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World Bank Access for All: A Bold Vision for Microfinance Yesterday the Consultative Group to Assist the Poor (CGAP), in association with the Bank Group, launched a book outlining a new, bolder vision of microfinance. Access for All: Building Inclusive Financial Systems lays out in plain language what CGAP and others in the development field have learned over the past 10 years about the true potential of microfinance and of integrating the world's poor into the financial mainstream.
As recently as a decade ago, microcredit seemed little more than a "charming idea" to many development experts. Over the past 10 years, however, CGAP has been at the vanguard of what some say is a microfinance revolution, one that sees poor people not simply as struggling entrepreneurs worthy of tiny loans, but as full and valued participants in the financial system. Indeed, the financial services most of us take for granted - credit, savings, insurance, money transfers - are the same ones that can help the poor launch a small business, save for a child's education, or hedge against the calamities of illness or natural disaster. That the poor can have access to this wide range of services remains a pie-in-the-sky idea to some, but skeptics are hard to come by these days. "It's already happening," says CGAP Executive Director Elizabeth Littlefield. She points to countries in Latin America, the Middle East, and Asia, where many commercial banks are "downscaling" to include poorer customers among their clients. It's happening, says Littlefield, because it makes smart business sense: After all, the poor represent the vast majority of the population in many of these countries. Serious business It should come as no surprise that Wall Streeters, too, are becoming excited about microfinance. Specialized funds are drawing more and more "socially responsible" investments in microfinance institutions worldwide, and mainstream rating agencies are taking notice.
Little wonder then that CGAP and others have now upped the ante even more. "Access for All is neither a technical handbook nor a chronicle of the history of microfinance," said author Brigit Helms. Instead, the book "describes where the microfinance field finds itself in 2006 as well as the opportunities and challenges ahead." Beginning with key questions about clients of microfinance - who are they? what financial services do they want? what is the impact of financial services on their lives? - the book examines all levels of the financial system. It shows what works, what does not work, and where more learning is needed. By focusing on promising models and practices, it offers a vision of how to achieve financial systems that will ultimately offer access for all. Speaking at the official launch of the book on January 24, Helms told an InfoShop audience that "what we call microfinance today bears almost no resemblance" to microfinance ten years ago, when CGAP was formed. Today, few experts question whether poor people need a wide range of financial services. Instead, the question is how to extend these services to the some three billion poor people who could use them. To do that, says Helms, "we need to provide access on a much more ambitious scale." Inclusive systems Instead of boosting external funding for microfinance, the answer, says Helms, lies in building more inclusive financial systems, especially at the country level. The book outlines practical steps that governments can take to encourage commercial banks and other financial institutions to serve the poor. The challenge, says CGAP microfinance specialist Alexia Latortue, is to strike the right balance between government incentives and a truly competitive domestic market for financial services. Latortue cautioned against government credit lines, for example, which often come with artificially low interest rates that distort the microfinance market. Donors and other international funding agencies should also avoid direct funding of microfinance programs, says Latortue. Among other things, such funding can make microfinance institutions dependent on hard currency, creating a foreign exchange rate risk that is seldom hedged against. Technology's promise
A better role for donors and other funding agencies may be to help adapt technologies that can make microfinance transactions less expensive and thus more accessible. Gautam Ivatury, who heads a technology initiative at CGAP, points out that these technologies are already widespread among poor populations (mobile phones, for example, are a commonplace in many rural villages). Rather than investing heavily in research and development, donors "need to help find ways to channel this incredible force in the service of inclusive financial systems," says Ivatury. CGAP is doing its part. In India, Brazil, the Philippines, and elsewhere, Ivatury is working with the World Bank and leading technology providers to examine the profitability of inexpensive point-of-sale devices, thousands of which are already being used in rural retail outlets throughout these countries. For more information on CGAP and its work, visit www.cgap.org, where you can also find information on ordering Access for All: Building Inclusive Financial Systems. The book is available at the Infoshop.
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