I have always been a bit of a skeptic about microfinance. Actually, I think it’s hard not to be, because the claims are so bold. Its proponents say it empowers women, keeps children in school, improves health outcomes, and will one day eliminate poverty. How could it possibly live up to its promise? We’ve all seen the news reports about loans that allow women to leave abusive husbands, savings schemes that help families build their own homes, and micro-insurance products that save lives. I don’t doubt their truth or value. In some cases, microfinance is nothing short of miraculous. But it’s time to lower our expectations.
Two days ago, my co-intern and I relocated to a town called Kasungu, in Malawi’s tobacco-growing Central Region. While it’s the fifth-largest city in Malawi, it feels like a tiny town: 3 blocks of a main street, a market, a bunch of banks, and a few supermarkets. (Plus, bizarrely, a couple of Chinese-owned stores selling cheap, useless plastic things.) While microfinance hasn’t made huge inroads yet in Malawi, it has in Kasungu. The first beneficiaries of micro-loans were tobacco farmers here, and MFIs (microfinance institutions) have now expanded to serve micro-businesses, including shops, market stalls, salons, and tailors.
Yesterday, we went to the local office of FINCA, one of the largest international MFIs. Before we had even set foot in the building, my skepticism vanished. Outside were lines of women who had traveled to town to receive loans. Inside, they spoke with loan officers and attended business education classes in their lending groups. There were also a few men, but like most other MFIs, FINCA has a primarily-female client base. It was a moving experience, to say the least.
Of course, while it may look picture-perfect the reality is messier. The FINCA employee with whom we spoke said that he suspects that many of their borrowers take loans from moneylenders to make payments to FINCA. One of our goals in Kasungu is to learn whether people borrow from informal sources on top of formal sources because formal loans are too small, or because of unexpected events that leave them needing more money.
Microfinance will be game changing for some of its beneficiaries, but not for all of them. Just like in the developed world, not everyone in the developing world is an entrepreneur-in-waiting. Most of the time, microfinance will simply help the impoverished get through tough times and invest in durable goods for their homes. And there is nothing wrong with that. If we simply had more realistic expectations about the powers of providing fair and reliable financial services to the poor, microfinance would easily live up to them. FINCA’s clients in Kasungu are living proof.