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September 2008: Ask representatives to sign House microfinance letter to the World Bank.

Working for a World Free of Poverty

— Tag line on the World Bank homepage[1]

Professor Muhammad Yunus, the 2006 Nobel Peace Prize Laureate, recently reiterated his vow to create a “poverty museum” in Bangladesh by 2030. Bangladesh is cutting extreme poverty rates (those living on less than $1 per day) by 1.34 percentage points each year. Bangladesh is on track to cut poverty in half from 1990 levels by 2013[2]. It is remarkable that one of the poorest countries with few natural resources will likely reduce poverty levels from 58.8 percent to 29.4 percent in 22 years.

It is no coincidence that Bangladesh is home to Grameen Bank and BRAC, two of the largest and most successful microfinance institutions (MFIs) in the world. Rather than dismiss the poorest as unreachable, these MFIs, and others in Bangladesh and around the world, are helping the poorest people — those living on less than $1 a day — to break free from the cycle of poverty by providing them access to transformational financial services.

This transformative vision emanates from a field with a tradition of breaking new ground. Microfinance turned the sacrosanct rules of commercial banking upside down. From making small loans to poor women with no collateral to eliminating mounds of paperwork, this industry was built on the work of early rule-breakers. Now new rule-breakers like Jamii Bora, which lends to beggars, have their sights set not only on breaking the rules of commercial banking, but the rules of microfinance itself.

In addition to Bangladesh’s, there should be many other museums of poverty erected around the world in coming years. Every country and international financial institution has committed to achieving the Millennium Development Goals (MDGs) by 2015, with the overarching goal to halve poverty by 2015. We have the means to end poverty, and microfinance is one of the most effective and proven tools to make a lasting difference in the lives of the very poor. It currently provides hope for a better future to millions of families. Missing now is political will of our leaders to fulfill their millennium promises.

As the largest international lender for developing countries, the World Bank has an enormous ability to influence whether the world will achieve the MDGs. The Bank’s stated mission is “to fight poverty with passion and professionalism for lasting results.” However, the World Bank is investing very little in microfinance for those who live on less than $1 a day.

The World Bank’s president, Robert Zoellick, has the opportunity to steer the Bank in a new direction and reform policies in favor of pro-poor investments that will align Bank practices with its stated mission of alleviating poverty. The World Bank must increase its investment in microfinance for those living on less than $1 a day. In an October 2007 meeting with members of the U.S. Congress, Mr. Zoellick said he would examine whether the Bank can invest more in microfinance for the poorest (see background section below) and agreed to further meetings to discuss this issue.

 

Take Action: Ask Representatives to Sign a Letter to World Bank President Zoellick

  • Introduce yourself and explain that you are a constituent.
  • If your representative is listed as a former signer on a World Bank letter, please thank him/her (list below).
  • Share your concern that although the World Bank’s stated mission is to ensure poverty reduction and improve living standards, the Bank is not investing enough in microfinance for the very poor, even when we know that microfinance is a proven and cost-effective tool to help the very poor lift themselves out of poverty.
  • Highlight exciting new ideas to enhance the Bank’s ability to reach the very poor with microfinance, including: 1) creating a new $200 million grant facility for MFIs (Microfinance Institutions) trying to reach the very poor, 2) creating and supporting Centers of Excellence at MFIs like Grameen Bank and Jamii Bora where interested parties can learn how to reach the very poor with microfinance, 3) creating an sub-Saharan Africa “apex fund,” a funding mechanism that will allow more MFIs focusing on the very poor to access capital.
  • To sign on to the letter, tell your representative to contact Chris Gaston in Rep. Holt’s office (Democrats) or Chris Alsup in Rep. Carter’s office (Republicans). Tell the office that you look forward to knowing whether the representative will be signing the letter, and that you hope that the representative will participate in any face-to-face meetings with the World Bank President.
  • Send your letter via fax or e-mail as postal delivery is delayed by several weeks. Address your letter to: Rep. ______, U.S. House of Representatives, Washington, DC 20515.

 

What is Microfinance?

Microfinance programs provide small loans, assure a safe place to save money, and sometimes offer insurance and other financial services. It is a proven, cost-effective tool to help the very poor, particularly women, lift themselves out of poverty and improve the lives of their families. Microfinance loans, starting at $50 or less, allow people to start and expand tiny businesses without depending on moneylenders who charge exorbitant interest rates. Muhammad Yunus notes the first thing a woman does with the proceeds from her loan is “bring her children home” — literally liberating her children from servitude.

