Microfinance Alone is Not Enough

By Julie Shea, KF12, Peru

Lately I’ve been thinking a lot about the relationship between microfinance and economic development of Peru on a countrywide scale. I’m struck by the fact that the microloans procured by female entrepreneurs, while instrumental in allowing the women to better their situations for themselves and their families, seem to have little direct influence on the economic development of Peru as a whole. For example, I have met very few loan recipients whose business activities are creating jobs; the majority of women work by themselves (and for themselves) in the informal economy.

This is not necessarily a bad thing – that women can create a better life for themselves and their family is an important step. It does however underline the notion that microfinance is not the “silver bullet” of development and poverty alleviation, but one of many tools.

Last week, I attended a seminar in Lima, which was advertised as being about “the importance that small and medium sized businesses have within the emerging Peruvian economy” (arranged by the Red de Empresarios & Profesionales CF). I arrived expecting a conference of International Development professionals and academics – but what I got was so much better! Approximately 150 eager Peruvian business owners / entrepreneurs showed up to spend 1.5 days listening to presentations on capital investment, sales techniques and strategies, establishing a business plan, business risks and opportunities, etc.

The conference participants represented a higher socioeconomic class than the entrepreneurs I’ve met through my work with Manuela Ramos. The ticket price was relatively high and the participants were 100% engaged from the beginning, aggressively taking notes and interacting with the guest speakers. I came away from the conference convinced that there is real potential for national economic development through the promotion of these small and medium enterprises. The business owners seemed ambitious and professional, eager to innovate and grow their businesses in sustainable ways (something that is more attainable in capital cities than in rural areas).

Like many Latin American countries, the gap between the rich and the poor is huge, and the contrast between the big cities and the rural areas staggering. Manuela Ramos and other microfinance institutions are playing a vital role in allowing poor people from rural areas to access capital and improve their ability to provide for themselves and their families. But the economic diversity this example illustrates calls for a correspondingly diverse set of approaches to promoting business development.

Finally, it should be noted that while microfinance is not necessarily contributing to immediate national economic development today, it will likely have consequences over the coming years and generations that will foster an environment for long term development. For example – a mother’s ability to run a successful business and support her family will mean that her son or daughter does not have to drop out of school to help with the family business and has the possibility to take a longer education and enter into a professional career (and hopefully someday be able to travel to Peru to attend seminars on how to run a business).

Julie Shea is a Kiva Fellow working with Manuela Ramos/CrediMujer in Peru, currently in Pucallpa.