The number of the world’s poor who benefited from microcredit has declined for the first time, largely due to alleged abuses in India, uncertainty in Bangladesh and a lack of innovations.
After more than a decade of sharp growth, the number of microloan recipients slipped to 195 million in 2011 from 205 million a year earlier, the Microcredit Summit Campaign, which promotes microfinance, said in a report.
“We can attribute all of the reduction in clients to events in Asia: over lending in a few markets in India led to a government crackdown, and, in Bangladesh, a maturing market coupled with political uncertainty led many lenders to scale back,” said Larry Reed, director of the campaign.
“This is a wake-up call to the industry about the need to focus more on the growth of our clients’ businesses than on the growth of the institutions that provide them financial services.”
It was the first drop since 1998 when the campaign began tracking the data.
Most other parts of the world, however, saw moderate or slow growth, with the exception of 1.4 million new clients in Sub-Saharan Africa.
Despite this reverse in 2011, microfinance institutions still provided microloans to more than 124 million households living in extreme poverty, according to the report, Vulnerability: State of the Microcredit Summit Campaign Report 2013.
The families living in extreme poverty, defined as less than $1.25 a day, however declined from 137 million to 124 million, according to the report released yesterday.
Addressing the crisis in India, Vijayalakshmi Das, managing director of Ananya Finance in India, said as the industry grew, clients’ needs became the least important priority.
“Somehow we distanced ourselves from our clients…[and when the crisis happened], they were very silent…Today we need to recognise that we are as vulnerable as our clients. The crisis has told us that it is time for us to invest more time in understanding our clients and their needs and then respond accordingly.”
The southern Indian state of Andhra Pradesh launched a crackdown in 2010 after reports of suicides by microloan recipients. Authorities accused microlenders of exploiting vulnerable people through exorbitant lending rates and abusive debt collection practices.
The crisis triggered a chain reaction of funding drying up for Indian microlenders. India’s parliament is drafting a law to provide clearer oversight on microlenders and strengthen protections for clients, said the report.
The campaign report argues that getting the industry back on track will require a new understanding of clients’ needs, preferences and aspirations, as well as designing new tools for delivering products and services to them at lower costs.
Rodger Voorhies, director of Financial Services for the Poor at the Bill & Melinda Gates Foundation, highlights how digital technologies help make financial services more widely available and affordable.
“There are real costs to providing financial services, and often those costs can be so expensive that the economics don’t work, particularly when it comes to providing things like credit and savings to people living in poverty,” said Voorhies.
“By taking advantage of mobile technology and the digital revolution, we can reduce the costs, and expand these offerings, ultimately enabling people to weather financial crises and climb out of poverty.”
“The report highlights an ongoing challenge: How does the sector more effectively connect with those around the world who are financially excluded?” said Pamela Flaherty, president of the Citi Foundation.
In Bangladesh, microfinance has seen uncertainty in part because of the removal of Prof Muhammad Yunus from the Grameen Bank and the government’s much-criticised move to take over the microfinance organisation.
“This landmark report shows us that clients need education for their children, healthcare for their family, decent housing, and regular, nutritious meals,” Yunus said.
“This should be the focus of our work at this upcoming Summit and in the years ahead,” said the founder of Grameen Bank.
The campaign is a project of RESULTS Educational Fund, a US-based advocacy organisation.
It plans to reach 175 million of the world’s poorest with microfinance and help 100 million poorest families lift themselves out of severe poverty.
-With The Daily Star input
