Microfinance

The term microfinance is used to describe a range of financial services provided to the poor, including microcredit, microsavings or microinsurance. As the name suggests, most transactions involve small sums of money, often less than £100. Whilst RESULTS supports all kinds of microfinance, our particular focus remains on microcredit.

Microcredit

Microfinance has often been dubbed ‘banking for the poor’ and is widely regarded as one of the most effective tools available for lifting people out of poverty - not through hand-outs, but through small repayable loans. These loans, often less than £100, allow the poorest in society the chance to lift themselves out of poverty by pursuing small, self-supporting business adventures that take advantage of their own traditional skills and entrepreneurial spirit.

The profile of microcredit has risen dramatically in recent years, in large part due to the awarding of the 2006 Nobel Peace Prize to Muhammad Yunus. Professor Muhammad Yunus, founder of ground-breaking Grameen Bank in Bangladesh was awarded the 2006 Nobel Peace Prize for his outstanding contribution to social and economic advancement through the provision of microfinance.

RESULTS is proud to work in partnership with the Grameen Bank.

The publicity generated by the Nobel Peace Prize has given new momentum to the microfinance movement and RESULTS continues to work hard to sustain this momentum and to educate people about the merits of microfinance as a vital and often underutilised tool in the fight against poverty.

What does microcredit do?

Microfinance programmes extend small loans, and other financial services such as savings, to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families. The loans are provided with reasonable interest rates instead of the exorbitant costs often charged by traditional moneylenders.

In most cases, microcredit programmes offer a combination of services and resources to their clients including savings facilities, training, networking, and peer support. In this way, microfinance allows families to work to end their own poverty in a dignified and honourable way.

What makes microcredit a smart investment?

Microfinance programmes around the world have shown that poor people achieve strong repayment records, generally ranging from 95-99%, making microfinance a financially viable, sustainable and cost-effective method of poverty alleviation.

Repayment rates are high because, through a system of peer support and pressure used in many microfinance models, borrowers are responsible for each other’s success and ensure that every member of their group is able to pay back their loans. Once these loans are repaid (typically within 6 months to 1 year) the money is recycled as another loan, multiplying the value of each dollar spent.

What is the Microcredit Summit campaign?

The first Microcredit Summit was held in 1997 gathering more than 2,900 people from 137 countries in Washington, DC. They launched a nine-year campaign to reach 100 million of the world's poorest families, especially the women of those families, with credit for self-employment and other financial and business services by the year 2005.
That goal was very nearly reached and in November 2006 the Campaign was re-launched to 2015 with two new goals:

1. Working to ensure that 175 million of the world's poorest families, especially the women of those families, are receiving credit for self-employment and other financial and business services by the end of 2015
2. Working to ensure that 100 million families rise above the US$1 a day threshold adjusted for purchasing power parity (PPP), between 1990 and 2015.

The Campaign brings together microcredit practitioners, advocates, educational institutions, donor agencies, international financial institutions, non-governmental organisations and others involved with microcredit to promote best practices in the field, to stimulate the interchanging of knowledge, and to work towards reaching our goals.

Why target women?

Microcredit is not exclusively reserved for women, however many microfinance institutions specifically target women and they do this for several reasons. Firstly it is a sad and enduring fact that most of the 1.2 billion people living on less than a dollar a day in the World are women. Women are also considered to be a lower credit risk than men with studies showing that they are more likely to repay the full amount of their loans on time. Experience also shows that women tend to use the profits from their business to send their children to school, improve their families living conditions as well as for expanding their business, thus benefiting not only themselves but their families and even their whole communities.

How many people is microfinance reaching?

Microfinance initiatives have spread throughout the world and are now well-established in Asia, Africa and Latin America. It is thought that such initiatives have benefited more than 90 million clients, two-thirds of whom were considered part of the poorest echelons of society when they took their first loans.

What has RESULTS in the UK done?

RESULTS UK has worked to raise awareness about the important role microcredit can play in alleviating poverty. In 2002 we were instrumental in setting up the All-Party Parliamentary Group (APPG) on Microfinance and Microcredit at Westminster. Visit the APPG's website for more information.

To find out more about what RESULTS has achieved click here.

More information

• Microcredit Summit Campaign
• Grameen Bank
• Grameen Foundation
• Opportunity UK
• Freedom From Hunger
• World Vision's VisionFund

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