Video #16 - Cambodia: Microfinancing Bank

Tuesday, January 10, 2006

sources | lesson plan

BACKGROUND INFORMATION

"For someone living on a dollar a day, a loan of a few hundred dollars - to buy a sewing machine, a refrigerator, or a bicycle - can mean the difference between destitution and a productive life."

The New York Times

An increasing number of governments and international organizations are encouraging microfinancing as a worthy form of renewable development capital. Reportedly, providing modest loans to the world's poorest so they can invest in individual or local enterprises is proving to be a productive development strategy. The most effective programs offer loans to women--with the additional benefit of strengthening their role in society by facilitating their economic independence. For example, microfinancing is expected to play an important role in helping reconstruct Afghanistan and in bringing its women back into economic life.

Encouraging the use of technology (on a small scale) is an important aspect of microfinancing. In July, 2001, The Digital Opportunity Initiative - a joint venture comprising the United Nations, The Markle Foundation and consulting firm Accenture- reported on successful projects to encourage adoption of what it calls Information and Communication Technology, or ICT, in developing countries. The report included case studies on several countries that are trying to embrace technology--including Estonia, Tanzania, Brazil and Costa Rica. It found that regions developing technology-supportive infrastructures, policies and educated work forces will be better equipped to reap the benefits of economic development than those that don't.

Additionally, the International Fund for Agricultural Development (IFAD) was established by the United Nations in 1977 to direct financing to the poorest of the world's rural poor. By using a wide variety of support mechanisms, the IFAD has shown that microfinance can be a powerful tool in overcoming poverty. Using small loans to purchase seed, fertilizer, tools and nets, or to start up micro-enterprises, millions of rural men and women are lifting themselves and their families out of extreme poverty and into a more productive life. Their experience with microfinancing also supports the view that these ventures are good business. Loan repayments in countries as diverse as Bangladesh, Benin and Dominica are at a remarkable level of 97% - about 20% higher than agricultural credit repayments in some industrialized countries.

The IFAD reports: "In Asia and the Pacific Region, project ownership and participation of the targeted rural poor is one of the most important objectives of project microfinancing design thrusts." Early engagement of project beneficiaries through workshops and greater effort at social mobilization and group formation are some of the approaches. The Income-Generating project for Marginal Farmers and Landless in Indonesia exemplifies IFAD's support of participatory development through microfinance. IFAD promoted a new approach to credit for the poor through member-managed self-help groups. Credit from Indonesia's main rural bank is channeled cost-effectively to these groups for investments in viable micro-enterprise activities. The groups are supported by field extension workers who also strengthen the linkage between the commercial bank and the village groups. The loans to small farmers and landless people are accompanied by technology packages and extension services. This approach has resulted in exceptionally high repayment rates of more than 95% throughout the project. Initial loan sizes were as low as Rp 100,000 (USD 50) per month."

In Southeast Asia, microfinancing faces a number of challenges, although each country structures the process differently. The primary common challenge is to how achieve operational and financial sustainability for institutions providing microfinancial services to low-income people. Other major concerns include how governments can get these programs going, and how they should supervise the financial institutions providing the services.

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SOURCES

"Microfinance for Smallholders." International Fund for Agricultural Development, www.ifad.org

"The Challenges of Microfinancing in Southeast Asia." The Foundation for Development Coorporation (FDC), 2001. www.fdc.org.au/pubs/asean-rt2001.html

Bowman, Lisa M., "Developing countries embrace IT." CNET News.com, July 16, 2001.

Chhor, Khatya, "Western Press Review: 'Microfinancing' The Developing World. Radio Free Europe, November 13, 2002.

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LESSON PLAN

GRADE LEVEL/SUBJECT:

10-12 grade Economics, International Relations, World History, Geography, International Baccalaureate Programs (IB), Current Events.

PURPOSE:

To present activities to be used in a variety of classroom situations in order to enhance student understanding of the Asian economy and its significance globally.

OBJECTIVES:

Students will be able to:

1. Define microfinancing
2. Explain the use of microfinancing as a growth strategy for the developing world.
3. Analyze the role of institutions currently involved in microfinancing programs.
4. Evaluate microfinancing programs already in existence.

MATERIALS:

1. Background information provided.
2. Resources on microfinancing available at your school's Media Center and the Public Library System in your area.
3. Background information available through Internet "search engines."

ACTIVITIES:

May be assigned as group activities or as individual tasks. They may also be designed as preparation for related presentations either by individuals or groups.

1. Define microfinancing.
2. Have students read "The Challenges of Microfinancing in Southeast Asia" published by The Foundation for Development Cooperation. Each cooperative learning group may be assigned a country in Southeast Asia to research and present a report to the class. The report should include current practices of microfinancing in that particular nation, an evaluation of said practices and recommendations for improvement.
3. Allow groups to research successful microfinancing models around the world. Students should prepare an oral report including the result of such programs and the group's evaluation of those outcomes.
4. Prepare a report on the institutions typically involved in microfinancing projects. Evaluate their involvement in the programs studied.

EVALUATION:

Individual assignments should be graded by the teacher using established criteria.

Group activities, presentations and projects may be evaluated by teachers and students using the following criteria and scale: Content 1 = Superior (A) Creativity 2 = Excellent (B) Clarity 3 = Good (C) 4 = Fair (D) 5 = Poor (F)

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