Microfinance under the microscope

People working to improve the lives of women say increasing their economic independence is a crucial step in reaching that goal.



Microfinance is considered one of the tools helping women towards economic independence, especially in the developing world.


The future of this idea, and the role it plays in women’s lives, has been the subject of talks between one of the world’s largest microfinance networks and AusAID, the Australian government’s overseas aid program.


Peggy Giakoumelos.



Microfinance involves giving loans, sometimes as small as $100, to people who are often excluded from the formal banking sector.


It’s considered a key way to help many women in the developing world to free themselves from poverty.


Women’s World Banking is a network supporting 39 microfinance institutions from 29 countries, and most of its 19 million clients are women.


In 2010, Australia began a new partnership with the network, becoming one of its four main funding bodies.


During a recent visit to Australia, the President of Women’s World Banking, Mary Ellen Iskerdarian highlighted some of the current issues affecting the sector.


“The number 2.8 billion people who don’t have access to financial services is always such a daunting number, and microfinance has been around say 30-35 years has really only touched 200 million clients so we’ve got a big gap to fill there, so I think being able to think more broadly beyond just the microfinance institutions but thinking about banks, taking advantage of the extraordinary opportunities that cellphone technology now gives us, to reach people who were previously literally unreachable, we’re just going to have to work harder to bring people around the table who may not have been at that original set of conversations when we first started talking about micro-finance.”


Rosyln Russell is the Principal Research Fellow from the School of Economics at RMIT University in Melbourne.


She says research shows the benefits of microfinance for women.


But she says issues of governance continue to be plague the sector.


“Microfinance institutions have grown exponentially the number of them in developing countries. So it’s blowing out in some respects almost faster than what regulation and governance can keep up with, so there have been issues and there has been problems with governance but there’s still evidence of high interest loans being charged though these MFI’s now, which almost mirrors pay day lenders type of exploitation. But there is a lot of evidence when they’re provided as they should be provided to help individuals, it does provide a helping hand and it provides what they need to kickstart a small business and improve lives of individuals and their immediate communities.”


The President of Women’s World Banking, Mary Ellen Iskerdarian says in the Asia Pacific region, a major focus of the organisation’s work is in developing good governance or leadership practices.


“We’ve been working in the last few months with several Pacific microfinance institutions. We’ve been working particularly in Papua New Guinea with Nationwide Microfinance in helping their management team, really reach the level that a leadership team needs to in order to start innovating. Some of the things may not sound very innovative to someone who is used to a developed country level of financial services but represent huge leaps in terms of service provision for some of the smaller microfinance institutions.”


Bill Mitchell is Professor of Economics at Charles Darwin University.


He says while microfinance has undoubtedly changed the lives of many individuals, it doesn’t do much to challenge the broader causes of poverty in the developing world.


Professor Mitchell says sound macroeconomic policies need to be in place for microfinance initiatives to really have an impact.


These smaller ventures tend to just shuffle the activity, so if you get a very active local community with a good local bank, yes you can improve its fortunes somewhat. But the scale of poverty and the scale of unemployment and underemployment in particularly developing countries is so large that you need national government macro-economic policies, budget deficits and spending and job creation. To solve the big, big problem. And within that sort of solid macro economic approach to development, then the small micro banks are extremely effective.