The difference access to banking services can make

The success of the microcredit system shows how a small amount of money can be very efficient in helping the poorest members of the community to increase their income. But microentrepreneurs need access to the full range of banking services: credit, savings and insurance, all essential tools for breaking out of the poverty cycle.

Whether they are artisans, tradesmen or farmers, the profits generated by their activity must first of all cover their basic household requirements: (food, clothing…) and are not always sufficient to allow them to invest as well. Yet sometimes just a few kilos of stock or seeds would suffice to develop their sales and therefore their resources.

Jorimon Khan’s story is a perfect illustration of this (1): before she borrowed her first 10 dollars, her family’s only income was her husband’s earnings: 20 centimes a day. Thanks to a loan from the Grameen Bank, Jorimon bought a rice dehusking machine and began to sell to local tradesmen. When she had finished reimbursing her first loan, she obtained a second loan of 33 dollars and she now earns 50 dollars a month and is paying for her two grandchildren’s education.

Microcredit borrowers are not always in such a precarious situation, but the positive cycle is always the same: the first loan is a springboard into an upward spiral, providing access to further loans and banking services. In reality of course, a “success story” can never guaranteed.

Is it best to start with savings or a loan? That depends on the individual situation. Both are closely linked and, as the financial markets say, “loans make deposits.” Saving is a way of building a safety net, which is why microcredit institutions, when they are authorised to do so by law as in Senegal, offer savings accounts to their clients.

Entrepreneurs in the South also need micro insurance, money transfer services and means of payment. Even though innovative solutions have been introduced with mobile telephones, particularly for money transfers, micro insurance is still complicated to set up. This could change because initiatives are being taken in this field, be it through private foundations or large insurance companies.

Concerned to provide more solutions for their clients, some microcredit institutions have set up non professional loans, to finance children’s education or housing renovations, requesting financial guarantees or longer repayment periods if necessary. In fact the biggest difference access to banking services makes is not financial but social: it enables people to live decently and have more control over their futures.

(1) source : State of the Microcredit Summit Campaign Report 2009

This article is part of the special report: