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By
Praful Patel
Vice President, South Asia Region
The World Bank Group
New Delhi, India, December 5, 2005 I am delighted to be here today to open this important regional conference, which brings together so many eminent policy makers and practitioners from the countries of South Asia, and experts from around the world. I am particularly honored to share the stage with Elabhen Bhatt, the founder of the Self Employed Women’s Association, or SEWA, as it is better known, which has inspired people worldwide. When one thinks of microfinance, one invariably thinks of "South Asia," and in this room are many of the very people who have inspired the microfinance movement that is improving the lives of millions of people. This region is a world leader in microfinance because of your work. When I think of microfinance, I personally think of a woman by the name of Bhavnabhen, who I met through SEWA. On one of my early visits to the region I spent a week in Gujarat with a family of salt workers. Bhavnabhen was my host, the stalwart mother of a family of five, toiling day in, day out, at her salt pan, her concerns as simple as water and roti for the family meal. When I returned to visit her earlier this year, I was struck by the extraordinary impact of just small amounts of credit on Bhavnabhen’s life. She had expanded her work to two pans, her output had doubled. What’s more, because she could sell her salt to SEWA’s Graam Haat, she no longer had to rely on the middleman to sell her produce. The economic independence and confidence this has given Bhavnabhen is striking. Today, she is held in high esteem not only within her family, but also by the community as a whole – and she, too, is making many contributions to her community, for example, by running the community child care center. I introduce you to Bhavnabhen simply to put a very personal face on the sharp issue of poverty we all seek to address. For me, Bhavnabhen brings the world of our work into focus with a jolt. She is the face of how access to microfinance can help poor people in their struggle to climb out of poverty, giving them individual choice and economic freedom, dignity, and the ability to contribute to the wealth of their community. At the same time, Bhavnabhen is also the face of the scale of the challenge involved in lifting South Asia’s 400 million or so poor people out of poverty. **** This conference, which is the culmination of a year-long project in South Asia, is among the initiatives launched by the Bank to mark the United Nations International Year of Microcredit. At its launch last November, it was agreed that the overarching goal of the International Year of Microcredit was to "secure a global commitment to develop inclusive financial sectors in which all people have access to the financial services they need to make the best possible use of their human potential." It is in this spirit that we launched the South Asia initiative, working in close collaboration with many partner organizations within and outside the region. We emphasized partnership both to increase the scale and effectiveness of what we could do together as well as to ensure a more lasting impact as we build relationships that can continue to be beneficial in the future. So many of you, both organizations and individuals, have contributed time, expertise, and funds to the work that has been done this year. Let me particularly mention the organizations that have co-sponsored this conference with the World Bank and CGAP. They include the Microfinance Investment Support Facility Afghanistan, PKSF from Bangladesh, the Maldives Monetary Authority, the Center for Micro Finance in Nepal, Pakistan Poverty Alleviation Fund, National Development Bank of Sri Lanka, the Small Industries Development Bank of India, and last but not least, Sa-Dhan from India, the host country network of microfinance, whose collaboration has made this conference possible. A number of donors have also collaborated in funding activities this year but much more importantly, I think we have worked towards a common vision of what the microfinance sector can become and achieve. I would especially like to recognize the collaboration of Canadian International Development Agency, the UK Department for International Development, the European Commission, the International Fund for Agriculture Development, Swiss Agency for Development and Cooperation, and the United States Agency for International Development. **** As I said, microfinance has a rich legacy in South Asia. This region is the cradle of microfinance, with organizations like Bangladesh’s Grameen Bank and BRAC, and India’s SEWA, having had worldwide influence. South Asia has also distinguished itself by forging successful partnerships for microfinance between governments, NGOs, civil society, the private sector, and communities themselves, evidenced by the self-help group bank linkage movement in India and the rural support programs in Pakistan. And of course, we celebrate the latest country to join the microfinance movement, Afghanistan, where experiences forged elsewhere have enabled the country to get off to a running start in creating a vibrant microfinance sector. In fact, if you think about the richness and diversity of experiences in South Asia – or indeed just in this room – we could do better at learning from each other within our region than we have in the past. I hope this is something this conference can help us achieve. Each country represented here has its own story of struggle and success, a process that has built up an array of institutions, methodologies, approaches, and products. And all these with the one purpose of improving the lives of poor people. So today we have much to celebrate. The World Bank Group is proud to have been associated from the beginning with this success story. For example, we have supported apex institutions such as the Janasavia Trust (later renamed as the National Development Trust Fund) in Sri Lanka, PKSF in Bangladesh, the Pakistan Poverty Alleviation Fund, and the Microfinance Investment Support Facility Afghanistan. This, in addition to many rural development and livelihoods projects. For example, Andhra Pradesh’s Indira Kranti Pratham, which has concentrated on