Helping Poor Women through Microfinance

This is a story of two women. In New York, a successful young woman in finance spends her days at a major investment bank structuring billion dollar loans to finance telecom deals. In Calcutta, a poor young woman who spends her days as a street sweeper takes out a $50 loan to buy enough supplies to open a grocery stand, and in doing so, builds a business that can feed her family of four.

What do these two women have in common? They are both involved in microfinance lending. The woman in Calcutta took out a loan from the SEWA Bank of India, which specializes in providing small loans to the poorest women. The woman in New York used her skills and knowledge of global financial markets and the economics of structuring debt to volunteer for a micro-credit lending organization in Ghana, where she spent her vacation advising local women’s cooperatives about the benefits of microfinance.

What is microfinance lending? The practice was pioneered in Bangladesh by Nobel Prize winner Muhammad Yunus, founder of the Grameen Bank and author of the recent book “Banker to the Poor: Micro-Lending and the Battle Against World Poverty.” The micro-finance lending model works by providing small loans without collateral to poor people, most of whom are women. In order to increase repayment of loans, institutions like the Grameen bank facilitate voluntary formation of small groups of five people to provide mutual, morally binding group guarantees in lieu of the collateral required by conventional banks. In this way, women who would not otherwise have access to credit can engage in income-generating activities, business ownership and entrepreneurship. This simple but powerful model has spread around the world, and has provided millions of dollars of capital to the poorest of the poor, in addition to providing auxiliary services including job and financial training, literacy classes, and empowerment workshops for women.

Mr. Yunus reasoned that if financial resources can be made available to poor people on terms and conditions that are appropriate and reasonable, “these millions of small people with their millions of small pursuits can add up to create the biggest development wonder.” As women in developed countries with advanced skills in finance, we are ideally positioned to lend our knowledge and skills to this “development wonder” and participate in a meaningful way in revolutionizing economic opportunities for women in the third world.

This past week, October 29-31, 2007, Citigroup and Women’s World Banking joined together to offer a training of trainers (TOT) workshop on Financial Risk Management for Microfinance Institutions in Washington, D.C. The workshop, hosted by the Small Enterprise Education and Promotion (SEEP) Network, aimed to provide the framework to build healthy financial risk management structures within MFIs. The conference produced some powerful insights and raised awareness about microfinance issues.

According to Louise Schneider-Moretto, Manager of the Financial Products & Services team at Women’s World Banking, “One of the principle challenges facing microfinance institutions (MFIs) in the years ahead is accessing additional funding sources to continue their high growth strategy. Certain licensed MFIs will be financed via mobilization of voluntary deposits; others will issue debt in their local capital markets; still others will look to international capital providers for private equity investments or other commercial sources of funding. Access to these more sophisticated funding sources will require MFIs to strengthen financial risk management and internal controls, while maintaining a constant focus on credit risk management and client outreach.”

Many other major investment banks and financial institutions have identified micro-credit lending as a charitable enterprise where the skills of their employees can do the most good, and have thus set up opportunities to get involved. If you work in finance, ask if your employer does any work with in this area. If so, great, if not, don’t let that stop you. Try to identify some volunteer opportunities on your own, or start a project that other people at your office can participate in.

As always, The Glass Hammer likes to do more than just talk. When we highlight issues of social and economic importance, we like to give our readers an opportunity to act to get involved and use all of their varied skills to benefit a great cause. To that end, if you are interested in learning more about microfinance, check out some of these top-notch organizations working in the area for more information and volunteer opportunities:

1. Women’s World Banking (WWB). Women’s World Banking, based in New York, is a leading non-profit organization that works with 53 microfinance institutions and banks in 30 countries worldwide to bring financial services and information to low-income women entrepreneurs. Drawing on diversity, resources and experience, WWB’s global team of advisors helps strengthen its network member organizations and ensures that the rapidly changing field of microfinance focuses on women as clients, innovators and leaders.
2. Small Enterprise Education and Promotion Network (SEEP). The Small Enterprise Education and Promotion (SEEP) Network, the leading international network and promoter of best practices in enterprise development and financial services, is a global organization whose membership is committed to reducing poverty through the power of enterprise. SEEP advances its membership globally and develops its operations and learning methods to support a fully international community of practice. SEEP also has the vision to support a learning process that pushes the agenda in both microfinance and enterprise development, and builds productive relationships with partners in the NGO, philanthropic, and socially responsible corporate community
3. The Grameen Foundation. The Foundation’s mission is to empower the world’s poorest people to lift themselves out of poverty with dignity through access to financial services and to information. With tiny loans, financial services and technology, they help the poor, mostly women, start self-sustaining businesses to escape poverty. Founded in 1997 by a group of friends who were inspired by the work of Grameen Bank in Bangladesh, our global network of microfinance partners reaches over 3.6 million families in 25 countries.