UN Report: Role Of Microcredit In The Eradication Of Poverty

C. Specialized agencies of the United Nations

  1. International Labour Organization
  1. The involvement of the International Labour Organization (ILO) in microfinance reaches back many years, through its activities related to the development of the informal sector, and in particular its promotion of cooperatives, including savings and credit cooperatives. In response to the needs of its constituency – Governments, trade unions and employer organizations – ILO developed international labour norms that define standards for its constituents on how to support entrepreneurial activities of the working poor, formulated norms in technical cooperation to help constituents fine tune policies and improve institutional performance, and developed research modalities to help resolve information deficits,influence policy makers and identify best practice. Through its country objective reviews, ILO found that its constituents consider microfinance to be a potentially powerful tool in facing the poverty alleviation challenge, especially through self-employment and micro and small enterprise development. The reviews call on authorities to create a more favourable environment for formal and informal microfinance, the establishment of additional microfinance institutions,and improved access for micro and small enterprises to microfinance services, and to assist women in accessing those opportunities (for example, by using collateral substitutes for loan securitization).
  2. ILO conducts research on various aspects of microfinance to fill information deficits, influence policy makers and identify best/good/bad practices. Its ongoing work covers such issues as enterprise creation by the unemployed; the role of microfinance in industrialized countries – an ILO action programme for 1998-1999; the impact of financial sector liberalization on the access of micro and small enterprises to financial services; gender and control over financial resources; the use of collateral substitutes in loan securitization; and strategies to reduce transaction costs in bank lending to micro and small enterprises.
  3. With regard to technical cooperation, a recent review of ILO technical cooperation, covering the period 1996-1998, identified 52 projects with a microfinance component. Nineteen of the projects focus exclusively on microfinance, while the rest contain other intervention components. The total budget of the 52 projects is $67.8 million, with $6.1 million going into microcredit funds and an estimated $30.1 million to research and advisory and capacity-building services in the field of microfinance. The projects are located in Africa, Asia and Latin America. ILO expertise is also increasingly in demand in the promotion of sustainable microfinance operations in post-conflict countries such as Cambodia and the former Yugoslavia and in regions such as Central America and sub-Saharan Africa.
  1. World Bank
  1. One reason the original members of CGAP decided to locate the secretariat within the World Bank was to strengthen the Bank’s growing microfinance-lending portfolio. CGAP expects the Bank to play a pivotal role in working with Governments to create an enabling business environment for microfinance institutions and making linkages between overall macroeconomic framework and microfinance.CGAP has formed alliances with World Bank Group entities involved in microfinance, including the Sustainable Banking for the Poor Initiative, the Africa Research Programme and the Rural, Microfinance and Small and Medium-sized Enterprise Thematic Group. Each alliance has generated joint products such as the Microfinance Practical Guide and case studies of microfinance institutions. In terms of World Bank projects with microfinance components, it is reported that, in 1997, there were 21 such projects being developed or in the pipeline in 19 countries, including 13 low-income African countries. In almost every case, CGAP was involved at an early stage, reviewing the choice of financial intermediaries, products and services, capacity-building activities and other characteristics of the planned loan or credit. CGAP has also collaborated on World Bank projects in several countries to leverage the Bank’s ability to create policy environments. In the past two years, the CGAP secretariat and the World Bank staff have held technical discussions on more than 40 existing and planned microfinance-lending operations and regional activities. This cooperation has improved the design of many lending operations, resolved operational and technical issues and expedited financial sector reform in a number of countries,including Angola, Argentina, Armenia, Brazil, the Republic of Moldova, Sri Lanka and Viet Nam.
  1. International Fund for Agricultural Development
  1. Over the past two decades of providing financial aid, much of it through microcredit programmes for the poorest of the rural poor in developing countries, the International Fund for Agricultural Development (IFAD) firmly believes that the poor are “bankable”. Its action plan is based on three fundamental propositions. The first stems from the Fund’s mandate to address rural poverty by recognizing the importance of microfinance as a key of empowerment tool in ensuring improvements in incomes and sustainable household food security among the world’s poorest families, especially the women of those families. The second recognizes the fact that, while access to credit and savings facilities is crucial, it is usually not enough by itself to ensure the sustainable development of the rural poor, who also need links to an efficient distribution system for their productions, including viable roads to market places, access to appropriate technology, technical training, fair prices for inputs and a favourable regulatory climate. Thirdly, rather than providing temporary services for the poor, the main objective of IFAD is to develop viable and financially sustainable rural financial systems, especially for the very poor living in remote areas in many developing countries. While maintaining the prime focus on the poor, IFAD also emphasizes the need to safeguard loan funds, promote sector-wide performance standards and strengthen the provision of non-financial services. At the regional and local levels, IFAD is helping to build a cadre of microfinance technical experts, strengthen training centres and promote sustained linkages to commercial capital, while seeking to ensure a favourable regulatory environment. IFAD is an active member of CGAP and has thus far committed over $1 billion in financial services and credit to the rural poor, which represents about one quarter of its total lending to date. An estimated 20 million persons have benefited from these services.