Background on Congressional Action on the World Bank’s Underinvestment in Microfinance for the Poorest

In July 2007, Representatives Holt (D-NJ), Carter (R-TX), and 71 House colleagues sent a bipartisan letter to World Bank President Robert Zoellick, requesting a meeting to discuss the Bank’s underinvestment in microfinance for the poorest. Mr. Zoellick came to Capitol Hill on October 3 to meet with 27 representatives and two senators (Sens. Enzi and Brown). It was important for Mr. Zoellick to see the strong support in Congress for reform and to hear important critiques of the Bank’s microfinance policies. In a break from his two predecessors, Mr. Zoellick specifically offered to continue meeting with Congress. We must ensure that these discussions lead to action.

New Window of Opportunity

A new window of opportunity opened recently after a RESULTS meeting with CGAP (Consultative Group to Assist the Poor), the consulting arm of the World Bank on microfinance. The meeting yielded a better understanding of how the World Bank can invest in microfinance that serves the very poor. It is now time for the Congress to express concern about Bank policies, request that the new reforms be enacted, and request that Mr. Zoellick meet with Congress again to move these reforms forward. Signers of the July 2007 letter to the World Bank on microfinance were:

Baird, Brian (D-WA); Baldwin, Tammy (D-WI); Bartlett, Roscoe (R-MD); Bishop, Rob (R-UT); Bono, Mary (R-CA); Bordallo, Madeleine (D-GU); Brady, Kevin (D-PA); Brown, Corrine (D-FL); Capuano, Michael (D-MA); Carter, John (R-TX); Conaway, Michael (R-TX); Conyers, John (D-MI); Crowley, Joseph (D-NY); Davis, Danny (D-IL); Dicks, Norman (D-WA); Dingell, John (D-MI); Doggett, Lloyd (D-TX); Ellison, Keith (D-MN); Fattah, Chaka (D-PA); Filner, Bob (D-CA); Fortenberry, Jeff (R-NE); Gonzalez, Charles (D-TX); Granger, Kay (R-TX); Green, Al (D-TX); Grijalva, Raul (D-AZ); Hastings, Alcee (D-FL); Herseth-Sandlin, Stephanie (D-SD); Hill, Baron (D-IN); Hodes, Paul (D-NH); Holt, Rush (D-NJ); Hunter, Duncan (R-CA); Inslee, Jay (D-WA); Jackson-Lee, Sheila (D-TX); Jefferson, William (D-LA); Kildee, Dale (D-MI); Kucinich, Dennis (D-OH); Larsen, Rick (D-WA); Lee, Barbara (D-CA); Levin, Sander (D-MI); Lewis, John (D-GA); Lofgren, Zoe (D-CA); Matheson, Jim (D-UT); McCaul, Michael (R-TX); McCollum, Betty (D-MN); McCotter, Thaddeus (R-MI); McDermott, Jim (D-WA); McGovern, James (D-MA); McNerney, Jerry (D-CA); Meek, Kendrick (D-FL); Moore, Gwen (D-WI); Moran, James (D-VA); Murphy, Patrick (D-PA); Oberstar, James (D-MN); Pickering, Charles (R-MS); Reichert, David (R-WA); Renzi, Rick (R-AZ); Rohrabacher, Dana (R-CA); Ros-Lehtinen, Ileana (R-FL); Rothman, Stephen (D-NJ); Saxton, Jim (R-NJ); Schakowsky, Janice (D-IL); Shuler, Heath (D-NC); Sires, Albio (D-NJ); Sullivan, John (R-OK); Udall, Mark (D-CO); Udall, Tom (D-NM); Walberg, Timothy (R-MI); Wexler, Robert (D-FL); Wilson, Charles (D-OH); Woolsey, Lynn (D-CA); Young, Don (R-AK).

What Should the World Bank Do?

The World Bank’s own research shows that microfinance is a proven, effective tool for addressing the worst aspects of poverty, even among the very poor. An in-depth World Bank study examining three Bangladeshi microfinance institutions (MFIs) found that three percent of clients left poverty each year due to their microloans, that one percent of non-clients left poverty due to the spillover effect of increased economic activity at the village level, and that microfinance accounted for 40 percent of the entire reduction of moderate poverty in rural Bangladesh.

However, microfinance is a development tool that has been underutilized by the Bank. To take advantage of this critical development tool, the U.S. Congress must ask the World Bank to: 1) create a new $200 million grant facility for MFIs trying to reach the very poor, 2) create and support Centers of Excellence at MFIs like Grameen Bank in Bangladesh and Jamii Bora in Kenya where interested parties can learn how to reach the very poor with microfinance, 3) create a sub-Saharan African apex fund[3], a funding mechanism that will allow more MFIs focusing on the very poor to access capital.


[1] http://www.worldbank.org/

[2] MDG Mid-Term Report for Bangladesh, 2007

[3] An apex fund is mechanism that facilitates the disbursement of microfinance funds to MFIs at an affordable rate to help those organizations gain access to needed funds. The World Bank already supports some apex funds, such as the highly regarded PKSF in Bangladesh.