Under the initiative of the World Savings Banks Institute, several global representatives of banking organisations as well as international development finance institutions have published an open message aimed at highlighting the crucial role of generalised access to financial services in contributing to reach the Millenium Development Goals (MDGs).
The World Organisation of Credit Unions (WOCCU), the International Association of Social Finance Organisations (INAISE), Women’s World Banking (WWB), the European Microfinance Platform (e-MFP) and the International Cooperative and Mutual Insurance Federation (ICMIF) have co-signed this call while the process of reviewing progress made towards the MDGs is currently ongoing – with the MDGs Summit to be held in September and results looking rather unpromising.
In order to boost progress, the co-signatories of this open message stress the need for “more innovative and effective methods” to fight poverty. Among them, universal access to core financial services stands out as “a key accelerator for meeting development objectives”.
If the role of microcredit in reaching MDGs has already been acknowledged, they feel the need to reiterate the importance of access to other financial services, such as savings, payment and remittances (transfers of money by immigrants to their home countries).
“Accessible, secure and adaptable financial services are of the utmost importance for a smoothly functioning economy and for the well-being of a society. As such, access to financial services is vital in meeting the MDGs and for improving the quality of life of the world’s poor.”
Giving the example of the first MDG, aimed at eradicating extreme poverty and hunger, the financial institutions show that accessible and affordable microsavings and microinsurance systems can protect the poor against the uncertainties and unexpected risks occurring in their lives.
The experience of these organisations in service provision to poor categories of populations worldwide has demonstrated that access to financial services constitutes “a highly effective tool to lift people out of poverty, and provides these populations with genuine opportunities for personal development and education.”
The co-signatories conclude by stating that “global access to financial services is an integral factor for achieving the 2015 objectives”.
Access to financial services is not part of the MDGs, and its role in achieving the goals is not currently clearly emphasised, as the absence of any specific mention of microfinance in the MDGs annual reports illustrates it.
Nevertheless the potential role of microfinance in meeting the MDGs hasn’t been overlooked by UN institutions and might be destined to become more prominent. 2005 – reviewing year for the MDGs as well as UN-proclaimed International Year of Microcredit – marked the start of an official acknowledgement of the part that microfinance should play.
The most significant recognition of its importance was expressed in the 2005 UN World Summit Outcome Document , which stated: “We recognize the need for access to financial services, in particular for the poor, including through microfinance and microcredit”. Beyond the Outcome Document, several Heads of State from Africa, Asia, Latin America and Europe called specific attention to access to financial services in their statements to the Assembly of the Summit.
Microfinance has been considered by most stakeholders as an effective tool to reach the MDGs in many respects. Emphasis has been put on the virtuous cycle microfinance triggers through a cause and effect chain. The part played in reducing extreme poverty seems to present itself as the most obvious, and yet this relation has been regularly questioned, based on the view that microfinance could not benefit clients living under such a threshold, since they would not be able to repay their loans and would end up being overburdened. Nevertheless numerous research studies belie this theory, with some of them finding that the impact of microfinance is even higher for the poorest people. The implementation of schemes such as BRAC’s Targeting the Ultra-Poor programme shows that the extreme poor can benefit from microfinance through specifically-tailored programmes, which include training schemes and close follow-up processes. Access to financial services does not only increase poor clients’ income, microsavings and microinsurance schemes also enable them to face sustainably the instability of their income as well as unexpected risks, such as diseases or consequences of natural disasters. Studies have also highlighted the beneficial indirect effects microfinance produced not just among its direct clients, but also within the whole community.
Gender empowerment is a very prominently mentioned outcome of microfinance. Microfinance programmes have repeatedly been partly designed as tools aimed at such an empowerment and women have long been preferential targets. Essentially, microcredit confers on its female clients a source of power which tends to raise their decision-making role within the household, increase their self-confidence and indirectly benefit the next generation of women as well, since this empowering process often leads mothers to lessen the multiple discriminations faced by their daughters within their families.
The reason why women have been privileged as microfinance potential clients also lies in the fact that women often prove to be more financially responsible than men, as well as more likely to invest in their family well-being, especially in their children’s health care and education, thus – again – generating a virtuous cause-and-effect chain. Microfinance outcomes in such areas – even if more arduous to prove as clear outputs – have been pointed out, and linked to the direct causes of funds availability and income increase as well as the indirect causes of women’s role shift and accessibility of preventive care. The scale of such effects seems to be dramatically increased by the addition of capacity-building schemes to microfinance programmes, providing for instance health education to communities (see study).
In return, progress obtained in basic development goals areas such as health care, nutrition and education, will remain sustainable only if households have – at least – access to smoothed out income and some reliable form of savings.
As a result, the role of microfinance in relation to MDGs seems destined to gain in prominence. “Keeping the promise”- the draft of the 2010 MDGs review by the Secretary General Ban Ki-Moon – if it does not mention microfinance by its name, clearly incorporates financial inclusion and access to affordable financial services for poor households within the recommended means.
In the section calling for the creation of a “policy and fiscal space to accelerate and sustain progress”, The Secretary General claims that financial sector policies should promote financial inclusion and that “inclusive finance will involve a continuum of affordable financial services (savings, loans, payments, receipts and insurance) available to poor households to improve their standards of living, and for enterprises to grow.”
More broadly, the position reflected by this report seems to concur with the views expressed by the International Year of Microcredit Microfinance and the Millenium Development Goals 2005 report, which stated that development should not be seen simply as poverty alleviation, but that development and poverty alleviation should be understood as overarching results of wealth creation. In this context, microfinance deserves a central position, but also needs to be conceived as one part of the wider financial and economic system and to maintain links and bridges to the rest of the system.