UNESCO Social and Human Sciences
 
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United Nations Educational, Scientific and Cultural Organization
Organisation des Nations Unies pour l'éducation, la science et la culture

MICROCREDIT SUMMIT

2-4 February 1997
Sheraton Washington Hotel
Washington, DC

Position paper prepared by UNESCO (CAB-97/WS/2)

also available in French

    EXECUTIVE SUMMARY

A sustainable future for the many people living in absolute poverty is a prerequisite for global peace and development. The availability of microfinance facilities has raised the hopes of millions of the poorest households who are benefiting from these services. To obtain a greater impact and ensure its sustainability, the achievements in the field of microfinance will have to be matched by appropriate mechanisms to provide the basic social services, especially education and health care, that are needed to improve the quality of life of these people who are difficult to reach. Responsibility for providing these complementary services lies not with the microfinance institutions but with the various development partners. UNESCO, a multidisciplinary organization, is well placed to support the microfinance initiatives and complement these measures by responding to the social and cultural dimensions of development.It is only by joining forces that local institutions, civil societies, NGOs, governments and international organizations can mobilize the efforts and resources needed to address the challenging task of poverty eradication.
 

    1 Microfinance: new aspirations and new challenges

Over the past two decades, serious attempts have been made by local institutions in different parts of the world to assist the poorest by responding to their financial needs. We know today how these institutions have overcome numerous obstacles and developed innovative mechanisms to provide financial services to such people. They have succeeded in reaching segments of the population which were excluded by the formal banking sectors and have demonstrated that, contrary to conventional belief, the poor are good credit risks and have high savings propensity.

The poor in the developing countries, especially those without adequate access to productive land or paid employment support themselves through a vast number of self-employed activities in agriculture, trade, crafts, as well as family-owned manufactures. The financial services they require, modest loans and small savings deposit facilities, are insignificant by normal banking standards. The regulatory framework within which the formal banks operate makes the administrative cost per microfinance transaction very high. Moreover, not having sufficient assets which could be accepted as collateral or security, the poor do not qualify as suitable clients for these institutions. The lack of access to credit, even very small amounts needed to finance their individual microenterprise or other income-generating activities, prevents the poor from improving their efficiency, productivity and participation in economic life.

With inspiring ideas, novel approaches and firm determination, local institutions in Asia, Africa and Latin America have successfully provided microcredit and savings facilities to the poor, who have responded with remarkable repayment rates. By devising innovative lending methodologies and loan products, simplifying loan procedures, establishing a direct and regular contact with the clients and applying market rates of interest, they have succeeded in demonstrating not only that we now have at our disposal "financial technologies" capable of bringing quality services within the reach of a very large number of poor, but also that financial services for the poor, even the very poor, can be provided on a commercially viable basis.

Nevertheless, in spite of outstanding achievements of the successful microfinance programmes, the availability of these services remains limited. The challenge therefore is to ensure a sustainable flow of quality financial services to the majority of the world's poor.
 

    2 Beyond microfinance: towards poverty eradication

Over eight million very poor people, especially women, are benefiting today from different microfinance programmes. Experiences of these programmes show that provision of microcredit and savings facilities, when efficiently utilized, enables the poor to build strong microenterprises, increase their income, and participate in economic growth. It also contributes greatly to the empowerment of the poor, especially women, and helps to raise awareness and aspirations for education, health care and other social services. In light of these achievements, microfinance is increasingly being considered as an important tool for poverty reduction.

However, poverty is not solely a matter of lack of income or lack of access to sustainable financial services. The complex process of poverty eradication cannot be resolved by successful intervention in any one area. Today, one fifth (more than a billion) of the world's population deprived of the means to meet basic human needs, are struggling to cope, to survive . To reduce the vulnerability and the insecurity of the poor and to bring lasting improvements in their lives, they must have not only a secure livelihood but must also benefit from investment in education, health and other essential services, which are all interrelated. Even well-designed microfinance programmes will then have only a limited impact on the quality of life of the poor if illiteracy (885 million), hunger and malnutrition (800 million) remain at the present level. On the other hand, better education, health and other services will certainly further enhance efficiency, productivity and economic opportunities for beneficiaries of microfinance programmes. An effective strategy for poverty alleviation would thereby be achieved, going beyond financial and economic considerations and taking into account the social and cultural dimensions of development.

