INTERNATIONAL LABOUR ORGANIZATION
	" Poverty anywhere is a threat to prosperity everywhere "

Poverty Alleviation and Microfinance
 

Microfinance (described here as small scale financial services to clients that are economically active in various urban and rural areas) has been proven to be effective in fighting poverty by providing entrepreneurs with the necessary capital to start and expand their entrepreneurial activities. Microfinance is also associated with a positive impact on social and human development. For example, impact assessments have found positive changes in microenterprise output, assets, employment and income. In additional to these effects on the entrepreneurial activity of the poor, microfinance is being attributed with positive effects on issues such as household income, savings, children's education, health and nutrition, and women's empowerment (Sebstad, J. & Ch. Gregory (1996): Overview of studies on the impact of microenterprise credit, USAID).

By providing sustainable access to financial services for the working poor, a group which has been previously excluded from affordable sources of credit and savings facilities that are secure, convenient and liquid, microfinance programmes demonstrate that the poor are creditworthy: a lesson for banks and development agencies alike.

Women feature prominently among the working poor. Microfinance is especially beneficial for them, by

• leading to higher income that will help women to perform their reproductive role as brokers of the health, nutritional, and educational status of other household members,
• increasing women's employment in micro enterprises and in improving the productivity of women's income-generating activities, and
• enhancing their self-confidence and status within the family as independent producers and providers of valuable cash resource to the household economy.

While microfinance is not a panacea to eradicate poverty, it is, as Juan Somavía, Chile's Permanent Representative to the United Nations and Director-elect of the ILO stated at the Microcredit Summit in February 1997, "a new and already tested tool for discovering new solutions to an old and intractable problem". He continued saying "what I like most about microcredit is that it builds on age-old human instincts: the need to believe in ourselves and use our imagination, to dare, to take risks, all in pursuit of the most worthwhile of all causes - the advancement of your family, yourself, and your community".

The ILO conducts action research in the area of microfinance to fill information deficits, influence policy-makers, and identify best/good/bad practices in the field. Its present ongoing work includes conceptual activities and capacity-building projects dealing with issues such as:

• Enterprise creation by the unemployed: the role of microfinance in industrialized countries - an ILO Action Programme for 1998-99;
• The impact of financial sector liberalization on the access of micro and small enterprises to financial services;
• Gender and the control over financial resources;
• The use of collateral substitutes in loan securization and strategies to reduce transaction costs in bank lending to micro and small enterprises.;
• helping MFIs to become self-sustainable while assisting the Government and Central Banks in familiarizing themselves with the informal sector and laying the basis for an appropriate regulatory framework, viability for the informal sector;
• as well as various others that can be seen on the ILO's Social Finance Unit (SFU) website.

For further information on microfinance contact SFU at tel. 41 22 799 6070,
Fax 41 22 799 6896, or e-mail: SFU@ilo.org

These links open a new window

---

Enterprise and Cooperative Development Department

 
For further information, please contact the Development Policies Department (POLDEV)
at Tel: +41.22.799.6436, Fax: +41.22.799.6867, or E-Mail: poldev@ilo.org