Microfinance Goes Global

Thirty years after Muhammad Yunus lent 43 women from the village of Jobra, Bangladesh, the capital they needed to start small businesses that banks would not lend them—a mere $27, from his own pocket—he won the Nobel Peace Prize for pioneering microfinance. Yunus, a Chit-tagong University economics professor when he helped those women, recognized his small loan and the finance institution it led to as both a market opportunity to serve the unserved and an opportunity to alleviate poverty, promote social justice, and foster community. The Nobel Committee made an unprecedented move in linking finance to peace, validating anunder-lying rationale of sustainability investments.37 "The one message that we are trying to promote all the time, is that poverty in the world is an artificial creation," Professor Yunus told the Nobel Committee upon learning he had won the Prize. "It doesn't belong to human civilization, and we can change that, we can make people come out of poverty and have the real state of affairs____The only thing we have to do is to redesign our institutions and policies, and there will be no people who will be suffering from poverty. So I would hope that this award will make this message heard many times, and in a kind of forceful way, so that people start believing that we can create a poverty-free world."38

Microfinance broke ground on a number of levels—by empowering women in a patriarchal society, by creating community accountability through lending groups that "collateralized" loans, and by lending such tiny sums. To underwrite the increased technical support necessitated by microfinance

Investing for Sustainability while keeping loans as affordable as possible, Grameen Bank (the microfinance institution Yunus founded) split the difference between the lower interest rates of standard commercial loans and the exorbitant rates of local loan sharks.

The success of microfinance opened it up to greater scrutiny and criticism, such as a 2001 Wall Street Journal article questioning claims of 95-percent repayment rates. Abraham George of the George Foundation hosts a Web site critical of microfinance, maintaining that it does not reach the poorest of the poor since it primarily focuses on those already running businesses.39

To what degree does sustainable investing actually contribute to the achievement of true sustainability?

Nimal Fernando, lead rural finance specialist for the Asian Development Bank, divided attitudes toward microfinance reaching the poorest of the poor into three camps. The first camp simply rejects the notion that microfinance can reach this group on a sustainable basis. The second camp optimistically advocates that such individuals can be reached not only on a sustainable basis but also on a large scale. The third camp recognizes that the potential for reaching this group on a sustainable, large-scale basis is limited but also advocates for the continued search for innovative approaches to expand outreach to the poorest.40

Fonkoze, the largest microfinance institution in Haiti, has aspired toward the second solution since recognizing that standard microfinance does not suffice for many of its clients who fall into the poorest of the poor category. It convened a summit on the issue in 2004, including representatives of the Bangladesh Rural Advancement Committee

(BRAC). The summit resulted in Fonkoze adopting the BRAC model for providing microfinance to the extreme poor—the BRAC-Bangladesh program for the Ultra-Poor—by coupling close case supervision with five basic sets of services: enterprise development training, social development, health care, short-term living allowances, and the transfer of assets needed to start businesses.41

The success of microfinance has also attracted the richest of the rich. The month before Yunus won the Nobel Prize, Citi and TIAA-CREF (an academic pension giant) each committed $100 million to microfinance. Some people question whether this corrupts the microfinance field, while others heralded the infusion of big money. However, the flood of mainstream investment in microfinance has created a bottleneck straining the capacity of existing microfinance institutions to process the flows.42

It also raises the question of whether having industrial countries sink money into microfinance actually acts to siphon money from developing economies, as the interest ultimately ends up in the hands of the already-haves. Is this an acceptable price of making capital available to the poor? Or does it simply create a poverty trap in a world of finite resources and hence finite economics? Microfinance operates on the same principle as the existing capitalist economic structure of profit and debt. Can wealth disparity be solved using the very system that many would argue has created huge wealth disparity?

From a more practical perspective, microfinance seems a better alternative than the current options of entrenched poverty—at least it is a step in the right direction, and the hope is that it can help transform the economy into a more humane system.

Supporting microfinance has even opened up to everyday people. The Web site Kiva.org uses the Internet to connect individual lenders

Investing for Sustainability who invest modest sums directly with borrowers, who can receive loans from a number of different lenders. While the loan may be cybernetic, its disbursement still requires infrastructure in the form of local microfinance institutions around the world.43

Finally, the social and environmental tenets of sustainability are starting to converge on microfinance, as evidenced by the success of Green Microfinance, whose mission is to promote environmentally sustainable microenterprise and microfinance. In March 2007, for example, Green Microfinance partnered with Fonkoze to study the feasibility of launching a solar energy initiative with Fonkoze clients. The greening of microfinance "represents a competitive advantage at the heart of social enterprise," according to David Satterth-waite, CEO of Prisma MicroFinance and editor of MicroCapital.org, a leading Web site on the subject.44

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