While therefore it is important to join forces to ensure that 100 million poor families receive quality microfinancial services by the year 2005, it is also important to ensure that the same people have access to other essential services. To obtain a greater impact and ensure its sustainability, the achievements in the field of microfinance will have to be complemented by supporting programmes, especially in the fields of education and health, in accordance with the requirements and aspirations of the poor. Responsibility for devising innovative mechanisms to ensure that the other essential services also reach a maximum number of poor households lies not with microfinance institutions but with the various development partners.
 

    3 UNESCO and microfinance

Like all United Nations organizations, UNESCO has committed itself to the eradication of poverty through declarations and programmes adopted by the major UN conferences and summits organized in the 90s, particularly the World Summit for Social Development.

Within the framework of a coherent strategy for poverty eradication, UNESCO can make a major contribution to the microfinance movement by:

  • supporting the campaign of advocacy in favour of exploring the scope and means for increasing access to commercially viable microfinancial services for a maximum number of poor, especially women. In this respect, the Organization can disseminate information on successful microfinance programmes to its Member States and facilitate their contacts with these institutions. At the request of interested Member States, it can co-ordinate the participation of officials and NGO staff of those countries in the workshops, visitors programmes and training courses organized by the various microfinance institutions;
  • devising an effective mechanism for providing appropriate complementary services in the fields of education, science and technology, culture and communication to the clients, especially women, benefiting from these programmes. Investment in education is one of the most important determinants of human welfare, opportunity and economic growth. It can thereby play an important role in identifying and building endogenous capacity. Similarly, appropriate use of science, technology, communication and information can play a vital role in optimizing the output of the financial services.

By forging partnerships with successful microfinance institutions, which identify, organize and work with the poorest segment of the population, especially women, UNESCO can design concrete activities in its fields of competence. In so doing, the Organization will further empower this segment of the population to effectively combat poverty, thereby responding, at least in part, to the needs of its own priority groups, namely women, youth, the least developed countries and Africa.
 

    4 Supportive UNESCO activities

The effectiveness of microcredit can be enhanced by support services which address the social and cultural dimensions of poverty.

Education, the key to development and social integration - life-oriented education, directly linked to economic activity, helps the poor to become an asset to themselves and their countries. The education of borrowers can be designed to offer essential information on socio-economic services as well as to provide basic numeracy, literacy, science and technology which will contribute to the process of productivity and social integration. Various modes of delivery should be used to meet the learning needs of groups and education programmes should be planned in partnership with them. A participatory approach will have to be adopted to ensure appropriateness and also to maintain the target groups' interest in activities, adapt them to their needs and ensure flexibility in the organization and administration of programmes.

To ensure that poverty is not passed down from generation to generation, special attention must be given to the education and welfare of the children of the poor. In many cases, microcredit activities involve the help of children. For example "milch cow" and "petty trading" activities will use the services of children for delivering the milk or for sidewalk peddling. While it may be necessary for children to help their parents, it is of utmost importance that parents learn to organize their microcredit activities so that children are able to benefit from a good education.

In addition to these microcredit facilities, poor people need to know what services exist, how to gain access to them and how to use the power they have as a group to exercise their rights.

Education, although by no means a panacea for the difficulties faced by the poor, is vital for their overall development and social integration, especially in the case of women, and is therefore given highest priority by UNESCO. In addition, education must demystify technology and help the poor to understand the use of technology in their productive activities.

The approach adopted by UNESCO is therefore intersectoral, being pursued in the context of a broader dimension of human development and in co-operation with other institutions.

