Microfinance Alone is Not Enough

29 September 2010 at 09:00 5 comments

By Julie Shea, KF12, Peru

Lately I’ve been thinking a lot about the relationship between microfinance and economic development of Peru on a countrywide scale. I’m struck by the fact that the microloans procured by female entrepreneurs, while instrumental in allowing the women to better their situations for themselves and their families, seem to have little direct influence on the economic development of Peru as a whole. For example, I have met very few loan recipients whose business activities are creating jobs; the majority of women work by themselves (and for themselves) in the informal economy.

This is not necessarily a bad thing – that women can create a better life for themselves and their family is an important step. It does however underline the notion that microfinance is not the “silver bullet” of development and poverty alleviation, but one of many tools.

Last week, I attended a seminar in Lima, which was advertised as being about “the importance that small and medium sized businesses have within the emerging Peruvian economy” (arranged by the Red de Empresarios & Profesionales CF).  I arrived expecting a conference of International Development professionals and academics – but what I got was so much better! Approximately 150 eager Peruvian business owners / entrepreneurs showed up to spend 1.5 days listening to presentations on capital investment, sales techniques and strategies, establishing a business plan, business risks and opportunities, etc.

The conference participants represented a higher socioeconomic class than the entrepreneurs I’ve met through my work with Manuela Ramos. The ticket price was relatively high and the participants were 100% engaged from the beginning, aggressively taking notes and interacting with the guest speakers. I came away from the conference convinced that there is real potential for national economic development through the promotion of these small and medium enterprises. The business owners seemed ambitious and professional, eager to innovate and grow their businesses in sustainable ways (something that is more attainable in capital cities than in rural areas).

Like many Latin American countries, the gap between the rich and the poor is huge, and the contrast between the big cities and the rural areas staggering. Manuela Ramos and other microfinance institutions are playing a vital role in allowing poor people from rural areas to access capital and improve their ability to provide for themselves and their families.  But the economic diversity this example illustrates calls for a correspondingly diverse set of approaches to promoting business development.

Finally, it should be noted that while microfinance is not necessarily contributing to immediate national economic development today, it will likely have consequences over the coming years and generations that will foster an environment for long term development. For example – a mother’s ability to run a successful business and support her family will mean that her son or daughter does not have to drop out of school to help with the family business and has the possibility to take a longer education and enter into a professional career (and hopefully someday be able to travel to Peru to attend seminars on how to run a business).

Julie Shea is a Kiva Fellow working with Manuela Ramos/CrediMujer in Peru, currently in Pucallpa.

Entry filed under: blogsherpa, KF12 (Kiva Fellows 12th Class), Manuela Ramos / CrediMUJER, Peru. Tags: , , , , , , .

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5 Comments

  • 1. Erica  |  6 October 2010 at 16:33

    Hi Julie,

    It was so great to run across your blog just now! great insight– I would love to read a blog comparing your experiences at ACCION with those abroad (maybe you already wrote one and can direct me 🙂

    Take care and be in touch!
    Erica

  • 2. rm0506  |  6 October 2010 at 08:56

    Julie,

    I really like this article. I am also questioning more specifically exactly how microfinance is helping these women entrepreneurs in the informal economy. In Sierra Leone, very few borrowers distinguish their businesses from their personal life. As such, it is very difficult to determine what their profit is at the end of the day, week, month, etc. It seems as though offering borrowers these skills should be just as important as offering them a loan, in my opinion. I would really love to work with my microfinance organization here to initiate something like that and would love to hear if you have any ideas or thoughts on how borrowers there operate. Thanks for the read!

    Becky

  • 3. oneale  |  4 October 2010 at 07:01

    I think you need to recommend conferences for the kiva entrepreneurs that will teach. Their native language, handwriting, bookeeping, math, basic English, salesmanship, and computer courses.

    Some of these people have not had an opportunity to get an education. This would get them closer to the chance to expand and hire other workers and assistance. So that someday they could finish their education. Some would have an ability to graduate high school and go to college along with their children.
    They should not wait generations to improve into the middle class. micro finance can do both impower and create economic development. Even one course at a time education is an adventure. In the USA many adults are taking 1 course at a time to complete and fulfill their education goals. Microfinance centers and local colleges should provide the space to teach during entrpreneurs off hours.

  • 4. zerrincetin  |  30 September 2010 at 03:40

    I agree with you that perhaps the development impact of microfinance is achieved over a long-term horizon. You bring a question that I find myself grappling with – is microfinance a financial product for under-served populations or is it a development/empowerment tool? I go back and forth on this.

    • 5. julieshea  |  30 September 2010 at 07:13

      Hopefully it can be both! Whether we are calling it “microfinance” or something else, I think a variety of financial products need to be used to address the diversity of situations/conditions in different countries and regions.


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