Imagine a world where there is no access to financial services. You cannot save, which means you cannot set aside money for the future. You cannot access a loan, which means you are shut off from a limitless number of opportunities, including investing in an enterprise, purchasing a home or land, or maintaining household expenses when cash is tight. You don’t have insurance or any kind of buffer against shocks, such as medical emergencies in the family, a sudden loss of a job, or natural disasters. Would you be able to manage?
For an estimated 2 billion adults, who according to the World Bankdo not have an account at a financial institution, this world is a daily reality. To target the issue, the Financial Inclusion 2020 campaign is driving a global movement to galvanise awareness and action to address the remaining gaps in financial inclusion. From 2-6 November, Financial Inclusion 2020 alongside 25 partner organisations observed FI2020 week. The five day event initiated global conversations on financial inclusion focusing on how to increase the reach of financial services, and how to improve the quality and usefulness of products for end users.
At BRAC we took the opportunity to have both a nationwide discussion, and an introspective inquiry into how microfinance helps to contribute to our mission of alleviating poverty.
Recognising the complementary roles that local government and NGOs play in serving the poor, BRAC invited deputy commissioners to visit BRAC’s microfinance activities in all 64 districts of Bangladesh, to understand how financial services are helping the poor, and especially women.
Reflecting on the benefits of microfinance, Deputy Commissioner of Chittagong, Mesbah Uddin commented, “Customised financial services reach out to those who remain unbanked. Besides providing economic opportunities, BRAC’s microfinance addresses gender inequality, legal and human rights and financial education.”
According to a client speaking from Khagrachari speaking on behalf of her group, “If we couldn’t borrow from BRAC microfinance we would have to borrow from local money lenders at much higher interest rate and at the end of the day we would be undone. With the help of BRAC microfinance we are gradually improving our socioeconomic condition.”
Yet some are skeptical of the praise that microfinance receives – as they should be. As an NGO working with vulnerable groups, we have a responsibility to scrutinise how we are helping, and if we risk doing harm. At BRAC some staff are skeptical that lending to the poor can meet our priorities of empowering women, promoting financial independence, and reaching the most vulnerable and excluded.
On 2 November, as part of FI2020 week, BRAC’s social innovation lab hosted a debate, asking, ‘Does microfinance really help the poor?’ The event which saw widespread participation from staff across programmes offered a unique opportunity to put BRAC’s largest programme on the spot, and debate how it contribute to BRAC’s overall mission of alleviating poverty. Specifically teams were asked to either defend or oppose the position: ‘BRAC risks doing more harm than good in using microfinance in its model of fighting poverty’.
The energetic discussion raised the following questions. (Click on the links to learn more)
- Why do microfinance institutions charge such high interest rates?
- How does microfinance protect and empower its women clients?
- What is the programme doing to target the vulnerable?
- Has microfinance failed in reaching the extreme poor?
- Impact studies cite lack of evidence that microcredit helps the poor. What does this mean for the sector?
- Is our traditional microcredit model outdated?
- How is the microfinance programme innovating?
– Partnerships with health
– Mobile money
- How does microfinance promote a holistic approach?
The debate was followed by a constructive discussion on how BRAC could continue improving its microfinance programme. One participant suggested doing a survey of participant households, while another suggested greater outreach in indigenous communities. Others simply emphasised that as microfinance expands, BRAC not lose sight of the vital contributions of its other programmes.
Executive director of BRAC, Dr Muhammad Musa, who moderated the debate observed, “As an organisation, when we work towards eradicating extreme poverty and helping individuals realise their potential, we need precise tools like microfinance to offer a more complete package of services to our clients. In a changing world we need to adjust, re-adjust, sharpen and strengthen microfinance so that it impacts a wider group of people.”
BRAC cannot convince everyone that microfinance is good for the poor, and a healthy amount of skepticism will push BRAC to continue to ensure excellence. But microfinance has proved to be a vital element of BRAC’s holistic approach, complementing our work in health, education, and rights, by enabling poor households to save, borrow, spend, and invest with confidence, convenience and dignity.
You can read more about BRAC’s participation in FI2020 week here.
Isabel Whisson is communications and knowledge management officer at BRAC’s microfinance programme. Sameeha Suraiya is a deputy manager at BRAC Communications.