Science and technology for development - UNESCO can support poor families and rural communities in the establishment of small production units or small businesses, as well as in acquiring necessary equipment that will have a direct role in improving their living conditions and their production. UNESCO's solar programme can assist communities in acquiring solar-powered equipment such as: solar water pumps for water extraction from wells and for irrigation purposes; solar refrigerators for conservation of vaccines etc.; solar ovens for households.

UNESCO can also help in the setting up of small businesses through its programme of university-industry co-operation in areas such as: food processing and conservation (fermentation); maintenance and repair workshops; and production of educational aids in wood and plastic.

Culture and development - Arts and crafts are sources of employment and subsistence for many in the developing countries. However in many countries, people engaged in various kinds of crafts are driven to give up their profession, owing to situations beyond their control. Forced to abandon their trade they become superfluous and rootless labourers. Unless well-designed strategies are elaborated to assist them, the number of unemployed will increase and many fine skills will be lost. Cultural industries, handicrafts and the traditional performing arts will therefore have to be promoted as an integral part of the innovation that is essential to the development process.

The potential of microfinance to help the world's poor can only be fulfilled if their products find appropriate outlets. With a view of preserving the cultural heritage, UNESCO is endeavouring to give greater visibility to creativity and cultural industries in developing countries. In the area of handicrafts, special emphasis will be put on training, developing new designs, protection and production mechanisms involving in particular craftswomen in developing countries and on linking these efforts to those in the area of culture and tourism to create marketing and self-employment opportunities.

Policy making for socio-cultural cohesion - social and human sciences are essential for understanding the cultural, social and economic factors, and psychosocial forces that are often instrumental in determining poverty. Specific activities will be undertaken in relation to poverty and exclusion with a view to understanding these issues more fully. Measures planned include: the assessment of non-economic forms of exclusion; the elaboration of policy guidelines to promote social cohesion through democratic governance and citizenship, as well as the enjoyment of fundamental rights; the setting up of action-oriented methodologies and actions in order to combat poverty and exclusion, and strengthen capacity-building activities for economic and social development; and the strengthening of partnerships with grassroots organizations for the promotion of sustainable livelihoods at the local level.

Social services related to sanitation, water supply and housing can be designed along with income-generating programmes to improve the living standards of poor households, in harmony with their own cultures.

Communication, information and informatics in the service of the poor - these facilities have a prominent role to play in the effective functioning of microfinance systems. Communication and information can be ensured at two levels: firstly, among the banks participating in the operation; secondly, between the banks and their potential clients - no matter how many, no matter how poor, and even if they are illiterate.

At the first level, a network can be established allowing permanent access to and exchange of information and data related to the banking processes themselves. This can be achieved through the Internet, provided that a telecommunication infrastructure is already in operation. At the second level, a targeted communication campaign can be organized to inform the potential clients of the issues involved: savings, earnings and the commitment to repay. Here the problem has many dimensions. Since most of the clients are illiterate or barely literate, they would not be able to take advantage of the services offered unless information were presented in a way that it is understood, even by the illiterates. For example, community radio is one way of efficiently distributing such information and at the same time it can also deliver literacy programmes (distance learning) and other social development programmes on health care, sanitation, environment and nutrition, etc. Continuous media coverage of the operation can also be ensured.

In cases where a telecommunication network already exists, it can be extended to cover the rural areas. In the absence of any network, it can be easily established. It would be advantageous and advisable to introduce new information and telecommunication technologies which will open up a large field of application and are easily adaptable to various environments. Furthermore, the costs of such technologies continue to decrease. Access to the Internet can thus be efficiently and economically arranged. To enable the clients to use these new technological means, special software has to be created, adapted to their needs and cultural backgrounds, and especially taking into account educational levels. Suitable training on how to use and maintain this equipment can be provided to clients as well as to the bank staff dealing with this operation. Where a permanent power supply is not available, the use of renewable energy sources (solar, wind, etc.) should be foreseen.