mobilizing women into self-help groups, building their social capital, and facilitating access to finance for the groups and their members. When I visited this project again, just last month, I was astounded to learn that it now reaches six million poor women in the state of Andhra Pradesh. Of course, there is also the contribution of the IFC that has invested in more than 10 leading microfinance institutions in the region. **** The achievements of microfinance in South Asia cannot be underestimated. It is estimated that, as a region, South Asia has about 45 percent of all the people in the world who use microfinance services. But the overall percentage of poor and vulnerable people with access to financial services remains small. It is estimated, for example, that less than 10 percent of poor households in Pakistan access microfinance services today. In India, too, where microfinance reaches roughly 20 percent of poor households and is concentrated mainly in the Southern states, the challenge of expanding outreach is considerable. Sri Lanka and Bangladesh rank among the top five countries in the world in terms of the percentage of poor and vulnerable people who use microfinance services, and yet, even in these countries, there is still room for improvement. The challenge of ensuring that all people have access to the financial services they need to make the best possible use of their human potential is clearly enormous. We chose to focus our South Asia initiative on a handful of issues identified by many of you as key in your countries: one, scaling up and deepening outreach; two, improving transparency in microfinance institutions for better financial performance; three, regulation of microfinance; and four, microfinance in post-disaster situations. This last topic was chosen after the tsunami that devastated several Asian countries at the end of last year but has become even more important in the wake of the recent earthquake in Pakistan. As the number and severity of such disasters increases, South Asia and the rest of the world will need to learn how to make the best use of tools like microfinance to help rehabilitate the livelihoods of many people. This conference will consider ways to scale up outreach while also sharpening the focus of microfinance to serve even poorer people. This means doing more through tried and tested approaches such as specialized microfinance institutions, whether NGOs or banks, and self-help groups. But to reach most of the poor in a sustainable way, we must add different approaches and new ideas, some that have been used in South Asia and others developed elsewhere. There is much innovation to consider: we will discuss the provision of services using the vast post office networks or point-of-sale outlets. We will discuss the use of technologies from debit cards for the poor to mobile telephone networks that allow people to access their accounts and transfer funds. We will consider innovative links between banks and microfinance institutions to reach far more poor people. Recent experience suggests that the poor will benefit more if we mainstream microfinance to create an inclusive financial sector that serves everyone, the poor included, with a range of services, not just credit. Scaling up will also require building strong institutions that have the professionalism, confidence, and financial base to grow. For, unless microfinance is made financially sustainable, it cannot be scaled up. A study that will be shared with you at this conference analyzed the financial performance of 143 leading microfinance institutions in the six largest South Asian countries. Aside from Afghanistan, where the sector is very new, the percentage of active microfinance clients served by profitable institutions ranged from 96 percent in Bangladesh to only 42 percent in Pakistan. And yet it is has been shown that sustainable growth on a large scale will come from organizations that are strong and profitable. This is something we need to work towards. Indeed the time has come for all of us – multilaterals, donors, NGOs, private-sector-led institutions, and governments – to treat microfinance as a serious part of the financial sector and as a business concern, not an act of charity. If scaling up outreach is to have an impact on poverty, we also need to think about how to target services better to reach poorer and more marginalized people. South Asian microfinance has its roots in efforts to improve the lives of poor people, and yet, as we will learn in this conference, we can do even better by using more specific targeting approaches. Once again South Asia is a leader, experimenting with ways to deepen outreach to include the very poor; even those we once thought could not be reached with microfinance. And, of course, scaling up will require the commitment of governments to ensure that their regulatory and supervisory policies genuinely support access to finance for the poor. One common temptation is for governments to impose ceilings on the rate of interest that can be charged on micro-loans. Such ceilings have a simplistic political appeal, by appearing to ensure cheap credit for poor people. But in practice, interest rate ceilings tend to reduce the supply of credit, especially to the poorest would-be borrowers, who are driven instead to borrow from money lenders whose rates are not capped and whose collection methods are notorious. Interest rate ceilings can also reduce the transparency of the cost of credit to borrowers, as lenders seek to evade the caps by adding various service charges and application fees. The evidence shows that a far more effective way for governments to ensure that interest rates are not excessive is to foster healthy competition within the financial sector. **** As the International Year of Microcredit comes to a close, we have the task of understanding and tackling the unfinished agenda. I hope that the relationships built up during the past year will lead to increased collaboration across the region to achieve our shared goal of eliminating poverty. I want to close by thanking each one of you for what you are doing to empower poor people and I want to challenge you to lead the effort to complete the unfinished task. |
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