Micro Credit - Shabnum Lutafali

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http://www.chron.com/cs/CDA/ssistory.mp ... ss/3190212
May 19, 2005, 8:04PM

Moneymakers: Shabnum Lutafali
New idea aims to make poor self-sufficient

Microfinance has long been thought of as small loans made to the poor.

Earlier this year, the Aga Khan Development Network, a group of nonprofits created by the spiritual leader of the world's Shia Ismaili Muslim community, Prince Karim Aga Khan, announced a new approach that goes beyond just making a loan. The network created the Aga Khan Agency for Microfinance, which provides the poor with insurance, savings, education and health accounts.

Reporter Purva Patel talked about the evolution of microfinance with Shabnum Lutafali, who teaches finance at the University of Houston and serves as president of the Aga Khan Shia Imami Ismaili Council for the Southwestern USA.

Q: How has microfinance changed over the years?

A: If you look at the history of microfinance, it started in Germany in the 19th century to do banking with the poor. Over the years we've noticed that the institutions are there but they have not brought a significant change in the level of poverty. The poverty still stands. Over the years the concept has changed. It's not only the alleviation of poverty, but it's eliminating the social and economic exclusion of the poor that's needed. The concept that has emerged is, "How to take poor people out of the trap of poverty?"

Q: How do you do that with microfinance?

A: The Aga Khan institute has been working through various agencies to offer not just economic help and loans but other services to make borrowers self-reliant, self-sufficient and offer them technical services. They have provided on-site service and training for their day-to-day business. Institutions help them enhance their skills and educate them about the profession they choose. They're not only making loans but also giving them microinsurance to provide them security in case of death or disability. It costs an insignificant amount, about $2 in premium.

Q: What do you say to critics who say microfinance can't address root causes of poverty that may be traced to political or structural economic issues?

A: Yes, in developing countries it's been noted that the governments have failed to alleviate poverty.

Governments have failed, because of political turmoil and instability, to reach the people at the grass-roots level.

But micro finance agencies like Aga Khan's have mobile banking. They go to villages and work with the people.

They're strengthening the hands of the government, and that's why the governments are then coming and helping the agencies to alleviate poverty and bring economic stability.

Q: What is the biggest challenge facing microfinance?

A: The challenge is instilling confidence in poor people to come forward and ask for help. I think the capacity is there in some countries. In some countries, the government still needs to come forward and provide a more enabling environment for microfinance institutions. Developed countries need these institutions also. People are living below the poverty line. If you look at these developing countries, the government has played a significant role but they need to go to a deeper level to reach the poor.

Q: Why do you say developed countries need these institutions?

A: Developed countries need this because there are pockets of poverty in developed countries also. If you look at the difference between have and have nots, just look at the number of people living in poverty ... And then look at the cost of education and the cost of health care. How many developed countries don't have a public health care system? The welfare system in most developed countries is very deep-rooted and well established, but how long are governments going to be able to sustain that burden?

It's not money that's really the issue. It's the cultural and social exclusion that's important. They're willing to work. Give them a hand out, don't give them handouts.

[email protected]

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Micro Credit - Shabnum Lutafali

Micro Credit - Shabnum Lutafali

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