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This is an archived USAID document retained on this web site as a matter of public record.
Remarks of Ambassador Harriet Babbitt, USAID Deputy Administrator
June 26, 1998
at the Microcredit Summit New York
Thank you, Madame Labelle. That was such a powerful video. "No matter how steep the path ... Never give in and never give up." And of course, Bella Abzug never did give up on anything that was important to women -- especially poor women.As she understood so well, microfinancing is not only an idea whose time has come -- it is an idea that is already changing the lives of millions of people from Bangladesh to Bolivia to Uganda.
USAID Administrator Brian Atwood will be hosting the 30th annual meeting of development ministers and directors from all over the world next week -- called the Tidewater Meetings.
These meetings will celebrate the achievements of 30 years of development cooperation and progress and lay out the challenges for the future. There is much to celebrate --dramatic improvements in health, literacy, agriculture, life expectancy and reductions in poverty. For much of the world, these changes have been accompanied by great economic growth.
Despite this progress, 800 million people are malnourished and the actual numbers of people living in poverty continue to rise even as the percentages fall.
Many of the items on the Tidewater agenda this year were there in each of the past 30 years -- disaster assistance, food and famines, disease. One prominent item this year was definitely not there 30 years ago, because it had not been invented -- microenterprise financing.
One of the greatest challenges for USAID and all development agencies is to ensure that the poor -- especially women, particularly those in rural areas -- share in the benefits of economic growth.
Microfinance is one of our most effective tools to foster bottom-up growth. For that reason, USAID has invested more than $1 billion in microenterprise development since 1988.
Our microenterprise initiative involves a range of financial services. Microcredit is one critical element of this larger picture. Others include opportunities to open savings accounts, get insurance and have access to other financial services that enable the poor to plan and prepare for both emergencies and opportunities.
But financial services alone are not enough to lift many households out of poverty. Through our Microenterprise Initiatives, USAID has also invested in non-financial components.
These include business development services for poor entrepreneurs, policy reforms, applied research and impact studies, dissemination of best practices, and other activities. These important services not only build the field, they combine to forge more powerful tools for helping the poor help themselves.
Our Microenterprise Initiative was developed in 1995 and renewed with enthusiastic support from the U.S. Congress in 1997.
Our renewed Microenterprise Initiative commits the Agency to:
-- provide at least $120 million in microenterprise assistance per year, though we hope to do more;
-- devote at least half of all microcredit funding to poverty lending -- currently defined as loans under $300;
-- make sure women receive more than 50 percent of the loans, and
-- support institutions which have charted out a clear path to covering their full costs, including achievement of repayment rates above 95%.
Our funding grid is larger than other grids you may have seen because we have added additional rows -- in bold type -- to better reflect our broad Microenterprise Initiative. The grid includes overall funding for 1994, 1996, preliminary 1997 data and an estimate for 1998.
USAID has averaged around $135 million in funding for each of the past four years, making it the largest provider of bilateral donor grants for microenterprise development.
In 1996, well over 80 percent of the loans were under $300. Women received two-thirds of these loans, and 44 percent of the borrowers were based in rural areas.
You will note that the grid shows a substantial funding drop in FY 96 --and a strong increase in FY 97. We received our funding very late in the 1996 fiscal year --so approximately $30.0 million dollars of FY 96 money spilled over into FY 97.
We are particularly proud of the increase from 1994 to 1996 in the number of clients --from about 330,000 in 1994 to almost 1 million families in 1996, benefitting an estimated 5 million poor individuals.
In 1997, we collected data on the entire universe of institutions with active grants from USAID. That year, the microfinance institutions we supported had more than 1.3 million clients. Existing programs are growing and we are also supporting more institutions each year. In 1997, some 473 institutions had active grants.
Another tangible sign of our Agency's commitment to this field is the growing breadth of our programs. In addition to grants from Washington, 53 of our missions invested in the microenterprise sector in 1997. Of these, 23 provided funds in excess of $2 million each.
We had solid growth in Africa, where dispersed rural populations and more uneven levels of economic activity combine to make sustainable microfinance more challenging than in Asia or Latin America.
Our missions reached record levels in microenterprise development funding in the region covering Europe and the Newly Independent States. That is a notable achievement in an area where costs are generally much higher than in developing countries, and generations of state-run economies have inhibited the traditions of small entrepreneurship.
Eastern and Central Europe and the NIS are areas where we feel the $300 loan standard is an inappropriate standard for judging the poverty status of entrepreneurs.Which brings me to two challenges both we and our grantees face as investors in microenterprise and financial services for the poor -- poverty targeting and sustainability.
For FY 98, we expect to surpass our target of $120 million in funding and we hope to meet our targets for women and poverty-level loans. We have increased our emphasis in the Central and Eastern Europe and Newly Independent States region, which may result in these percentages declining for FY 98 from the FY 96 level.
Like most other donors and practitioners, we do not have a really good way to measure the level of poverty of the clients we reach. Counting loans under $300 is not difficult, but that is clearly an imperfect benchmark for measuring how many of our borrowers are extremely poor.
The average loan at USAID-supported institutions is $307 -- including those in Central and Eastern Europe and the Newly Independent States.
