The virtues of microlending
A recent Washington Post story ("Microsavings Programs Build Wealth, Pennies at a Time," March 15, 2013) extols the virtues of regular savings to help the “poorest of the poor” lift themselves out of poverty. We at Pact couldn’t agree more. But the article also takes a swipe at microlending, in which nonprofit microfinance institutions offer access to credit to those who have none.
Our experience throughout the world working in both savings and credit programs leads us to a different conclusion.
Those who are poor deserve the same right as anyone to choose either savings or credit or both as they try to build a better tomorrow for themselves and their families. Like others, those who are poor need and want to save and build reserves for the uncertainties of life. But, again like so many of us, they may also want to borrow funds to give them a “running start” in building a productive enterprise when savings are not yet enough to suffice.
At Pact, we’ve been helping people do both since the late 1990s. Throughout Asia and Africa, we’ve helped form thousands of savings-led groups of women. Called WORTH, our latest project is reaching some 22,000 additional women in Myanmar alone, thanks to startup costs borne by our partner The Coca-Cola Foundation.
Members of WORTH groups make regular deposits, access loans at reasonable interest rates, and watch their wealth grow as interest is compounded or paid out in dividends.
We also know microfinance. Pact Global Microfinance Fund is by far the largest nonprofit lender in Myanmar, with more than 500,000 borrowers, 99% of them women. Our default rate is less than 1%.
While there are many advocates for one approach over the other, at Pact we work to help people with limited livelihood choices gain the resources they need to be income-secure, whether through savings, responsible borrowing or an appropriate measure of both.
It’s about addressing the whole person, so they can exercise choice as they work to own a better future for themselves, their family and their community.