There are those for whom microfinance is not an option, since a prerequisite for access to even the most basic financial services is access to some kind of regular income. This group is on the lowest rung on the poverty ladder. “The excitement around microfinance has enabled governments to feel that all they need to do is stimulate microfinance and be done with the problem,” says Elizabeth Littlefield, chief executive of the Consultative Group to assist the Poor (CGaP), an independent policy and research centre housed at the World Bank and dedicated to advancing financial access for the world’s poor. “That leaves out one billion people,” she says. To reach those people, CGaP is experimenting with a graduation methodology first developed by BraC, a Bangladeshi microfinance organisation. The BraC programme has “graduated” 800,000 households from safety-net schemes to microenterprises since the programme launched in 2004.
CGaP asks villagers to identify groups of women they deem the poorest in their community and then provides them with grants for current income (such as a chicken) and an asset (perhaps a goat that can produce baby goats, which can be sold) plus training in how to manage those assets, save money and eventually apply for a loan from microfinance institutions. “This kind of programme is new and pretty heretical, because the whole microfinance industry was built on commercial principles of not giving anything away,” says Ms Littlefield. “But finance and financial services don’t tend to create economic opportunity so much as grow what already exists.”
William Reese agrees. As president and chief executive of the International Youth Foundation, which works to strengthen education, health and work prospects for children and young people, he argues that financial inclusion should be extended to more young people. But 15- to 25-year-olds tend to be unemployed (at two or three times the rate of adults over 25) which means first helping them find a source of income that generates the cash to be banked. “The challenge is how to get more young people into some sort of sustainable employment,” he says. “Financial services and financial literacy are very important for all people, but they are a function of whether or not you have the money to manage.”
Mr Reese’s comment refers to young people, but carries a broader point – that financial products, even informal ones, are not everything. It can be argued that a steady, reliable income or job needs to come before a bank account and that, in some communities, lending schemes are getting ahead of themselves by developing banking options before supporting more employment opportunities.
