It’s Financial Inclusion 2020 Week – but what happened to microfinance?

This week you may notice a lot of online discussion and social media chatter about financial inclusion, and how we ensure that low- and moderate-income people around the world have access to a full suite of quality financial services. And while this conversation is important, and this week gives those of us working in the sector the opportunity to galvanise support and mobilise action, it dawned on me that some people might be wondering: “What ever happened to microfinance?”

There is some disagreement about the exact definition of “financial inclusion” and how it differs from microfinance. But I thought it might be useful to outline how we at Lendwithcare view the differences and what these mean for our entrepreneurs:

1. “Financial inclusion” refers to providing people with a full range of financial services. And although different products do exist under microfinance (such as credit, savings, insurance and remittances), the microfinance industry has traditionally been dominated by credit. Therefore the term “microfinance” has incorrectly become synonymous with only offering microcredit.
2. “Financial inclusion” means ensuring we not only provide a range of products but that those products are of high quality. Those products should be appropriate, and specifically designed to meet the needs of clients. It is also important to ensure the clients have the capability to choose and use these products. Financial literacy is also therefore crucially important.
3. Finally, “financial inclusion” means that these services can be accessed conveniently and from a range of providers: including, but not limited to, banks, microfinance institutions and telecommunications companies.

So what do these elements of financial inclusion mean for Lendwithcare? It may seem on the surface that Lendwithcare only offers microcredit and is restricted to providing its beneficiaries with small business loans. However, this is an inaccurate picture. Although it is true that Lendwithcare enables us to raise vital loan capital to support micro-entrepreneurs around the world, the local partners we work with, and provide interest free capital to, are doing so much more to support their clients and work towards our financial inclusion goals. Here are just a few of the ways they (and you, through supporting Lendwithcare) are contributing to achieving full financial inclusion:

• Our partners offer their clients more than just microcredit. In fact, it is an essential condition to becoming a Lendwithcare partner that in addition to offering access to credit, our partners must offer other services such as savings facilities, business training, insurance, remittances etc. Many go far beyond this by providing their clients with access to the market and support and training around implementing environmentally-friendly business practices. You can read the list of full services our partners offer here.
• Our partners are required to follow CARE’s Code of Conduct in microfinance and are supported by CARE to acquire the Smart Campaign certification and sign up to their Client Protection Principles.
• We are ensuring that the services we help provide are having a positive impact on poverty. Many of our partners already measure and monitor the social performance of their clients and we are working with others to conduct rigorous and thorough impact assessments.

So it is likely that you will continue to hear the two terms being used interchangeably (including by us!), but I hope this blog helps to clarify our understanding of the terms. In honour of Financial Inclusion Week 2020 and everything it is trying to achieve, I would thoroughly recommend joining the movement and visiting www.lendwithcare.org today.

By Nancy Thomas, Senior Lendwithcare Executive