Press conference on year of microcredit

 

The International Year of Microcredit 2005 was an effort to bring sustained public attention to one of development’s great success stories, namely the extraordinary spread of microfinance, Mark Malloch Brown, the United Nations Development Programme (UNDP) Administrator, told correspondents at a Headquarters press briefing this afternoon.

Describing the goals of the International Year, which will be officially launched tomorrow, he said the dramatic spread of microfinance had largely taken place “under the radar screen”, as evidenced by the uncertainty surrounding even the number of people who had actually benefited from microcredit.  While it was unclear if 70 or 700 million people had received microcredit, it was clear that there had been a dramatic expansion of credit to the poor, most notably in South Asia and Latin America.  The poor were being provided an array of financial services that were often taken for granted in advanced countries. 

Creating a revolution at the bottom of society across vast swathes of the developing world, microcredit was empowering people with the opportunity to make economic choices and spending decisions, he said.  Microfinance had bred a dramatic network of effective non-governmental organizations, many of whom would be participating in International Year events.  It had also started to bring in the private sector, including through the application of new technologies to reduce the cost of microfinance.  Beginning to understand the size of the market and the power of the idea, mainstream business was becoming increasingly interested in microfinance. 

One of the sponsors of the Year was Citigroup, which was now mainstreaming microfinance into banking activities around the world, he said.  The fact that other major financial powers, such as Visa and ING, were also joining as supporters of the Year was an indication that microfinance was going beyond the realm of charity or non-profit into the realm of real business.  That was exciting news.

With the launch of the International Year tomorrow, a very high profile group of supporters had been assembled, including princes, music stars and business leaders, he said.  He hoped the Year would garner the support of both civil society and the private sector, giving a lift to a very exciting area of development.

The expansion of microcredit had been revolutionary in that it had brought financial services to very poor, Under-Secretary-General for Economic and Social Affairs José Antonio Ocampo said.  While there were significant controversies surrounding the number of people being served by microfinance institutions, the fact that some 2.8 billion people living on less than two dollars a day meant a large group could benefit from microfinance.

There was also a direct connection between the opportunity to expand the benefits of microcredit and reaching the Millennium Development Goals, he said.  The expansion of microfinance services would provide a great opportunity to reduce poverty in the next decade.

Incorporating the international, regional and national levels, the International Year was the perhaps the most ambitious United Nations year, he said.  Planned as an effort to bring awareness and build partnerships between a range of actors, including non-governmental organizations, business and development banks, more than 40 national committees already existed, and he hoped that number would be expanded. 

One of the specific products of the International Year, he added, was the Blue Book, which contained a summary of the best practices in the field of microfinance over the past two decades.

Responding to a question on the number of people benefiting from microcredit, Mr. Malloch Brown said it was not surprising that the data was so weak, as the nature of microfinance was highly informal.  Often lenders did not even keep formal books.  Microfinance took place at the level of the very poor, where data was generally weak.  The fact that the Blue Book had been made a priority of the Year to get better data was absolutely key.

Asked to explain the involvement of major financial institutions in the Year, he said the sponsors had paid quite a significant amount of money to support promotional activities.  What interested him more, however, was the reason why they were supporting the International Year.  They were not doing it to see their names on paper, but because they saw microfinance as potential business.  There were many microfinance funds now where people had raised money in the markets to lend on to microfinance providers.  They did not lend straight from the New York market to the individual microfinance borrower but through institutions at the country level.

Much more money had been raised then had been lent, he added.  There was huge interest in microfinance, and as some of the problems that had limited investment were solved, he believed there would be a huge increase in investment.  Reflecting the interest of the business community in the microfinance sector, the opening bell at eight stock markets, including the New York Stock Exchange, would be rung by entrepreneurs.

What was the process for microcredit in countries that adhered to a Shari law? a correspondent asked.

Responding, Mr. Malloch Brown said there was nothing in Islamic banking practice which impeded microfinance.  He had seen successful microfinance institutions in the Middle East.  The wife of the President of Syria was a huge proponent of microfinance, having herself begun her career working for a London bank.  While microfinance had gotten off to less than a flying start in the Middle East and Africa, one of the purposes of the Year was to play catch up.

In response to another question, he said average loans ranged from $75 to $100 for individuals and up to $1,000 for a group of workers.  Central to the idea of microfinance was that loans were paid back with interest.  The philosophy behind microfinance was that poor people appreciated the opportunity to borrow as did anyone else, and that they were as responsible in paying back loans.  Looking at delinquency rates, the poor appeared to be much more responsible with credit than those in the developed world.  Repayment rates were usually greater than 90 per cent, he said.

One of the problems with microfinance was that while interest rates were lower than the rates of local lenders, they were still very high, he said.  One of the attractions of bringing more microfinance providers into the market was to create competition so that the rates would come down.

Responding to a question on the gender breakdown of loans, Mr. Ocampo said the majority of those receiving microfinance continued to be women.  The delinquency rate, he added, was generally less than one per cent.

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