Micro-finance Has Rural Potential

Microfinance has Rural Potential Evidence from a small scale research project suggests that micro-finance schemes have the potential to help people in rural areas who are financially disadvantaged by, for example, illhealth or location, into employment. The research was stimulated by Professor Muhammad Yunus’s pioneering work in Bangladesh and elsewhere, where his micro-finance schemes have helped many people - mainly women - to start and build businesses. The very scale and success of these schemes overseas raised the question as to why similar schemes have not been adopted for use across rural areas of the United Kingdom. In recent years there has been a growing interest in the plight of the “financially excluded” in the UK. Schemes such as the Phoenix Fund have helped to provide money to support various community development finance projects. These have, however, been mainly established in urban areas, as part of regeneration programmes aimed at – and, therefore, designed for – the demographics, geographies, and economies of relatively densely populated urban deprived areas. The prioritisation of urban problems, and, therefore, of policy and programme design, is in many ways understandable. It is not surprising, however, given the well-known differences between urban and rural areas, to find that approaches that are essentially urban do not work particularly well in rural areas. The fact that the Government has appointed a rural Financial Inclusion Champion suggests that rural difference is recognized, and that it may be possible to develop appropriate solutions to problems common to both constituencies. The research findings suggest that micro-finance schemes might well have a role to play in helping to tackle wider rural disadvantage by providing the means and support to help people into employment. Broadly, the research found that those least likely to be able to obtain finance to start rural businesses from everyday sources (eg high street banks, RDAs, family members etc) included young people and women, especially lone parents, the unemployed, ex-offenders, and the disabled. In terms of priorities for support, interviewees from organisations providing enterprise funding for disadvantaged groups stressed the importance of viable business plans as well as the more general, “individual needs”, as their criteria for assessing suitability for help. Clearly those least likely to be granted “normal” business finance are least likely to have the experience or skills needed to develop easily a viable business plan, and the most likely to resort to doorstep lenders. It appears, therefore, that those most in need of support are those least likely to get it. This is not to say that this is not recognized by the service providers. They both recognize it and can explain it. The reasons are well-known to those involved in rural development. Potential clients are relatively few and far between, and so the cost of providing the support – much of which needs to be given one to one – is relatively high (relative, it might be argued, to an urban norm). Coupled to this are problems associated with awareness raising, an inability for service providers to become economically sustainable due to the perceived need to charge low interest rates when administration costs in rural areas are high (Professor Yunus has long found that, when schemes are structured appropriately, people can pay interest rates of 20-30%), problems with the benefit system as people move from unemployment to work, and funding criteria that are restricted to certain geographical areas. These problems can be overcome. The research uncovered examples of good, innovative practice, and obtained suggestions from practitioners for an organizational approach designed to improve opportunities for employment in rural areas. This approach, which recognizes rural differences, is based on the need to make use of peer-to-peer and internet support, encouragement for the development of community land and reinvestment trusts, the building of working relationships with all like-minded organizations, and investment in staff and client training, in order to ensure mutual learning and cost-effectiveness. The last point is particularly important at the present time, given the need to cut red tape and improve local services via, for example, the “Total Place” exercise (http://tinyurl.com/l78y5b). Implicit in this is the need to evaluate costs and benefits in order to demonstrate both that investment in these approaches can produce a beneficial return for all concerned, and to help inform the long-term development of the approach. It is suggested that initial trials of the new approach could be conducted under the umbrella of the Pathways to Work scheme, given that, in the Government’s words, “... help is tailored specifically for each person taking part in the programme.” (http://tinyurl.com/yl8uz8e). For more information contact Jaki Bayly ([email protected] )