Microfinance:
The Little Engine That Could?
Is the impact of microfinance on the global economy powerful
enough to change the world?
“We’ve got the financial measurements
down pretty well, but the social return is harder to measure,”
Jared says. As an analyst with Microfinance Information
eXchange (MIX) at the World Bank—spun off from the
Consultative Group to Assist the Poor (CGAP)—Jared
Miller ’97 wants to find the answer.
“Microfinance—small-scale
financial services, generally for the self-employed poor—can
make a tremendous difference in a person’s life, and
some of the financial institutions that serve poor people
are also immensely profitable,” says Jared, who collects
and analyzes microfinance information for the global industry
and studies the market’s infrastructure.
The interaction of social impact and financial
self-sufficiency make microfinance a hot topic on the left
and the right of the political spectrum, Jared says. “Some
people see it as a social intervention, and others see it
purely as a commercial exercise. The emergent idea is that
these are complementary, not mutually exclusive goals,”
he says. Jared cites stories of microfinance helping individuals
mitigate risk and emerge from poverty, but reaching enough
of them to make the collective impact improve the macroeconomic
outlook remains an enormous challenge. “Un-banked”
people are about three billion strong worldwide—most
of them have no access to banks and subsist on less than
$2 a day.
“Microfinance attempts to bridge
the absurd gap between supply and demand for microfinance.
If you serve more people, the institutions can make economies
of scale, lower their operating costs and expand, relying
more on investment and less on donations to sustain themselves.”
Careers are often rooted in unlikely mixes of incidents
and dispositions, and Jared’s love of surfing is fundamentally
connected to his work in microfinance. “While I’m
not sure I was a very mature student at Milton,” he
says, “during my time at Milton I went to Costa Rica
to do a month of community service and to surf. I spent
a lot of time with the locals, and in the water, too. I
didn’t know what I wanted to do—but I did know
that I wanted to return to Latin America.”
Later, as a student at Middlebury College
in Vermont, Jared developed an interest in geography and
then finance; after an internship study-abroad experience
in Chile with the Chilean govenment’s Poverty Alleviation
Fund (FOSIS), he returned to campus to design his own course
in microfinance; before graduating with a bachelor’s
in geography and Spanish with a minor in economics, he earned
a grant that allowed a research stint with Acción
International and Banco Solidario in Cayambe, Ecuador, which
intensified his interests. Now, he manages MIX’s relationships
with 80 Latin American microfinance institutions (MFIs).
“What first inspired me about microfinance
is that it gives people the power to make economic decisions
that can change their lives,” Jared says. “It’s
far different than telling a whole town, for example, that
they are now going to plant yams to make a living because
that’s what some aid agency has decided for them.”
Microfinance success stories are plentiful
and powerful: a man in Uganda needs only several hundred
dollars to stock the parts he needs to make his motorcycle
repair shop viable; a man in Guatemala, who has worked in
the fields his whole life, begins to make furniture—a
microloan allows him to buy appropriate tools and establish
a full-time business; a woman in Ecuador wants to send her
children to school instead of work—she uses a microloan
to pay off a loan shark whose interest has been outstripping
her profit at her crafts stand, and she is able to buy a
small house. The stories are many and, notes Jared, women
are statistically more likely than men to take a microloan,
which averages $580 in most countries, and make it work
for them.
Jared points out that serving small depositors
is as important as making microloans to the same constituency.
Mobilizing savings allows poor people to plan for crises,
seize an opportunity before it passes, accumulate enough
money to pay for children’s schooling or respond to
other family needs or emergencies; savings can also allow
people to accumulate money that needy relatives might wrestle
from them, if the money were not secured at a reputable
institution, Jared says. These same savers need simple access
to their bank, as well as liquidity of funds and returns.
On the macro level here, the catch is that many microfinance
institutions (MFIs) find that the operational costs associated
with small depositors are formidable if they are legally
allowed to offer the service in the first place. Likewise,
donors often find offering credit to be a more compelling
way to boost clients’ standard of living.
“Credit and savings are two sides
of the same coin,” says Jared. “With someone
who can save—if he suddenly needs money, it’s
available. With credit, however, that person is engaged
in a contract that’s not easily broken. The need for
savings is universal, but the need for credit is sporadic.”
Microfinance will not end global poverty,
Jared says, but when combined with improved health care,
education and other services, it could be part of a larger
solution to strengthen standards of living and human dignity.
While microfinance is relevant everywhere—including
in the United States, most notably through Acción
International (www.accion.org )—it has seen particular
success in Bangladesh and Bolivia. Jared notes that many
Eastern European countries with transitional economies are
the latest hot spots for microfinance, helping financially
underserved people.
Jared reiterates part of why microfinance
can elevate human dignity where pure charity does not: “It’s
not a gift—it’s a loan contract, and it must
be repaid,” he says.
Reach Jared at jaredwmiller@earthlink.net.
Heather Sullivan
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