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>>By Larry Reed, Director, Microcredit Summit Campaign
I started 2014 in Tacloban, Philippines, where one of the worst storms of this century, Typhoon Yolanda (or Haiyan outside the Philippines), made landfall. I visited Tacloban 75 days after the Typhoon hit to see how the storm affected the lives of microfinance clients, and what role financial services could play in helping them get back on their feet.
In the Central Business District only a few shops had dared to reopen. The dangling power lines and intermittent electricity made regular operations a challenge.
When I traveled to the parts of town where people lived in poverty, I found something much worse. Yolanda struck these low lying areas the hardest, hit them first with her 100 mph winds and then with the storm surge that followed in her wake, uprooting everything that was not permanently attached to the ground and then carrying it out to sea as the waters receded.
Homes and everything in them had been taken away, so people rebuilt with scrap lumber and sheets of plastic. They established homes and businesses again, selling daily necessities from the side of their rebuilt houses.
A mix of charity and financial services played a key role in helping people get back on their feet. Aid organizations employed people to help clean their neighborhoods and the rest of the city, giving them daily cash wages.
Microfinance institutions like CARD and ASKI got back into the city as soon as they could, providing rice and medicines for their clients’ immediate needs, while also paying insurance claims, providing access to savings and issuing emergency rebuilding loans long before any commercial banks restarted operations.
I came away with great admiration for the strength and resilience developed by those that live with constant vulnerability and an appreciation that the role that fast and appropriate financial services, delivered with a human touch, can have in catalyzing that energy to rapidly rebuild destroyed neighborhoods.
In August of this year, I visited another great example of resilience, this one over a decade in the making. Several government ministries in Ethiopia banded together under the leadership of the Prime Minister to design a program that would build resiliency in the land and the people that regularly suffered from drought. International aid organizations united behind this plan that now covers over 5 million people.
With support from the MasterCard Foundation, the Campaign hosted a trip for government ministers and leaders of government anti-poverty programs from Ghana, Mozambique, and Malawi to visit this Productive Safety Net Program (PNSP) in Ethiopia.
Under the PNSP, people living in poverty who are not able to work (the elderly, the disabled, and mothers with young children) receive regular cash payments in exchange for maintaining regular health checkups and keeping their children in school.
Those who can work participate in local public works programs decided on by the leadership of each village. These projects can include expanding school facilities and building health clinics; although, most of them involve work that improves the productive capacity of the land.
With technical support from NGOs with highly trained professional on staff, the villagers work together to build dams, retention ponds, irrigation channels and hillside terraces. They receive the payment for their work in accounts set up in local banks or microfinance institutions, which also provide loans to help them expand businesses that profit from the land’s increase productivity.
Those who started the program with the greatest poverty participate in an ultra-poor graduation programs that provides them with an asset transfer, a savings account, business training, mentoring, and access to credit.
We visited at the end of the rainy season, and we could easily see the transformation that the PNSP had brought to the land and its people. We looked down a valley filled with tall green plants, with every hillside terraced and water flowing into dams and ponds that would provide irrigation after the rains stopped. Land that used to struggle to provide one crop now provided two or three crops a year.
Almost a quarter of the people who had started with this public assistance program now no longer needed it. I tried to imagine what it must feel like for the men and women working together on the hillside, digging a retention pond together, to look down the hill and see every part of the valley filled with green plants that would provide food for their animals and income for their livelihoods and to know that, not only were they and their children better off, but their entire community was better off because of the work they had done.
In September, we helped to assemble almost 900 people from 60 different countries in Merida, Mexico, for the 17th Microcredit Summit. As we gathered in the land of the ancient Maya who envisaged a new world coming into being at this time, we imagined a world where all people have access to financial products and services they need to protect against vulnerability and invest in opportunity.
Muhammad Yunus issued the challenge for the Summit in his opening talk. “Poor people didn’t create poverty. It’s the system that created the poverty,” he told us. “And, if we want to end poverty, we have to change the system.”
During our 5 plenary sessions and 40 workshops, we heard from innovative thinkers and doers who are working to change the system. We discussed ideas and formed partnerships to begin or expand innovative programs that link conditional cash transfers to savings groups; extend agricultural value chains to small scale producers; provide health education, financing, and services in group meetings of microfinance clients; and employ digital technology that delivers payments and other financial services at a fraction of the cost of moving cash.
Together we made Commitments for what we would do to help extend financial services to all and help speed the end of extreme poverty. Then we closed by celebrating the real heroes of this work: the men and women who employ these services in order to earn and save enough to provide for their families and build a better future for their children.
I just completed my last trip of the year to the Inclusive Finance India Summit and saw a different type of resilience on display. Microfinance institutions in India have been devastated by the Andhra Pradesh crisis, where rapid growth in lending led to over-borrowing, client defaults, and a harsh response from the state government that halted collection efforts.
The sector is now growing rapidly again, enough that a few observers are worried that there may be some areas of overheating in the state of Karnataka, where many MFIs have moved.
Almost all the delegates I spoke with expressed excitement about new regulations announced by the Reserve Bank of India, which create a category of Small Finance Bank that can take deposits and make loans. The regulations also create a new category of Payments Bank to allow for institutions that make money from payment transaction, rather than from intermediating savings and credit.
In a dinner session I had with leaders from MFIs, I heard a lot of discussion about how they might transform their operations under these new regulations to provide a broader ranges of services to their clients. It will be interesting to watch this period of creative destruction that will take place in India as MFIs, mobile phone operators, and banks all adapt to the new regulations. I was glad to hear in our dinner the creativity and passion of many leaders to use these new opportunities to expand the services they provide to those living in poverty.
And now, as the year comes to a close, so does news of another Super Typhoon hitting the Philippines. This time, people knew about the power of storm surges and moved to higher ground before the storm struck, resulting in a much lower loss of life.
But still, thousands of people will go back to where they lived and find their houses and businesses destroyed. The fortunate ones will find an officer of a microfinance institution waiting for them, asking them what they need to get back on their feet.
On behalf of everyone at the Microcredit Summit Campaign, thank you for taking an active role in this global movement to bring appropriate financial services to those who struggle against poverty and vulnerability. It is our great honor and privilege to be working with you as we join with others to help bring an end to extreme poverty in our towns, our countries and our world.
May you be filled this holiday season with joy as you share the love of your family and reflect on the new financial system that we are creating together.