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Paths of Change
Category: Microcredit | By CMC-2011, 13-Oct-2011 | Viewed 3686  Comments 0
198_899275196_4.jpgBy Bree Gardner

Calling it a 'classic example of a social business,' CEO of FINCA International Rupert Scofield said microcredit began as market failure where the poor could not access banking, to a creative use of the banking sector that allows an escape from poverty. 

His book, The Social Entrepreneur's Handbook is a guide to the world both around and outside that of microfinance. "Social business is an umbrella term," he said, "and it encompasses any business in any sector whose goal is to provide a social benefit, Thousands of social enterprises have sprung up around the world in the education, health and environmental sectors."

Identifying social enterprise as " a means for identifying and addressing a social problem" Scofield said it is founded upon the idea of a group of people getting a raw deal, and creating a non-profit or business to solve it. 

"It's about innovation and using the tools and best practices of the business world to advance a social mission that creates positive change."

Not a stranger to the concerns brought by microfinance, Scofield agrees that there is much to be done. "After four decades of being heralded as one of the greatest anti-poverty strategies ever devised, microfinance has recently come under attack by the media, academia and financial regulators."

He attributes these attacks as faults for over-indebting clients, putting profit above mission, scaling up too quickly, and saturating poor communities with interest credit. 

"These institutions represent a very small portion of the industry, and their practices, while abhorrent, are not representative," he said.

"I am confident that microfinance has a bright and busy future ahead, and that the industry's reputation for affecting positive social change will not be sullied by the negative influence of a few bad eggs."

Aside from the critical financial services boost that FINCA provides to the industries used by their microcredit clients, Microfinance Institutions (MFIs) allow a greater access to innovation across the globe. 

"The nature of our practice implies that MFIs are in close contact with a large network of low-income people in their areas of operation, and partner organizations can leverage those pre-existing networks to reach more of their target market," Scofield said. 

"For instance, FINCA has collaborated with a solar energy company in Uganda to provide our clients access to solar panels. There are unlimited opportunities for collaboration with other organizations outside the microfinance industry."

Certainly not the only form of social business, Scofield said microfinance is only a small portion of what social-entrepreneurs can do with social change. 

"The future of social entrepreneurship is limited only by our imaginations and creativity," Scofield said. Often asked where to begin, Scofield said a better start is to ascertain what you care about. 

"Follow your passion and dive in," he said. "If you are not quite sure where to begin, volunteer for a non-profit either in Canada or the U.S., or abroad."

The correct path will become apparent as work through the industry is completed, Scofield continued, giving individuals a map of what causes interest them, and whether or not the motivation to begin their own social enterprise is there. 

Stephanie Emond from FINCA Canada said that while there are limited opportunities for volunteering within a microfinance bank, individuals who find themselves outside of the legal or banking industry could provide excellent impact by being conscious consumers. 

"While we do sometimes require technical assistance in the form of volunteers - accountants or lawyers mostly, FINCA really is just a bank whose clients are poor. But conscious consumerism is definitely something that anyone can do."

198_204803625_4.jpg"As a consumer we can do a lot with our dollars by choosing to buy a produce that is made by a social enterprise rather than buying a product that is just generating profit. A company I can think of is Oliberte Shoes, which is a Canadian company that sells shoes made in Africa."

Emond sees a bright future for microcredit and an even brighter life for microfinance. "It's important to talk about microfinance because although our clients do need credit - they need more flexible financial products that are adapted to farmers or those who want to buy land."

"I think I'd really love to see the microfinance industry achieve it's goals towards providing savings, so our clients not only have access to loans, investments and increasing their enterprise, but have access to loans to be able to increase their assets and build incomes."

Adding another dimension to the world of microfinance is President and CEO of Oikocredit Terry Provance. 

Oikocredit takes a different role within the microfinance industry, financing MFIs to run ethical and standardized businesses in democratized but poor countries.  A large collection of private funds used for financing MFIs, Oikocredit's role is to ascertain funds, invest in MFI's, and ensure quality, ethics and impact of their investments. 

Using three sets of staff, one to find and help with the operation of banks, the second to ensure operations are faithful to what their missions were, and third to employ locals within the community who know and live within the funded area to make sure everything is running smoothly and faithfully, Oikocredit takes most of the guess work out of donating to or investing in MFIs. 

"There's a certain category of microfinance institutions which are called Tier One," said Provance,  "and these tend to be more profitable, have many clients, often charge more interest to their borrowers, and offer more to their lenders, but they're moving away from the mission of reducing poverty and beginning to loan to middle-class citizens who already have access and collateral. 

"We're more interested in Tier Three and Tier Two. Tier three are often start-ups in rural areas where most of the world's people are, and tier two are ones that are beginning to move off of subsidy and grants to make them operable and are moving into some form of independence."

"We would like to see some standardization of business to make microcredit institutions more just, publicizing their interest rates as well as their fees and other kinds of behaviours that would make microfinance less susceptible to the kind of crash and crisis that has happened in India in the last couple years, where big MFIs were pushing out lots of microloans and making bad loans and creating over-indebtedness."

Provance, like his colleagues, have big plans for the future. 

"Microcredit can and should expand into savings and get into other products and services while still keeping it's mandate for focusing on poor people," he said. "As borrowers mature, they'll need different kinds of loans like small and medium enterprise loans, and I imagine they'll get more into alternative energy and environmental issues than they are right now and it will mature in many other ways.

"The need for still delivering affordable financial services to poor people will be here for a while because the need is so tremendous that even if microcredit were to continue doing exactly what it's doing now and doing a better job, that would still be wonderful."
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