One person at a time.
- By Shweta S. BanerjeeShweta S. Banerjee is a consultant with the Global Assets Project at the New America Foundation.
A recent op-ed in the Boston Globe argues that microlending "doesn’t actually do much to fight poverty" and that it may be time to "think macro rather than micro." Maybe the hype surrounding microcredit as a panacea for everything from poverty to discrimination is undeserved. But debunking the whole bottom-up, micro approach on the basis of two unpublished papers is not just premature, but dangerous. Macro, trickle-down development policies have rather effectively kept billions of people poor for decades. In comparison, the microfinance field is young, evolving, and ripe with innovation. Lending to the poor is just one facet of microfinance. And helping the poor save, before or along with providing credit, might be the missing piece to help solve the poverty puzzle.
Some argue that it is naive or even cruel to suggest that the poor should save. How can people living in destitution be asked to set money aside? It turns out that even very poor people can and do save if provided with the right opportunities. After two decades of providing microloans to the poor, Bangladesh’s Nobel-winning Grameen Bank, for instance, started offering savings products to its clients in 1998. Just seven years later, Grameen’s clients started saving more than they borrowed — around $460 million.
Although most banks aren’t interested in handling small nest eggs, poor people desperately need a safe way to save. Small-scale farmers, for example, often need to stretch out three months of income over an entire year. "During the time between harvests, my family still has needs, and we utilize everything we have in order to survive until the next harvest," explains Benito Ojeda Juárez. He and his family participate in a program set up one year ago by the World Council of Credit Unions, MatchSavings.org. It gives people in rural Mexico the opportunity to save for things like home improvements, business investment, health care, and education.
Such programs, which are becoming more common around the world, also provide a wonderful vehicle for charitably minded people who want to help the poor help themselves. MatchSavings.org provides a forum for potential donors to read participants’ stories and choose a goal to support. This makes it possible for new savers, after making six monthly deposits to their account, to receive a matching donation. Juárez hopes that building his savings will prevent him from going deeper into debt. Maria Alejo, another participant of the program, used her matched amount on a long overdue visit to the dentist.
These people never had access to such financial services before. There is a credit union in their village, but neither Juárez nor Alejo could afford its membership fee. Now, with the MatchSavings program, they can build enough capital to join the credit union, allowing them to keep their savings accounts and gain access to microloans.
Such programs are also popping up — and thriving — in Africa and Asia. In Uganda, Stanbic (a large African banking company) partnered with the start-up Assets Africa to create a mobile bank for young women in rural areas. Each week, a van travels from village to village, taking deposits. Local committees help by selecting participants and coordinating with Assets Africa to make sure the program runs smoothly. Similarly, Oxfam’s Saving for Change helps members save small amounts and pool them into a common fund, which disburses loans for various needs and investments. Initiated only four years ago, the program now reaches 250,000 in villages across Africa and Asia. Building a reserve of savings empowers the groups to make investments and have access to formal credit. Thus, creative microfinance programs clearly have the capacity to fill in gaps the financial world has not, despite what the Globe op-ed says.
Another issue raised in the op-ed is that of aggregation. "Forty workers at a textile plant are going to be much more productive than 40 microentrepreneur weavers each working by themselves," the Globe op-ed says. It argues against microlending because it says that dealing with thousands of microsavers and microentrepreneurs is time-consuming and costly.
But many microlending institutions can aggregate workers and savers, beneficially and efficiently. Take, for instance, the large-scale, grass-roots savings project in Andhra Pradesh, India, the "Indira Kranthi Patham." The project aids poor female farmers who have no access to the formal banking infrastructure and are geographically dispersed. When distressed and in need of cash, these farmers sometimes have to sell their produce to middlemen or, worst of all, make emergency sales at a loss. The project helps them collectivize: Neighbors form local savings groups, which become part of village groups, which form larger district groups. At each level, the program helps participants save money and access microloans. Further, private players can negotiate at the district or village level to buy produce from the previously dispersed poor farmers. Thus far, the program has helped nearly 9 million women, who have seen their incomes rise at double the regional rate. There’s nothing micro about that.
Another benefit of savings-led programs is psychological — a point unnoted in the Globe. Savers don’t just acquire capital. They experience what Michael Sherraden, a professor at Washington University in St. Louis, terms "asset effects." These include a greater sense of control over their lives and a more positive attitude toward the future. A participant of the MatchSavings program, Gloria Gomez Lauriano, points out, "I was saving to fix my house and make a better living. It’s good to save so you can move forward." Many savers in the program felt that even after the program ended they would continue their habit of saving every month to help build a more secure future.
Recently, the Gates Foundation announced a $35 million grant for designing and delivering new savings products for the poor across Africa, Asia, and Latin America. This is welcome news. There are many more ideas to choose from, fitted to different local economic and political conditions. Good old-fashioned thrift, it turns out, can be married to 21st-century technologies like mobile banking and Web-based fundraising to provide a powerful engine of self-help to the world.
So, let’s not be so dismissive of micro, and let’s give up the idea of going back to the old days of thinking only at the macro level. A million people here, and a million there, and pretty soon thinking small can have a very big impact indeed.