AREQUIPA, Peru – Latin America and the Caribbean’s microfinance industry has become a world leader in serving low-income entrepreneurs but must reach out to millions of potential clients who still lack access to formal credit, Inter-American Development Bank President Luis Alberto Moreno said.
At the opening of the Inter-American Forum on Microenterprise (Foromic) on Wednesday evening, Moreno noted that the microfinance industry has continued to grow, albeit at a slower pace due to the global economic crisis. According to the IDB’s Multilateral Investment Fund (MIF), at the end of 2008 there were 636 institutions in the region with some 9.5 million microcredit clients and a total loan portfolio of about $11 billion.
“There are still millions of potential clients in our region waiting to be served. Despite all our efforts, we have reached no more than 15 percent of the market,” Moreno said. The MIF estimates that some 60 million microentrepreneurs still lack access to formal credit and other basic financial services.
Addressing more than 1,500 participants at the conference, Moreno held up Peru as an example of a country striving to ensure that economic growth benefits all its citizens. Peru has the world’s best business climate for microfinance, according to a ranking developed by the Economist Intelligence Unit.
Peruvian President Alan Garcia, who spoke at the forum’s opening ceremony, attributed his country’s economic resilience to the fact that small businesses were helping sustain domestic demand. This is a key difference between the current global crisis and the Great Depression, he said. “Microenterprises and small businesses are the most important ones for a globalized economy,” Garcia added.
Microenterprises and small businesses, which typically employ fewer than 100 workers, constitute about 90 percent of all businesses in Latin America and the Caribbean, generating most of the jobs in this region.
The microfinance industry, which grew out of a handful of non-profit organizations that started to give tiny loans to poor women in the 1970s, has made huge efforts to expand, diversify and professionalize its services. In recent years it gained access to mainstream financial markets, which allowed leading institutions to tap new sources of funding.
However, as the global crisis deepened, these sources dried up, forcing the microfinance industry to slow its expansion. In order to address this problem, the IDB’s MIF is partnering with other development agencies, private sector investors and the U.S. Overseas Private Sector Investment Corporation to establish a $250 million microfinance growth facility.
The facility, proposed earlier this year by U.S. President Barack Obama, will offer Latin American and Caribbean microfinance institutions medium- and long term loans, helping them fund their microcredit activities while the economic recovery takes hold.
The MIF, an autonomous fund administered by the IDB that promotes microenterprise development, is also launching a large-scale program to address another pressing need, the lack of business training courses tailored to the requirements of women entrepreneurs.
The program, which involves partnerships between international and local institutions, will help train more than 100,000 women in Peru. The courses, which will be developed by leading local microlender MiBanco and the Arizona-based Thunderbird School of Business Management, will be made available for free to other institutions in the region.
Coincidentally, MiBanco won the IDB’s annual prize for the region’s best microfinance institution. A leading Dominican institution, Banco ADOPEM, won a prize for its outstanding outreach efforts, as it serves about half of all microcredit borrowers in its country. A Colombian association of small retail store owners won a prize for its enterprise development services.
In addition, the IDB also awarded cash prizes to three Peruvian entrepreneurs selected by local microfinance institutions for their achievements in business and contributions to their communities.
The Foromic, which every year brings together delegates from microfinance institutions, credit unions, commercial banks, investment funds, banking regulators and national and international development agencies, will continue on Thursday and Friday.