by Mehvish Jamal
Although microfinance has been around for centuries, it was not until its popularization by Muhammad Yunus and the Grameen Bank in the 1980s that it came to be viewed as the "solution to poverty." For years it was unthinkable to openly criticize microfinance, but recently critics have started to emerge, and boy, do they have a lot to say. What once was hailed as the beginning of the end of world poverty is no longer a crystal-clear path. Many microfinance institutions (MFIs) have shifted away from the pure vision of alleviating poverty, instead making their goal profit-generation for foreign investors. Characterized by high interest rates, these MFIs have called into question the power of microfinance. Nonetheless, while the path taken by some MFIs is discouraging, the sector as a whole is far from hopeless.
Unlike many MFIs, Banco da Mulher (Women's Bank), which operated as a rotating savings fund (ROSCA) in the area around Santarém between 2007 and 2009, used members' own capitol to make loans. Its members, 52 women members from several women's groups from the region, contributed a certain amount of their savings to the fund each week. This money was then used to distribute loans to women looking to start businesses. Loan seekers had to submit business plans to the group, and once approved, they then repaid their loans with the profits from their business in scheduled increments. Additionally, the women engaged in frequent meetings with the other members to exchange advice and support.
Although difficulties with its internal structure and a restructuring of its primary parent organization, Association of Women Workers of the Lower Amazon (AOMT-BAM), have rendered Banco da Mulher inactive, it is a promising model for member-based associations throughout the region. In order to facilitate learning for local organizations, CEN is in the process of researching and writing up a report that will document and evaluate what worked and did not work for the fund, as well as recommend areas for improvement. Once the report is finished later this year, CEN plans to organize a workshop in the region to disseminate the conclusions.
Banco da Mulher had far more success in its few years of operation than many MFIs throughout the sector. The contrasting structure of many MFIs around the world is characterized by their end goal of profit maximization, not lifting the poor out of poverty. As explained by former microfinance consultant Hugh Sinclair in his book Confessions of a Microfinance Heretic, these MFIs receive money to fund their loans from charitable donations and foreign investors. As these funds come from remote sources rather than local deposits, these MFIs are not owned by their members. Without a sense of accountability to the community and the members of the fund, interest rates at these MFIs are typically sky-high. Yet, the hefty profits that result from these rates do not remain within the community; instead they find their way into the pockets of "distant managers and foreign investors" (Sinclair xiii).
In contrast to these MFIs, the Banco da Mulher was accountable to and managed by local community members, and as such, it maintained interest rates of only 0.5% per month. This is significantly lower than the 80% or higher rates charged by many MFIs worldwide. Loans from the Banco da Mulher produced many successful businesses. From motorcycle rentals to crop sales, women of the Banco da Mulher were able to produce outstanding results once given the financial means to turn their entrepreneurial visions into reality.
Although the self-interested nature of many MFIs can lead to a disillusionment with microfinance as a whole, the temporary yet groundbreaking success of Banco da Mulher in the Lower Amazon demonstrates the sector's vast potential. It is clear that microfinance itself is not the problem; what has created huge debt burdens for many poor individuals are the exorbitant interest rates charged by the many MFIs that prioritize profits above the needs of poverty-stricken individuals and communities. According to Sinclair, MFIs should be structured as "cooperative banks owned by their local borrowers and funded in their national currency" in order to generate the most success for underprivileged communities (Sinclair xiii). While the involvement of foreign investors and a quest for profit-generation has tainted the mission of many MFIs, real community-based microfinance still has the potential to meet its goal of lifting communities out of poverty.
Mehvish Jamal is an American University student studying International Studies and Economics. She hopes to pursue a career in international economic development.