit, though arguably not in as much depth as they deserve. One interesting plenary session profiled examples of microfinance initiatives combined with promoting use of sustainable energy sources and local food production… though, like others, this raised as many questions as it answered!
 
I got a sense that microfinance institutions on the whole have real commitment to the fundamental aims of alleviating poverty and enabling people to build sustainable livelihoods, health, well being and self-esteem. But I was struck by how little has been done to measure the impact of these programmes, especially longitudinally. There is for example a dearth of robust research into the impact of microfinance on health and well-being. What quantitative evidence there is shows a mix of positive and negative results; the only well-designed study found there was no impact at all. Anecdotally, of course, there is evidence that ‘failed’ microfinance is much more harmful than non-intervention.

Another theme which came out loud and clear was the need to put people at the heart of business. Microfinance providers were urged to get ‘back to basics’: for example, not to be carried away by technological possibilities, but to remember to put their customers’ needs first. I was surprised that for some, the notion that microfinance will only work if combined with measures to develop knowledge and skills (of both clients and staff) seemed to be new – at best, it needed reinforcement. The importance of building relationships and trust was repeatedly flagged. I was fascinated by examples of schemes in which participants reported that the social interactions and the networks they had formed were even more important than the economic benefits of microfinance. This was balanced by words of caution from some experienced participants, who pointed out that groups do not always operate in healthy, positive or inclusive ways.
 
Microfinance has, as I’ve said, become big business. There is a risk that in the whirlwind of activity around microcredit and entrepreneurship, people forget the end goal, which surely has to be enabling poor people to build and maintain assets. Despite the concerns expressed about over-indebtedness, very little was said about the importance of saving. Moreover, there was open acknowledgement that microfinance schemes had regularly failed to target those at the bottom of the economic pyramid.
 
There is clearly a tension within many microfinance institutions between the social aims of microfinance and the financial implications of running a sustainable business. A similar tension is played out between organisations – between NGOs and microfinance providers, for example. In some cases, community development seems to be seen by some in the world of finance as an irrelevance, or worse: in one summit session, individuals who had led a large national project in western Europe described having to work with NGOs as an ‘obstacle’ to the implementation of their scheme. From the NGO perspective, there are concerns that finance institutions focus too much on commercial gains and too little on real empowerment. These may well be valid, but I am sometimes struck by how some in the community development world – particularly in the global north – seem to regard ‘money’ and ‘finance’ as rather dirty words. Without something in the way of income or financial assets, how is it possible for people to progress up the pyramid and participate fully in communities?
 
It seems to me that it is only by recognising the common ground between the two fields and working together that the problems experienced by each – of financial sustainability, capacity building, exclusion etc – can successfully be solved.

All this raised some questions in my mind: 

• Can the worlds of community development and microfinance successfully coexist? What more can we do to bring the two together, and can they help each other to achieve the outcomes and further the values of social inclusion, participation and equality which we all claim to support? 

• How as community development workers can we use our expertise in building inclusive, participative communities to help finance providers who may not have these skills? 

• Alternatively… is all of this already happening, and is it just that we aren’t articulating and sharing our experiences well enough?

 
We already know of some excellent examples of microfinance working as a force for good in community development. These include SEWA, India, KRC, Uganda, and the work being done in Europe by Indigo partners.
 
We would love to hear others’ experiences too! Please add your comments (by clicking "read more" below), or write to gill.musk@iacdglobal.org if you have something to share.

Gill Musk
22 November 2011