Where Does Latin America's Microfinance Industry Stand Today? Earl Jarrett answers

February 3, 2012

The following appeared as part of an article in the January 5-18, 2012 edition of the Inter-American Dialogue Financial Services Advisor. It is reproduced on Microlinks in four parts.

Capital letter QMicrofinance, which had been hailed as a tool to help the indigent escape poverty, last year became increasingly associated with misery and controversy, as debtors in places like India and Bangladesh were driven to suicide and critics decried the industry's interest rates as exorbitant. Where does Latin America's microfinance industry stand today, following a year when the negative sides of microfinance captured headlines? To what extent has microfinance in Latin America avoided abuses seen in other parts of the world? Has the concept been successful in the region, and what is the future of microfinance in Latin America and the Caribbean?

Capital letter AEarl Jarrett, member of the Financial Services Advisor board and general manager of the Jamaica National Building Society: "Microfinance in Latin America and the Caribbean is significant for the economic development of the region, creation of jobs and lifting people out of poverty. Microfinance is recognized and documented in Africa, Asia and the Caribbean as providing much-needed financing to support business ventures. In Jamaica, there are microfinance entities such as the JN Small Business Loans (JNSBL) Ltd. which has loaned approximately 13 billion Jamaican dollars ($147 million) over the past 10 years and created some 270,000 jobs, with a portfolio at risk of less than 1 percent. The impact of this kind of access to microfinance is evident in a study conducted by the Tropical Medical Research Institute of The University of the West Indies on a group of JNSBL clients. It revealed social transformation in households with greater levels of investment in the education of children, increased wealth and an overall improvement in the quality of life."

"While there are negative stories of burdensome microfinance interest rates, it should be noted that most microfinance institutions charge no fees; therefore, the interest rate includes the cost of the money and the service, which incorporates business training and supervision by employees of the lending agencies. These inputs are critical in ensuring that loans remain sustainable and debtors are not placed in a position where the business fails or the debt remains unpaid. There are safeguards in Jamaica and the wider Caribbean to protect debtors against the experiences of debtors in Bangladesh and India. Countries are also being encouraged to develop a legislative framework for individuals to have greater access to microfinance through avenues such as mobile banking. Microfinance will remain a key component in driving the creation of new business and jobs, particularly as the world works its way through the current economic crisis."