“Microfinance: why the field of possibilities is widening”. The tribune of Alain Lévy

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Microfinance is not, as many believe, the first attempt to provide access to financial services and products to the most disadvantaged populations excluded from the banking system. As often, modernity has its roots in history; in this case the Mont-de-piété, the tontine or the cooperatives. But when Professor Muhammad Yunus carried out his first experiments in the 1980s in the city of Jobra in Bangladesh, one of the poorest countries in the world, he had no idea that this local credit would take off worldwide. He who wanted to “free men’s dreams and help the poorest of the poor achieve dignity” would be the father of the first microfinance institution: the Grameen Bank. Its objective was to compensate for the inability of the banking system to support poor populations. Forty years later, the experience has gone global and banks have succumbed to the craze.

A major financial innovation, microcredit is the opposite of traditional banking logic. The credits, dedicated to a professional activity, are granted without requiring the slightest guarantee in return. This daring bet is paying off: we see that the poor repay better than traditional bank customers. The risk inherent in the model is often kept under control thanks to the mechanism of joint liability, which consists of making the beneficiaries of the same group jointly responsible.

Real industry. During the 1980s and 1990s, a veritable microfinance industry emerged. In India, dozens of microfinance institutions (“MFIs”) are opening. In South America, networks are being structured (ACCION, WWB, Finca). In France, appears ADIE (Association for the right to economic initiative). The XXIand century consecrates microcredit by awarding the Nobel Peace Prize to Muhammad Yunus in 2006. According to the 2019 Microfinance Barometer, there are today 916 specialized institutions which total a credit portfolio of 124 billion dollars.

The development of microcredit should experience a new impetus. This tool fits perfectly into the sustainable development strategy of major financial players. And conversely, institutions need banks to finance them, because they are bound to savings and the interbank market. The financing granted to MFIs by the BNP Paribas group over the past thirty years has indirectly supported 2.2 million people, including 1.8 million women. The same institutions supported by the bank show an above-average social performance with a score of 79 points out of 100, against an average of 64, in the Cerise database, which audits the social performance of around 300 specialized institutions.

It is also increasingly clear that these organizations have an essential role to play in the energy transition. For example, the MFI can encourage sustainable agricultural practices in return for a subsidized interest rate, finance climate risk mitigation measures, such as the acquisition of cisterns, irrigation systems or the planting of trees. Born to innovate, microfinance is still far from having explored the field of possibilities.

Alain Lévy is responsible for Asia & Americas microfinance for the BNP Paribas group.

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