While there is no single solution to the problem of poverty in the developing world, one strategy — microfinance — is attracting support from two groups, free-marketeers and traditional foreign-aid types, that don't always see eye-to-eye, BusinessWeek reports.
Traditionally, microfinance initiatives provide small loans to poor entrepreneurs, who often are self-employed and run home-based businesses. But while most of those initiatives are started with public or private philanthropic funds, many eventually become self-sustaining enterprises. "This is an area where you can do good while doing well," said Brigit Helms, senior adviser at the Consultative Group to Assist the Poor and author of Access for All: Building Inclusive Financial Systems.
Given its past successes, many in the microfinance community are now working to create a more professional, inclusive system that reaches deep into poor rural and urban areas. As a low-risk way to expand into a region's informal economy, commercial lenders are beginning to offer wholesale products and services to microfinance institutions, which in turn are moving beyond their traditional small-business base to offer a wider range of financial services, including savings accounts, money transfers, insurance, and an array of loan options. "The big idea is that the poor need the same range of financial services the wealthy do," said Frank F. DeGiovanni of the Ford Foundation. "We're really trying to figure out how to get the poor into the financial mainstream."
Private philanthropy is part of the answer. The Bill & Melinda Gates Foundation has awarded $2.2 million over three years to the microfinance organization Opportunity International to develop a trans-African network of new commercial banks for the poor. The foundation also gave $5.5 million to the Aga Khan Foundation USA for a microfinance initiative in Pakistan and Tanzania. Meanwhile, the Michael & Susan Dell Foundation is concentrating its microfinance efforts in India, where it plans to invest substantial sums over the next five to ten years. Although there are about a dozen microfinance institutions in India, it's estimated that as little as a tenth of the potential market is being served.
"Some of the most powerful social changes brought by microfinance occur when a family is able to earn that little bit extra, enabling them to keep their kids healthy and in school," says Caitlin Baron, director of the microfinance intiative at the Dell Foundation. And that, she adds, oftens opens "the doors of economic opportunity to the next generation."