FWA Microfinance Initiative
New! 2007 A Chance to Contribute to Provide Financial Opportunities for Women Worldwide The FWA is enthusiastic about its ongoing microfinance initiative as a viable way in which women without access to financial services can be helped to improve their abilities to support themselves and their families. This is yet another form of our tradition of women helping women. Read more... FWA's World Vision Visit
About Microfinance To most, microfinance means providing very poor families with very small loans to help them engage in productive activities or grow their very small businesses. Like us, many poor people need and use financial services all the time. They save and borrow, invest in home repairs and improvements and meet occasional and domestic expenses such as food and school fees. However, there are some 500 million low income entrepreneurs in the world and about 5% have access to financial services. Indeed, the financial services available to the poor often have serious limitations in terms of cost, risk and convenience. As a result, over time, microfinance has come to include a broader range of services (credit, savings, insurance, etc.) as the industry has come to realize that the poor and the very poor who lack access to traditional formal financial institutions require a variety of financial products. Microcredit came to prominence in the 1980s, although subsidized credit programs to targeted communities date back to the 1950s and early experiments in Bangladesh, Brazil and a few other countries began in the 1970s. The important difference of microcredit was that it avoided the pitfalls of an earlier generation of targeted development lending, by insisting on repayment, by charging interest rates that could cover the costs of credit delivery and by focusing on client groups whose alternative source of credit was the informal sector. Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors towards the building up of local, sustainable institutions to serve the poor. Microcredit has largely been a private (non-profit) sector initiative that avoided becoming overtly political, and as a consequence, has outperformed virtually all other forms of development lending. Indeed, since the 1980s, microfinance programs have improved upon original methodologies and extended beyond conventional thinking. First, microfinance demonstrated that poor people, and especially women, had excellent repayment rates (and often, rates that performed better than those in formal financial sectors). And second, that the poor were willing and able to pay interest rates that would allow the microfinance institutions (MFIs) to cover costs. Traditionally microfinance was focused on providing a very standardized credit product. The poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Indeed, in many developing countries, self-employment through microenterprise is often the only way to provide for families and the local environment. Thus, we see a broadening of the concept of microfinance---our current challenge is to find efficient and reliable ways of providing a richer menu of microfinance products. Who are the clients of microfinance? The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Their "microenterprises" represent an estimated 80% of the total enterprises in the world, 50% of urban enterprises and 20% of the GNP of their countries. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income. Access to conventional formal financial institutions, for many reasons, is inversely related to income: the poorer you are, the less likely that you have access. The poor often obtain financial services from informal financial relationships - credit can be available from commercial and non-commercial lenders, but often at very high interest rates; saving services can be available through savings clubs, credit associations and the like. As a result, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of microfinance. Microfinance generally targets poor women because they have proven to be reliable credit risks and when they have the financial means, they invest that money back into their families, resulting in better health and education, and stronger local economies. By providing access to financial services - loans and responsibility for repayment, maintaining savings accounts, providing insurance - microfinance programs send a strong message to households and communities. Studies have shown that women become more assertive and confident, have increased mobility, are more visible in their communities and play stronger roles in decision making. As the definition of the types of services microfinance encompasses broadens, the potential market of microfinance clients also expands. For instance, microcredit might have a far more limited market scope than say a more diversified range of financial services which includes various types of savings products, payment and remittance services, and various insurance products. For example, many very poor farmers may not really wish to borrow, but rather, would like a safer place to save the proceeds from their harvest as these are consumed over several months by the requirements of daily living. How does microfinance help the poor? Microfinance brings the power of credit to the grassroots by way of loans to the poor, without requirement of collateral or previous credit record. Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change. Poverty is multi-dimensional, and by providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. Access to credit allows poor people to take advantage of economic opportunities - for their homes, their domestic environments and their communities. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment. Recent research has revealed the extent to which individuals around the poverty line are vulnerable to shocks such as illness of a wage earner, weather, theft, or other such events. These shocks produce a huge claim on the limited financial resources of the family unit, and, absent effective financial services, can drive a family so much deeper into poverty that it can take years to recover. What is an MFI (MicroFinance Institution)? Quite simply, a microfinance institution is an organization that offers financial services to the very poor. Most MFIs are non-governmental organizations committed to assisting some sector of the low income population. It is important to note that MFIs are not the only entities serving the financial needs of microentrepreneurs. Commercial banks, cooperatives and savings institutions all have important roles to play in serving this market.
FWA's Microfinance Events / Activities
Highlights and past events In March 2007, the FWA approved scholarship grants to two leading microfinance institutions to enable their women leaders from outside the United States to participate in their U.S.-based training programs, which were developed with two key business schools. Microfinance: Beyond 100 Million -Scaling Organizations Through Innovation - Nov 2006 In November 2006, as part of its Lenore Albom Memorial Lecture series, the Committee sponsored “Microfinance: Beyond 100 Million – Scaling Organizations Through Innovation.” Several microfinance industry leaders participated in a panel discussion of how innovation is being used to fuel growth and provide scale in microfinance. Microfinance: You're Heard the Buzz, Now Get the Background - Oct 2005 FWA International Conference (Mar 2005) First hand Exploration of Microfinance in the Dominican Republic. 2005 Microfinance Symposium at the United Nations (Jan 2005) View the event description, speaker bios and highlights from the Microfinance Symposium at the United Nations hosted by the FWA. Resources / Additional Information To learn more about microfinance visit the following websites:
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January 10, 2008