It’s been a turbulent year for microfinance. There has been a rising tide of stories about abuses of the lending system set up to help the poor. Accusations levelled at Nobel Prize winner Mohammed Yunus have done the sector no favours at all. Yet the advocates of microfinance, including Princess Máxima of the Netherlands, remain optimistic. A recent European microfinance congress in Amsterdam confirmed the positive mood.
Despite its shortcomings, microfinance is still the only way for many people to obtain money to set up their own business. The poor and disadvantaged do not tend to qualify for a bank loan under normal circumstances. Dutchwoman Diny Verhoef is a prime example. She was declared medically unfit to carry out her job. She found herself unemployed and unable to obtain a loan to start her own business.
With 10,000 euros in credit from the Dutch microfinance organisation Qredits, she was able to open her chocolate shop De Chocoladeapotheek, which is now a resounding success. She was at the Amsterdam microfinance congress promoting her wares. As well as a start-up loan, she was given the opportunity to take courses – handy, given that she had no previous experience of chocolate-making.
“I had to take courses to learn the profession. Fortunately specialists allowed me to come and take a look behind the scenes. They taught me all I know. A lot of people have contributed to the success I enjoy today.”
Coaching is the new magic word to turn micro loans into success stories. Most brand-new entrepreneurs cannot be expected to grasp the finer points of accountancy or make a thorough market analysis. But coaching starters is expensive. A German banker has estimated that even in the most favourable of cases it costs 1,000 euro per individual. And that’s not counting the extra effort that needs to be made in the face of economic crisis or financial difficulties. Who should foot the bill? Some believe it’s a job for the government, but the global trend is for microfinance institutes to take care of themselves.
Grupo ACP enjoys success in the world of microfinance, and now can boast over 600,000 customers in Peru alone and over two million throughout Latin America. As director Luis Felipe Derteano points out, the sheer scale of the operation means it would be impossible for the government to lend financial support.
“So who pays for the ferryman? Grupo ACP invests in companies which create inclusion. All companies should achieve a triple bottom line: financial, social and environmental. The companies leverage each other and that’s the base that helps us create a very important group of clients. And the ferryman pays for himself.”
Even thought their customers consist entirely of the poor, the organisation is self-sufficient. Mr Derteano is keen to emphasise the internal checks that are in place to ensure that the profits are not the result of exorbitant interest rates or premiums.
In the wake of initial success, microfinance found itself confronted with excesses and abuses. Every negative case is one too many, says Diederik Laman Trip, Chairman of the Dutch Advisory Committee on Microcredit. But he believes there is a good explanation:
“When a word or brand becomes a major success, there will always be people out to profit for the wrong reasons. To put it bluntly, when profiteers enter the world of microcredit, it’s time to watch out. But the wonderful thing is that world leaders are not put off by such drawbacks. I’ve talked about this with Princess Máxima and with Yunus. We believe in microloans. The bad apples account for maybe one or two percent. So 98 percent is still good. We need to ensure that people working in the sector retain their self-confidence. We need to keep radiating that confidence.”
This is one of the tasks of the European Microfinance Network, which organised the congress in Amsterdam. The network consists of institutions that support small businesses with loans of under 25,000 euros. At the congress, Princess Máxima - in her capacity as UN special advocate for inclusive finance - posed some critical questions about the approach being taken:
“I have travelled widely over the past seven years to discuss microfinance and promote financial inclusion. I have seen for myself how much we can inspire each other and learn from each other. But it is not a question of ‘one size fits all’ [...] You need a different business model for each country and sometimes for different parts of the same country. In Peru for example, you won’t have the same model in Lima as in the Andes. Isn’t this true also for the European Union? Can we compare micro conditions in Romania to those in the UK or Belgium? In particular: are we right to limit micro credits to 25,000 euros across the whole region?”