Millennium Development Goals and Microfinance

Today world leaders, experts, and officials will meet in New York to discuss the implementation of the Millennium Development Goals (MDGs). The MDGs were designed to combat the world’s leading concerns in development by eliminating poverty, hunger, disease and more through eight defined goals by the year 2015. The first goal, perhaps the quintessential goal of the MDGs, is to eradicate extreme poverty and hunger. But how can this immense issue be tackled? Can microfinance institutions (MFIs) play a role?

A study on global famine conducted by Nobel Laureate Amartya Sen touched on the causes of poverty. In analyzing famines, particularly in Bangladesh and Ethiopia, Sen discovered that food crises were not actually a result of food shortages but instead related entirely to access. In fact, in Ethiopia it was discovered that the country was able to continue to export food products while many were starving from the famine, highlighting that those suffering simply did not have access to existing food because they lacked access to basic entitlements or capacities. In development realms, these capacities include human capital (education, skills), social capital (networks, community, institutions), physical capital (equipment, technology), financial capital (savings, loans, insurance), and natural capital (land, water). Without access to these capacities, people are vulnerable to shocks like food crises and poverty.

This is where microfinance institutions play a significant role in poverty-reduction by providing access to a key capacity – financial capital. Microfinance brings financial services to people who might not otherwise have access to reliable or formal methods of banking. With MFIs, communities can improve access to other capitals as well, including social capital and human capital.

Furthermore, while microfinance directly targets the first goal of eradicating poverty, MFIs can assist in all of the MDG goals through various financial services, programs, trainings, and resources.

Microfinance and the Millennium Development Goals:

“Goal 1: Eradicate extreme hunger and poverty – Access to alternative microfinance institutions:

• Diversifies the livelihood opportunities of poor people making them more resilient to adverse negative shocks
• Allows the poor to plan for unanticipated and future expenses
• Enhances equitable distribution of national economic growth
• Provides an alternative mechanism for poverty reduction

Goal 2: Achieve universal primary education – Microfinance can lead to an increase in family income and therefore enhance opportunities for children to participate in full-time education:

• Increases household budget to cover out-of-pocket fees such as books, uniforms and transportation
• Reduces the economic need to keep children out of school and in income-generating activities
• Decreases the likelihood that enrolled children will drop out of school

Goal 3: Promote gender equality and empower women – Enhancing of women’s access, control and ownership of resources:

• Increases women’s participation in income-generating activities and decision-making at the household and community levels
• Strengthens the social and political leadership and livelihood opportunities of women

Goal 4: Reduce child mortality rate; Goal 5: Improve maternal health; Goal 6: Combat HIV/AIDs, malaria, and other diseases – Reducing the household income constraints can enable the marginalized and disadvantaged population to address other health issues exacerbated by poverty:

• Provides financial access to education, prevention and treatment measures for HIV/AIDS, malaria and other infectious diseases
• Enhances child and maternal health by providing access to health care services and resources
• Provides access to health care insurance and protection

Goal 7: Ensure environmental sustainability- Microfinance can help to improve environmental sustainability when it:

• Includes education in rural resource management which can enhance the sustainability of income-generating activities and natural resources.
• Provides access to alternative agricultural inputs which are environmentally friendly.

Goal 8: Develop a global partnership for development – Alternative microfinance institutions provide a new channel for global collaboration for poverty reduction.^{” 1}

With a well-constructed and well-intentioned MFI, microfinance can tackle the global needs of the MDGs. Indeed, it already has. Countless studies² depict statistics and stories of clients that have moved past poverty levels and shown improvements in health, education, empowerment, and environmental sustainability due to microfinance.

Of course, microfinance alone cannot solve these immense global issues, nor can it necessarily help the poorest of the poor or those without economic opportunities. Various approaches are needed. Many of the actions advocated by experts rely on international efforts, with aid as a key approach. Professor and economic advisor Jeffrey Sachs challenges donor nations to provide the full amounts of aid needed to meet the goals.³

However, unlike aid, microfinance offers a unique approach as it tends to be financially sustainable and has the ability to reuse funds again and again. Furthermore, development experts now value methods like Participatory Rural Appraisal (PRA), which involves the local communities in decisions and changes. With microfinance, rather than a top-down or outsider approach, communities are provided empowering services that allow them to determine the best use of funds for improving their own lives.

Together with governments, NGOs, multilateral institutions, and MFIs, we can also contribute to the MDGs. By lending through Kiva we too can do our part to counter global poverty, gender oppression, hunger, and disease.

Lend today!

By Anjali Fleury, Kiva Fellow. Anjali is serving her fellowship with CREDIT, a partner of World Relief, in Cambodia.

¹ Source of “Microfinance and the Millennium Development Goals” list: International Network of Alternative Financial Institutions: “Achieving Millennium Development Goals: The Promise of Microfinance”

² There are many informative studies and documents available online, including:

• Evidence of Microfinance’s Contribution to Achieving the Millennium Development Goals
• What Do We Know about the Impact of Microfinance?
• Is Microfinance an Effective Strategy to Reach the Millennium Development Goals?
• Microfinance and the Millennium Development Goals

³ In response to Sachs, economist Dambisa Moyo argues that aid actually hinders development and calls for measures to be taken by developing nations’ governments.