The announcement of Professor Mohammed Yunus as recipient of this year’s Nobel Peace Prize is a fitting recognition of more than 30 years of hard work for many microfinance providers all over the world.
It was in 1976 when Prof. Yunus, then head of the rural economics program at the University of Chittagong, lent from his own pocket the amount of US$27 to a group of women weavers in a Bangladeshi village. To his surprise, they paid back their loans in no time.
This initial loan served as the foundation of the Grameen Bank (GB). Today, the approach is being replicated in many developing countries. GB has reversed conventional banking practice by removing the need for collateral and created a banking system based on mutual trust, accountability, participation and creativity.
As of May 2006, GB has 6.61 million borrowers, 97 percent of whom are women. With 2,226 branches, GB provides services in 71,371 villages, covering more than 100 percent of the total villages in Bangladesh.
In its announcement, the Norwegian Nobel Committee decided to give the prestigious peace prize to Prof. Yunus and the Grameen Bank, “for their efforts to create economic and social development from below.” It further explained: “Lasting peace can not be achieved unless large population groups find ways in which to break out of poverty. Micro-credit is one such means. Development from below also serves to advance democracy and human rights.”
Microfinance refers to the activity of provision of financial services to clients who are excluded from the traditional financial system on account of their lower economic status. These financial services most commonly take in the form of non-collateral small loans and savings, though some microfinance institutions now offer other services such as insurance.
Almost two-thirds of the 1.2 billion people living on less than a dollar a day are women. Tens of millions of very poor families who could use microenterprise still do not have access to financial services. Many anecdotal evidences and empirical studies have proven that microfinance has assisted millions of women and men who successfully started their own small businesses and eventually became economically self-reliant.
The Consultative Group to Assist the Poor (CGAP) estimates that of the three billion poor people of working age who could be making use of these services, only one sixth (about 500 million) have currently access to formal financial services. There are still billions of poor people worldwide who are waiting to access financial services to be able to start small income-generating projects.
The popularity of microfinance has reached its heights last year when the United Nations declared 2005 as the Year of Microcredit. In the Netherlands, the massive awareness and media campaign on microfinance as an effective tool for development has been quite successful. Many social organizations, including the diaspora organizations, have taken interest on it.
While it is not a panacea to substitute basic necessities like education, health and food security, microcredit is a model developed from developing countries which illustrates that poor people can learn “how to fish” if you teach them how.
Where large multilateral and development organizations failed, microcredit has been helping millions of poor women in both developing and industrialized countries to rise up from poverty.
Many migrant organizations are now seriously looking seriously on how they can leverage remittances for sustainable development by linking with microfinance providers. In the Netherlands, some organizations are exploring possibilities to link with existing microfinance institutions (MFIs) nearest to their hometowns. The idea is that they can contribute as “preferred partners” by participating in the local savings mobilization or act as guarantors for their families who avail of loans from the MFIs. In addition, they can also serve as potential investors to some promising productive projects.
Filipino migrant organizations are noted for their philanthropy. However, most of their projects remain small and after a couple of years these projects just die down because of management problem. It is very difficult to monitor projects since most members of these organizations live abroad. It is also not easy to find reliable people to manage the projects. It is high time that these organizations should consider channeling their contributions through microfinance providers. They can do this in tandem with existing MFIs in their areas of origin.
Interested parties can contact Unlad Kabayan and ERCOF. These two Philippine-based migrant-related organizations are actively involved in harnessing the development potentials of migrants and their remittances for countryside development.
In the Philippines, 30 million Filipinos or about 40% of the total population suffer the heaviest share of the poverty brunt. Most of them live in the rural areas. According to the 2003 Human Development Index, the Philippines ranks 85 among the 175 countries with a HDI of 0.751. In 2001, there was a continuing widening income disparity and uneven development.
The Nobel Peace Prize awarded to Prof. Yunus and the Grameen Bank should serve as a shining example to all of us who desire to eliminate poverty in the coming years. It is a modest contribution to meet the UN Development target to reduce the number of poor people in the Philippines living in less than a dollar a day by 2015.
Interesting links: http://www.yearofmicrocredit.org/pages/whyayear/whyayear_aboutmicrofinance.asp
http://www.ercof.org
http://www.unladkabayan.org
http://www.kapatiranphils.net
February 11, 2007
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