Amid growing signs that
the global economy is worsening, the White House yesterday extended an
invitation to developing countries to attend a summit next month in Washington
with leaders of the world’s wealthy economies.
Faced with rising food and fuel prices, some of Africa’s poorest nations
are struggling to lower earlier projections of economic growth by focusing on
how to satisfy the basic day-to-day needs of their citizens. One avenue for
attracting investment needed to keep capital flowing in to local African
businesses and public works is the practice of microfinance, or supplying
credit to the poor at agreed-to, flexible rates which they can afford to pay
back in an acceptable time frame. But
the director of the Microcredit Summit Campaign Sam Daley-Harris says that tightening pressures are being felt
even in low-end borrowing circles and that such small but essential programs
that can make a difference for Africans facing dire poverty are also feeling
the effects of the global financial pinch.
“We took a survey very recently, where we asked
about the global economic crisis. But
we also asked about rising food and fuel prices. And it was becoming clear that micro finance institutions that
borrow from banks are facing higher interest rates and in some cases, drying up
funds. This has this cascading effect
as to when the banks are charging more for their interest, the microfinance
groups have to decide, do we cut costs and not pass the higher interest rates
on,” he said.
Surveying microfinance clients in Africa, Asia,
and Latin America, Daley-Harris said there are varying degrees to which the
crisis is being felt. In parts of
Africa, he notes, the crunch is leaving its mark, especially when it comes to
food shopping and diet.
“I’m thinking about a conversation with a
microfinance leader in Ghana. And he
said, clients have reduced the number of family meals from three to two times a
day and changed the makeup of meals from more nutritious but expensive foods to
less nutritious, cheaper foods. A
microfinance leader in South Africa talked about their clients facing this new
increase in food prices. He talked
about the cost of cooking oil going up quite a bit, but maize had not. But still, they’re shouldering the changes
that they’re facing by eating less as they are facing this really triple threat
– financial crisis, food, and fuel,” he said.
To weather the latest pressures, Daley-Harris
says African leaders need to act quickly to hold down rising bank costs and
interest rates and to make sure that adequate investment flows in the credit
market continue to be available to low-end borrowers, “in getting the
regulatory environment such that microfinance groups could take an ‘on-lend’
Daley-Harris said that higher prices cause people
in developing countries to spend more of their savings for essential
goods. He notes that drains personal
bank accounts, but he puts faith in the ability of local populations to apply
and pool their savings around securing more advantageous borrowing terms for
microfinance projects that can help sustain a community during stressful times.
“If a microfinance group had easy access to savings
that they could ‘on-lend,’ they could in essence bypass this global financial
crisis. They wouldn’t have to go to the
national banks or the international commercial banks for their loan fund. They could go right to the community for
savings,” he notes.
In the world of international aid, during lean
economic times, microfinance programs have had the ability to cover their costs
and sustain themselves when financing from the big banks dry up. Microcredit advocate Daley-Harris says he
remains hopeful for the sake of populations who subsist on incomes of less than
one dollar a day that microfinancing terms will be able to withstand the
current squeeze. But he says the
severity of the current downturn will really test the credit market over the
next year, and the outcome is still uncertain.
“There are tens of millions of
clients all around the world who are seen in their villages every week on their
doorstep. How do they get there? The bank workers get there on their
motorbikes or something inexpensive, and with fuel costs going up, the
microfinance institutions’ costs of getting the bank workers to the clients
each week goes up. So this is a
particularly challenging time. And
there was talk in some of these interviews and some of these responses about
‘we’re going to see the strong getting more efficient and the week disappearing
in the field of microfinance’,” he predicted.