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Improving financial access in developing countries

23 January 2008

Micro-credit expert examines gender perspectives on access to finance and poverty alleviation

Twice each week, Kenya’s Equity Building Society dispatches a fleet of four-wheel drive vehicles to remote parts of the country offering mobile banking services to rural workers. The cars carry specially trained staff who offer financial help and guidance to smallholder farmers and agricultural workers. They are given a chance to deposit cash and take out loans, bringing much needed access to financial services to these people who would otherwise have missed out.

“Before the mobile bank service arrived it was very difficult for us to run the farm. We had to travel 100 kilometres to the bank in town, carrying money with us. It was difficult to arrange loans when we were so far away. Now we can see the bank each week and arrange to do our business,” said Daudi Kabaka, one of the building society’s 300 smallholder beneficiaries from Shaba village in north Kenya. The Equity Building Society has over 23,000 rural clients, 45 per cent of whom are women, according to a report by the Financial Deepening Challenge Fund (FDCF), which funds the scheme.

Sponsored by the UK Government’s Department for International Development, the FDCF works closely with private sector organisations that want to invest in commercial financial services to help improve access of poor and middle-income groups to credit, savings, leasing, insurance and investment capital.

Ramesh Arunachalam, an independent microfinance expert who is closely involved in monitoring the FDCF, delivered a presentation on ‘Microfinance and Innovative Financing as Tools for Livelihood Development and Poverty Alleviation: A gender perspective’, on 21 January 2008, at the Commonwealth Secretariat’s headquarters in London.

In this presentation, jointly organised by the Secretariat’s Gender Section and Enterprise and Agriculture Section, Mr Arunachalam highlighted various models of microfinance from Africa and Asia that have been effective in providing incentives to the financial sector to try new ways of extending micro-credit to the poor.

Microfinance – the lending of small amounts of money to help the poor and marginalised – is recognised as one of the ways that can potentially lift people out of poverty. In developing countries especially, access to credit can empower women to transform their lives, as well as the lives of their family members and the community. However, despite its numerous successes, Mr Arunachalam also stressed the continued challenges that microfinance faces in order to ensure sustainable impacts amongst the poorest women. Such challenges include continued poverty and debt burden, livelihoods security, and the lack of women chief executives at the helm of microfinance institutions.

Mr Arunachalam, who wrote a background paper for the 8th Commonwealth Women’s Affairs Ministers Meeting (8WAMM), held in Uganda’s capital Kampala last year, acknowledged during his presentation that while microfinance has done well in terms of extending access to financial services to low-income women, it has not fully closed the gender gap on other key aspects such as women’s ownership of and control over assets. Microfinance, he argued, must become much more gender-responsive, adding that this will require a complete repackaging of the nature of products being offered and the institutions that deliver them.

“The microfinance industry has to move beyond providing standard credit for small-scale enterprise and other basic financial services and offer a wide range of innovative, tailor-made financial services – including flexible credit, savings, health insurance, pensions, remittances – that can really empower women and also enable them to reduce their risk and vulnerability,” he emphasised.

8WAMM urged member governments to provide adequate resources to finance gender equality to achieve development and democracy objectives, particularly the Millennium Development Goals.

José Maurel, Director of the Secretariat’s Special Advisory Services Division, said: “Microfinance is an important area which we would like to factor in to our extensive work in small enterprise development.”

Mr Arunachalam also said that the issues pertaining to accessing finance for gender equality at 8WAMM had both impacted on his thinking as a financial services consultant, and has also positively influenced the United Nations Development Programme’s definition of financial inclusion.

Sarojini Ganju Thakur, Head of the Secretariat’s Gender Section, acknowledged the role of microfinance in empowering disadvantaged and poor women but added that “there is need to ensure that the social agenda underpinning it is fully integrated in the delivery of financial services.”