The foregoing are merely examples of possible action by UNESCO with a view to enhancing the opportunities offered by the microfinance programme.

For each target population, a study will be made of their socio-economic and cultural characteristics as well as of their specific needs, and activities will be designed accordingly.
 

    UNESCO AND THE GRAMEEN BANK

In order to combat poverty effectively, the poor must have access to both financial and social services. For this reason, UNESCO in September 1995, signed a Memorandum of Understanding with the Grameen Bank of Bangladesh, in Beijing, under which the two organizations would in their respective fields of competence seek to respond better to the many different needs of those living in absolute poverty. Under this co-operation scheme, two main types of activities are envisaged:

Activities in Bangladesh to improve the quality of life the Grameen borrowers: To complement the services provided by the Grameen Bank, UNESCO is examining ways of enhancing the choices and opportunity of the Grameen borrowers and their families by designing activities in the fields of education, sciences, technology, culture and communication. The most important task UNESCO has undertaken in this respect is to design a basic education programme to improve the educational opportunities of Grameen borrowers and their families. Under this education programme:

UNESCO has sponsored research on 500 Grameen Bank families to determine the extent to which the children of these families are attending schools and to identify a strategy or to secure the participation of all the children in education. The objective is to ensure that illiteracy is not carried over to the next generation.

UNESCO is working in collaboration with groups of borrowers to develop an education and information programme. This programme will cover areas that the borrowers considered important. Its organization and administration are being planned with them. The Grameen Bank groups of borrowers will identify their own "chief of education" who will be responsible for monitoring the participation of the group members.

It has been agreed that UNESCO will assist the establishment of resource centres for groups of villages. These centres will offer information on various aspects of the work of the Grameen members and other villagers. They will also serve as centres where the villagers can conduct their regular meetings.

In addition to the resource centres, UNESCO is sponsoring a mobile resource box to be transported on a rickshaw. The box is designed to transport booklets, charts pamphlets and as a display case. It will also have video equipment and cassette tapes to support basic education and information. Each mobile resource box will serve three villages. It is expected that the resource box will contribute towards a supportive environment for the education of families.

The overall objective is to provide an education which caters for the various dimensions of human development. UNESCO, while continuing to search for new ways and means of achieving this objective, is not working in isolation but in collaboration with other agencies with experience in this field. The preparatory activities are well under way and it is expected that the programme will be launched in spring 1997.

Furthermore, UNESCO's participation in the co-operation scheme has involved :

  • providing the Bank with technical assistance in setting up a company which now brings cellular telephones to needy rural women in Bangladesh;
  • supplying expert advice on the harnessing of solar power and other renewable energy sources;
  • undertaking a feasibility study, to introduce interactivity-based communication and information technologies (e.g. TV, radio, webside, Internet, etc.); facilities foreseen for the Grameen Bank branches as multimedia resource centres for development (e.g. education, health, etc.).

Activities related to replication of the Grameen Bank model and dissemination of information on innovative approaches and mechanisms to eradicate poverty: It is planned that training programmes and workshops will be organized for Member States interested in adopting the Grameen Bank model and that information will be disseminated on other successful experiences.

A workshop for Central Asian countries was held at Bishkek (Kyrgyzstan) in March 1996 and has been followed up by a study visit to the Grameen Bank mechanism in Bangladesh.

UNESCO has provided financial and other support to the Grameen Bank for the production of an information kit in English, French and Spanish explaining the Bank’s philosophy, mechanism and success.

To mark the International Year for the Eradication of Poverty, a special meeting on "Creativity and Crafts towards Poverty Alleviation" was organized in Paris, in February 1996. This drew on Grameen's example in helping the weavers of Bangladesh to produce and promote their fabrics, thereby contributing to the preservation of the cultural heritage and saving these skilled craftspeople from poverty. Through this event, UNESCO encouraged its Member States to adapt similar schemes. The meeting also highlighted the links between cultural wealth and social and economic development.


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