SPECIAL FEATURE
THE MICROFINANCE ENHANCEMENT FACILITY The Microfinance Enhancement Facility was initiated in 2009 to support economic development and prosperity globally through the provision of short and medium-term financing to financial institutions which support microfinance and micro-enterprises. The Fund observes principles of sustainability and additionality, combining development and market orientations. Since inception, the Fund has invested US$2.7 billion in 63 countries, financing 300 institutions with 838 loans.
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several clear cases of microfinance’s impact. “In Chile, low-income women who were members of microfinance institutions and received free savings accounts were able to reduce their reliance on debt and improve their ability to make ends meet during an economic emergency,” according to the report. But, just as offering microfinancing services can lead to benefits, taking them away removes that positive impact. In India, a reduction in microfinance options was associated with “significant decreases in wages, income and consumption.” Narrowing credit gaps for the unbanked is one of the aims of Sustainable Development Goal (SDG) 9.3, which seeks to increase the access of small enterprises to financial services. In addition, SDG targets 8.3 and 8.10 aim to boost formal employment and broaden general financial services, respectively. In some areas, entrepreneurs are faced with only two options: predatory lenders – who charge high interest rates, or traditional banks that often do not cater
to small businesses with their relatively small loan volumes. However, small businesses drive the global economy. Most countries’ GDPs rely heavily on the MSME sector. By not offering small businesses the chance to grow, or at least sustain themselves, a lack of financial access amounts to tying a lead weight on a country’s general growth. Besides, microfinance doesn’t just encompass microcredit, but also savings accounts and insurance. Broadening financial inclusion isn’t just another box to check to ensure all the SDGs are achieved. Providing access to credit is an enabler to achieving many other goals: For instance, supporting agricultural enterprises also strengthens food security. For all its potential, microfinance does have its limitations. First, there is the matter of regulation. Many places do not have strong legal protections for borrowers, leaving them vulnerable to aggressive collection tactics or shady institutions taking advantage of a lack of financial literacy.
As many microfinance institutions are not part of large, established banks, they often find it difficult to attract credit from international development finance institutions, whose loan sizes often do not fit. The World Bank’s Findex report pointed out several instances in Uganda, Ghana, Mexico and Peru where customers were not always provided with consistent product information or account costs, or told about the most affordable options. There is also microfinance institutions’ limited capacity to fulfil businesses demand for loans. MSMEs often need larger credit volumes, but also supporting services such as insurance, savings accounts or knowledge-transfer, for instance in the field of financial literacy. Still the success of the Grameen model shows what is possible, especially in ensuring financial inclusion among rural and women-owned MSMEs. As Mohammad Yunus said: “Money is the oxygen for entrepreneurship”. 21
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