On September 20, the House International Relations Subcommittee on Africa, Global Human Rights and International Organizations held a hearing to examine implementation of the Microenterprise Results and Accountability Act of 2004 (P.L. 108-484).
In his opening remarks, Chair Christopher Smith (R-NJ) stated, “I have long been a fan of microcredit programs because I have seen them work…Many times in the past, foreign aid was delivered in a top-down manner to corrupt governments and organizations, where it never really reached the intended recipients. Microenterprise, on the other hand, takes a totally different approach. It’s a ‘trickle-up’ approach that focuses on helping the poorest people on the planet build themselves up, little by little, into self-sufficiency by giving them access to financing. The success of microenterprise lending programs to empower entrepreneurs and borrowers in the developing world cannot be overstated.” Rep. Smith also noted that “97% of microenterprise loans are successfully repaid and 70% go to women, who are often very vulnerable, subjected to abuse, and in need of economic opportunities in the developing world. Microenterprise is a key vehicle to assist victims of trafficking and to raise the social and economic status of women around the world.”
Ranking Member Donald Payne (D-NJ) said that he hoped to ensure that the $200 million appropriated for microenterprise programs in FY2005 would reach the “poorest of the poor” in developing countries. He also expressed his concern that the U.S. Agency for International Development (USAID) had directed resources to independent contractors and for-profit organizations, and the funding was not reaching “the people on the ground.”
USAID Acting Administrator for Economic Growth, Agriculture, and Trade James Smith said that “in FY2004, USAID’s microenterprise funding reached $180 million and is projected to exceed $200 million in FY2005. This support currently reaches more than 3.85 million entrepreneurs and households worldwide.” He highlighted a USAID-funded project in Pakistan called “From Behind the Veil” that aims “to help home-bound women embroiderers in three conservative areas of rural Pakistan link to urban wholesalers and retailers.” U.S. and Pakistani organizations “are developing a women-to-women sales network whereby sequestered women are able to reach higher value markets through mobile women intermediaries to expand both the growth of the sector and income of the individual microenterprise clients. The project is currently working with thirty-six female intermediaries who are actively receiving and selling orders from over 1,600 rural embroiderers and 80 urban garment makers. By the end of project implementation, these figures are expected to reach 70 intermediaries and over 6,000 producers.” Mr. Smith also noted that USAID has funded anti-trafficking programs in Vietnam, Laos, and Cambodia, which “incorporate support for livelihoods and microenterprise development. Approaches may include: linking skills training with income generation programs, microenterprise credit and savings projects, technical advice, group formation, and job service centers that support self-employment and business start-up as well as formal job-seeking. Targeting microenterprise development activities to at-risk women entrepreneurs in high trafficking areas will continue to be an important tool in USAID’s approach to addressing the trafficking challenge.”
With regard to the Microenterprise Results and Accountability Act, Mr. Smith explained that USAID had established a new Office of Microenterprise Development to coordinate programs. He also noted that the office is developing tools to assess the poverty level of microenterprise beneficiaries as required by the law. In describing how microenterprise grants are awarded, he said that USAID missions were increasingly being drawn to “umbrella programs” implemented by a consulting firm or nongovernmental organization. Under umbrella programs, “a single awardee carries out a broad range of activities to boost economic opportunities for microenterprises or expand financial services for the poor…They offer a cost-effective way to ensure that all the ingredients required for success capacity-building and operating support for direct service providers, support for value chain development, strengthening support services for microfinance such as auditing firms or training services, policy analysis and reform, [and] training bank supervisors to oversee microfinance operations are brought together and can respond to changing circumstances in a comprehensive and flexible way.”
Jonathan Morduch, an associate professor of public policy and economics at New York University, warned that microenterprise is not a “panacea” for reducing extreme poverty, explaining that the problem is often related to adequate health care, sanitation, and drinking water. He demonstrated how these programs could be improved to address beneficiaries’ health as well as their wealth: “Pro Mujer, an innovative microlender in Latin America, is an example of an institution that has gone one step further. Based on feedback from their clients, Pro Mujer Nicaragua introduced an array of health services, including gynecological exams, with a focus on cancer prevention and detection; self-help groups aimed at combating family violence; and health counseling by clients trained as health promoters. In 2005, Pro Mujer Nicaragua began an innovative strategy to take health services straight to customers’ communities. Health educators now travel by motorcycle to communities, offering pap smears and consultation services. Last year alone, 199 cases of cancer were detected among Pro Mujer’s customers in Nicaragua, and the women were linked to treatment.”
Women’s Opportunity Fund Vice President Susy Cheston said that “during the next ten years, Opportunity plans to open 20 to 25 new banks for the poor in order to finance 12.6 million micro-businesses. Our focus for major expansion is Africa, and particularly those countries with a high incidence of HIV/AIDS. Over the next ten years, we plan to build commercial microfinance institutions in 16 African countries, financing 2.8 million micro and small businesses, thus empowering millions of poor women to avoid risky behavior, enabling extended families to care for their orphans, and providing HIV/AIDS prevention and awareness education to those who are most vulnerable to infection.” Pointing out that many nonprofit organizations, including her own, have received “diminishing funds” from USAID, Ms. Cheston stated, “In many countries where we seek to work, including in Africa, we have been told by USAID that there are simply no discretionary economic development funds available, including for microfinance. And where such funds do exist, we are often excluded from competing because the awards are given through contracts rather than through grants or cooperative agreements.” She also noted that a new USAID funding mechanism, Leader With Associates, does not specifically target funds for organizations that work directly with the poor, stating, “USAID has done some groundbreaking work recently in reaching poor women with microfinance, most notably in the Middle East, where their encouragement of poverty-focused group loans resulted in dramatic increases in outreach to women. Yet there is much yet to be done to ensure that microfinance realizes its potential to empower poor women, as many women remain unserved or underserved.”
Testifying on behalf of the Credit Union National Association and the World Council of Credit Unions, Gary Plank offered an example of “the tremendous impact” credit union microfinance services have had in developing countries: “After the death of her two brothers from AIDS, Roseline Wangawi, a home economics teacher and credit union member in Kenya, took on the responsibility of providing for her brothers’ five orphaned children in addition to her own four. Needing to supplement her income, she decided to sew and embroider during the weekends and holidays. She borrowed $400 from her credit union to buy an embroidery machine. With a growing business, she has been able to pay off that loan, support her family, pay school fees and accumulate savings at the credit union.” Mr. Plank said that credit unions have “been drastically affected by USAID’s trend to procure financial services and microenterprise work through large contracts implemented by for-profit contractors rather than competing work through cooperative agreements and grants,” adding, “USAID now funds vast umbrella programs that attempt to work across the financial sector with general training provided by contractors and their consultants instead of funding specialized programs with expertise provided by specialized practitioners. The breadth of the activities bundled into one large contract require economies of scope from the competing contractors, essentially precluding small specialized firms from being able to viably compete as prime implementers for large contracts.”
