OneWorld.net (U.S.)

© ACCION InternationalAnna is a single mother from Mango, Tanzania. Besides having to provide for an 11- year-old daughter, Anna also takes care of elderly parents. On one income, that’s quite a challenge—especially because there are no jobs to be had in Anna’s tiny village. Like most of the world’s three billion poor living on less than $2 a day, Anna has to create her own source of income. She dreams of opening a tiny shop that sells dried goods. But she needs capital to realize this dream and the loan she needs is too small for a traditional bank to make. Hence, Anna turns to a microloan. A loan as small as $20 allows her to buy stock for her shop in bulk and make the profit she needs to increase product selection. Soon, she is able to buy more products and attract more customers. With her earnings, Anna can finally pay school fees for her daughter and care for her parents.

There are millions of people like Anna who, if given the right financial tools—business training, tiny loans and savings accounts—are able to work themselves and their families out of poverty. Microfinance is a unique solution to poverty that taps into the entrepreneurial spirit and will to succeed that exists for all people, regardless of their financial means. And, the interest paid on each loan helps pay for other clients’ future loans. Due to the success of these programs, ACCION and its colleagues have committed to vastly increasing the number and size of microfinance institutions. We are on track to more than double the number of clients served by our network and partners by the end of 2008, or to reach 3 million active clients annually.

The poor were considered “unbankable” for many years. Many thought that because the poor had little money, they would not be able to use it responsibly. The opposite proved true. In fact, not only do microfinance institutions have an average repayment rate of 97%, they can make a profit while lending to the poor. Although some have criticized microfinance for “profiting from the poor,” it is important to remember that these financial services are structured to help the poor succeed—as opposed to loans offered by loan sharks or those who are not structuring their products for the long term financial success of these individuals.

And the profit dimension works. Because of it, established commercial banks are turning their attention to microfinance and bringing more financial services to more working poor around the world. The greatest obstacle to the widespread adoption of microfinance is that there are simply not enough high-quality institutions able to serve the demand worldwide. In some countries, the regulatory environments are also not supportive. These are all problems we are working to fix, country by country.

But, is microfinance making poverty history? According to the United Nations Capital Development Fund, it is in fact helping very poor households meet basic needs and improve economic welfare. By supporting women’s participation in particular, it is also empowering women and promoting gender equity. In sum, microfinance benefits clients by providing them with the means to increase incomes, accumulate some assets, and work their way out of poverty. Rather than being a donor-based handout, microfinance is a sustainable and profitable poverty solution.

Roy Jacobowitz, Senior Vice President Development & Communications © ACCION International