#tbt: A New Law and New Hope


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We are pleased to bring you this #ThursdayThrowback blog post, which was originally published in The State of the Microcredit Summit Campaign Report 2004. The RESULTS International Conference is only three weeks away (July 18-21), and grassroots activists from the U.S. and around the world will be in D.C. to lobby the USAID Administrator and World Bank Directors. Therefore, in the weeks leading up to that great event, we’ll review advocacy successes and struggles in the early 2000s wherein we achieved breakthroughs in poverty measurement in order to target the extreme poor and other concessions from USAID and the World Bank.

The revolution in reaching the very poor is most evident in a new U.S. law and the resistance to it by some leaders in international development. The law, which was enacted in June 2003, calls for the U.S. Agency for International Development (USAID) to develop and certify two or more cost-effective poverty measurement tools that measure $1 a day poverty. The new tools are to replace loan size, which is currently used and has proven to be inadequate for poverty measurement. As Freedom from Hunger President Chris Dunford remarked, “The average loan size for entering clients tells you more about the institution making the loan than it does about the poverty level of the person receiving it.”

Download the full 2011 State of the Campaign Report in our Resource Library

Download the full 2004 State of the Campaign Report in our Resource Library

After the newly mandated tools are certified, institutions receiving microenterprise funds from USAID will be required to use one of them and report the number of entering clients who start below $1 a day. The law is an effort to bring accountability and transparency to the long-standing Congressional commitment to have at least half of USAID microenterprise funds benefit very poor clients. This new law, particularly if it is adopted by other aid-giving countries and institutions, would have a great impact on the Microcredit Summit’s commitment to reaching the very poor and provide tremendous support to the MDG focused on halving the number of families living below $1 a day by 2015.

While the new law demonstrates the revolution that is taking place in microfinance, efforts to expand the revolution have been met with resistance. This resistance comes from major development institutions that have been asked to adopt policies similar to the new U.S. law — The World Bank, the regional development banks, and the United Nations Development Program (UNDP).

In November 2003 more than 700 parliamentarians from the United States, the United Kingdom, Canada, Japan, Australia, India, and Mexico wrote to the heads of the World Bank, the Asian, African, and Inter-American Development Banks, and UNDP. The parliamentarians lauded the institutions’ commitment to achieving the Millennium Development Goals (MDGs) which they said are “crucial to building a safer and more equitable world — and will show our constituents that development programs are truly making a difference.”

The parliamentarians continue with a concern that:

…sustainable microfinance for the very poor has not received sufficient priority in your policies and practice aimed at cutting absolute poverty in half by 2015, the most crucial — and most difficult — of the MDGs. As important as it is to support well-designed health, education, and good governance programs, these interventions alone will not ensure that some 600 million people move out of poverty.

The parliamentarians ask the heads of these powerful institutions for the following:

  • Increased funding for microenterprise: We urge you to make substantial increases in the proportion of your institutions’ lending and grants that go to microenterprise and actually reach clients. For example, the World Bank estimates that an average of $168 million in funding, less than one percent of Bank resources approved annually, is approved each year for microenterprise. We believe resources devoted to microenterprise should at least be doubled (emphasis added).
  • At least 50 percent of funds reaching the poorest: By December 31, 2004, we would like to see your institutions make the commitment to having at least 50 percent of your microfinance funds reach clients who are below US$1 a day when they start with a program.
  • Use of cost-effective poverty measurement tools to ensure meeting the target: By December 31, 2005, the microenterprise institutions should be required to use cost-effective poverty measurement tools that can determine which families start below US$1 a day and use the same or similar tools to show which families have moved above US$1 a day.
  • Annual reporting of results: By December 31, 2006, we would urge your institutions to report, on an annual basis, the amount of funds provided for microenterprise and the percentage of those funds that reach families who begin with a program at below US$1 a day.

In their letter, the parliamentarians discuss the new U.S. law and say, “We believe your institutions should be a vital part of this process and urge you to adopt a similar procedure.”

Relevant resources