We do not currently have adequate tools to determine whether we are indeed living up to our commitments to reach the poor with a range of financial services, including credit, savings, insurance and others.
Nor do we in the microenterprise field have a detailed enough understanding of the great diversity of poor entrepreneurs to be able to tailor new products and services to meet their specific needs and opportunities.
We are grappling with these issues at the present time.
Under our AIMS project -- which stands for Assessing the Impact of Microenterprise Services -- USAID is continuing to play an innovative role within the field. We are developing lower cost approaches that can be used by our partners -- donors and practitioners alike -- to assess the impact of microenterprise products and services.USAID has also played a significant role in the Poverty Yardstick Working Group of the Consultative Group to Assist the Poorest (C-GAP) and our staff chairs C-GAP's Working Group on Impact.
USAID's Microenterprise Best Practices project broke new ground in documenting different types of yardsticks used by institutions to target poor clients, including a housing index, a pre-loan evaluation tool, and a means test or a net worth test. USAID has also benefitted from the valuable information we receive as a member of the Microcredit Summit's Poverty Measurement Discussion Group.
We must be careful that in our efforts to target the very poor, we do not define poverty-lending so narrowly as to stifle innovation in products and services and arbitrarily limit economic growth for the very poor we seek to serve.
USAID believes the poor will often need access to larger loans and other financial and non-financial services to work their way out of poverty.
Thus, finding appropriate measuring tools and refining their use is a major challenge as we seek to make sure we are delivering services to the very poor.
Evidence suggests that these tools will need to vary not only by region but -- in many instances -- by country and within countries. USAID welcomes both C-GAP's and the Microcredit Summit's initiatives in developing poverty measurement tools.
Sustainability is another challenge.
We realize that many question whether it is possible to reach the poorest of entrepreneurs and still be sustainable.
USAID has consistently stressed the establishment of institutions capable of sustaining microfinancing and accommodating growth. We ask the microfinance institutions we support to chart a realistic path toward operational self-sufficiency and then full sustainability within seven years. We monitor progress closely and offer assistance when problems arise.
Our Agency is convinced that it is possible for microfinance to be sustainable. We have been leaders in pushing sustainability, because we want to see microfinance outlive donor funding and become a permanent, large-scale resource for the poor.
Many of our grantees are making great progress on sustainability, largely as a result of hard-won gains in operating efficiencies. We are also seeing the entry of commercially oriented participants in microfinancing who view this as an unserved market. They are analyzing the needs of poor entrepreneurs and are beginning to provide them with savings and credit services. This could enlarge the availability of microfinance services dramatically in some countries.
In short, we feel microfinance institutions around the world are addressing the two challenges of targeting the very poor and sustainability.
I have been at USAID only six months, but several years ago I had the opportunity to visit one of the fastest growing and most successful microenterprise lenders -- BancoSol, which operates in Bolivia, South America's poorest country.
BancoSol grew out of Prodem, a non-profit microlender established by ACCION and Bolivian bankers. USAID provided $4 million in seed grants to help get Prodem established.
Prodem grew so large it was soon outstripping the capacity of the local banking sector to supply lending capital. In 1992, BancoSol was launched as the first private commercial bank in the world dedicated exclusively to microfinance. After only three years, BancoSol had served more than 300,000 clients -- most of them indigenous women -- with loans averaging $400.
BancoSol now has branches in 34 cities and makes more loans each month than the rest of Bolivia's banks combined. Of BancoSol's 75,000 active clients in 1997, some 69 percent were women, including market vendors, seamstresses, bakers and candy makers.Prodem continues as a non-profit institution committed to introducing innovative financial services in rural and smaller urban areas, serving an additional 36,000 clients.
USAID not only provided lead support to some of the strongest Bolivian microfinance institutions, but we have also worked effectively at the policy level, helping put in place appropriate regulations and supervision of this dynamic financial services sector in Bolivia.
Of course, we need to look beyond the statistics.
The people here today know many of the success stories -- and there have been many thousands. It's useful to keep telling them because they are what development is all about -- helping people help themselves.
One of my favorites is about one of BancoSol's clients, Elvira Mamani. She had learned fine embroidery from her mother and used her first loan to buy more materials.
She sells her dresses and her embroidery in a tiny shop in her house in La Paz. Because her husband's construction work often involves long periods without jobs, Elvira Mamani is her family's principal support.
She now plans to request a $600 loan to buy a modern sewing machine to make dresses faster.Elvira Mamani's access to credit has not only increased her business, but as she says -- quote -- "It also gives me hope that better days are coming."
Microenterprise financing was not invented in the United States -- it was a stroke of genius on the part of Muhammad Yunus. But I think it reflects the best of America's ideals and practicality -- hope, independence, resourcefulness, responsibility, opportunity -- and self-reliance.
In a largely rural America nearly a century and a half ago, Ralph Waldo Emerson spoke of -- quote -- "the heroism and grandeur which belong to acts of self-reliance."
Microfinance and business development services are making it possible for millions of people trapped in poverty to gain self-sufficiency through their own acts of heroic self-reliance. USAID is determined to make sure that this opportunity is open to millions more.
Thank you for your attention. If you have any questions, I'll try to answer them now.
This is an archived USAID document retained on this web site as a matter of public record.
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Last Updated on: July 18, 2001 |
