Looking Ahead: Major Issues

Microcredit has proven itself as a cost-effective tool to fight against poverty. Microfinance institutions (MFIs), majorities of which are NGOs have proved that it is possible to develop sustainable institutional arrangements to serve a large number of poor clients despite difficult market conditions.

There is now the recognition that such widening and deepening of microcredit services have both social and commercial implications. The struggle for increased portfolio and outreach while maintaining a poverty focus is a challenging one. More specifically, the challenge can be broken down into three:

• How to reach more poor people through microcredit particularly, the hard core oor
• How to deliver microcredit services in a sustainable way while serving the poor
• How to balance the social objectives with the financial objectives of microcredit

A range of support groups spawned, from specialized donor and investment organizations to evaluating, assessment, rating and co-ordination agencies and academic research institutions—non-practitioners that are increasingly influencing the agenda and practice of microcredit worldwide, which may not always be very helpful for the sector.

Too much emphasis on financial ratios that our balance sheet must be positive, that we must be efficient to be successful have, sometimes blurred our main goal of poverty alleviation.

The participants, of the seminar, identified the following major issues:

1. The poor are a diverse group with diverse livelihood, needs and potential that change over time due to life cycle events, new opportunities and external shocks. The diverse and dynamic reality of poor people’s need to be understood in designing development services for them. So there is need to encourage and appreciate more experimentation on new ideas and innovations to develop appropriate financial products for the poor and the hardcore poor to meet their needs.

2. Microcredit should be brought to the mainstream of the economy by establishing backward and forward linkages. It is essential to ensure the access of all the poor including the hard-core to microcredit as well as create better investment opportunity for the graduated microcredit clients and enterprising poor. Therefore, macro policies (fiscal, monetary etc.) should be reoriented to achieve these goals.

3. Microcredit helps poor people to raise their income to come out of the poverty trap and transform them into social assets. Therefore, microcredit can be used to achieve social development through creating social capital.

4. “Microcredit the tool” is powerful for poverty alleviation and the “institutional framework” of microcredit that is created in delivering microcredit is also important for poverty alleviation. The extensive outreach, linkage, knowledge and network that microcredit institutions and the people running it at all levels possess and generate in their every day working engagements, is an extremely powerful asset in the fight to overcome poverty. Therefore, building institutions with human capital is the important factor contributing to the eradication of poverty.

5. No doubt, microcredit has established its appropriateness in delivering prompt financial services to the poor and has been playing a very important role in poverty reduction process, but along with its service delivery it is also important to measure impact of microcredit through empirical evidence by the practitioners in order to improve the service delivery of MFIs.

6. Microcredit will play very important role in developing human resources in the rural areas by promoting Information and Communication Technology (ICT). Training of the microcredit program personnel and microcredit borrowers will contribute significantly in human resource development.

7. It is established that microcredit is a specialized financial services, which demands grassroots organizations, people centered methodology and social commitment. NGOs and microcredit organizations have already demonstrated their efficiency, effectiveness and appropriateness in delivering microcredit to the poor. Government should create an enabling legal and administrative environment for these institutions.

8. Consideration should be given to create microfinance banks, with a mandate to mobilize savings from non-members of MFIs and provide services to the poor clients at their doorsteps. Some MFIs can convert themselves to microfinance banks under appropriate legal instruments.

9. The importance of supervision and regulation of microfinance institutions (MFIs) can not be overlooked. But, it has to be facilitating, friendly and enabling which allow them to be innovative, flexible and effective in delivering prompt and need-based services to the poor. The government can set up an independent Monitoring and Supervision body for this purpose.

10. Besides Grameen model, Bangladesh is pioneer in introducing the model of Apex Financing Institution for promoting microcredit. The important role of the apex organizations like PKSF in Bangladesh for their essential services for poverty alleviation by providing funding, monitoring, coordinating and capacity building support to the MFIs is now well recognized. For maintaining standards, quality and outreach, apex organizations need to be promoted and funding for microcredit and other services by government and donor agencies should be channeled through the apex organizations.

11. MFIs can implement their social mandates at the same time be efficient and cost effective without being commercial. Competition among the microfinance institutions with their products and services will lead to efficiency and innovations. Microcredit services will become efficient, recovering costs at reasonable prices. To ensure this, it is not necessary to cap or fix the service charges of MFIs for the loans to their borrowers. Various factors including market forces will determine the rate of service charges collected by MFIs from the borrowers, which should not be exploitative.

12. Strong emphasis should be put to build capacity of microfinance institutions and NGOs through financial and social rating for continuous improvement of management and governance.

13. Microfinance will operate at ever new frontiers facilitated by research and development leading to new products and services in:
-Social security such as pension plan, life and health insurance
-Financial Products (Loan for disaster, consumption, housing, education, micro-enterprise etc and various poor- friendly savings products).
-Managing risk associated with natural calamities and personal/social disasters

14. The Millennium Development Goals (MDGs) has been set by the Millennium Summit in September 2000, to ensure better life and better future by the year 2015. Microcredit can contribute to the efforts of reducing poverty by half by the year 2015.