Technology aids microcredit loans

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The head of a World Bank affiliate says inexpensive new technologies such as cell phones and pre-paid calling cards are for the first time bringing microcredit loans within reach of the world's neediest people.

Financial experts agree that microcredit — comprising loans of less than $150 — is a powerful tool for helping people in Third World countries to establish small businesses and become self-supporting, but disagree about its ability to reach the very poorest of those.

"It's important to realize that the biggest challenge for microfinance is the institutional capacity on the ground to provide financial services to poor people," said Elizabeth Littlefield, chief executive of Consultative Group to Assist the Poor (CGAP), in an interview this week.

"It is very expensive to make tiny transactions. New technology, like cell phones and pre-paid phone cards, are all promising to reduce the transaction costs, so there is hope of reaching very remote areas and poor people."

Ingrid Munro, founder of Jamii Bora, Kenya's largest microfinance institution, agreed that it is possible to reach the poorest people "if you have the right stuff and do the right thing." She said Jamii Bora uses state of the art technology to reach its clients in all parts of Kenya.

"Working with the very poor, you have to be even more sophisticated because it's very expensive to reach your members," Ms. Munro said. She said microfinance institutions that reach the poorest must have roots in the most remote areas and use technologies such as Global Positioning System tracking devices.

"We intend to grow very fast. We are very advanced from a technological point of view. ... We're as modern as CitiBank," she said of the eight-year-old venture, which has grown from 50 members to 170,000 since 1999.

Ms. Littlefield said, "The reality today is that most microfinance does not reach the most destitute and the hungry. The whole industry needs to do more, using many different approaches, to reach much poorer people."

Ms. Littlefield said the World Bank is the largest backer of microfinance and that its private sector arm, the International Finance Corp., is doubling its investment in microfinance every year.

But Muhammad Yunus, who won a Nobel Prize for his work as founder of the microfinance pioneering Grameen Bank, said the World Bank sees microfinance as a solution only for the upper tier of impoverished people.

"They think that the bottom layer of poverty should belong to handouts and safety-net programs rather than credit; they cannot handle credit," said Mr. Yunus during a teleconference with reporters late last month.

"Given that the bank's mission is to alleviate poverty, the bank should provide increased funds for microfinance and make sure that more than half of those funds go to families living below $1 a day," he said.