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Kimio Fujita
Kimio Fujita, Former President of JICA and Member of the PlaNet Finance Japan Board of Directors
Over the past 50 years, Japan has placed an emphasis on “self-help” as its basic philosophy toward development assistance. This “self-help” concept has its roots in Japan’s post-war experience when it was an aid recipient itself. Based on that experience, within Japan’s development assistance community it is widely believed that a successful outcome is more likely if aid recipient countries are required to take the initiative in developing and implementing economic and social development plans and to assume responsibility for promoting these plans.
This approach was, for example, applied to Southeast Asian countries, which were initially the major recipients of Japan’s overseas aid, resulting in great success and leading to the so-called “East Asian Miracle.” Some leaders in Africa, for which Japan later stepped up its aid efforts, have also said that Japan’s biggest contribution to African countries was to show them that it was recipient countries themselves who were ultimately responsible for developing their own countries.
Microfinance applies the principle of self-help to development at the grass roots level. An investigation into the cause of microfinance’s success reveals that it is the only successful initiative because it gives incentives for the poor to help themselves and to make their projects successful. Only then can they escape poverty.
Japanese economic cooperation changes the nature of the donor’s relations with developing countries from one based on humanitarian assistance driven by moral obligations to one based on a partnership for growth. Microfinance adapts this successful model to the needs of households at the grass roots. Supporting the expansion of the microfinance sector is thus key to permanently reducing the number of people living in hopeless poverty.
Makoto Utsumi
Makoto Utsumi, President & CEO, Japan Credit Rating Agency Ltd. and Member of the PlaNet Finance Japan Board of Directors
The president of Planet Finance, Jacques Attali, has long advocated the development of microfinance systems as the most effective measure to fight poverty. This view has since gained global momentum for its effectiveness on both social and business levels. The fact that microfinance institutions around the world have been able to turn a profit while making contributions to the professional development of the industry further solidifies Attali’s argument.
Upon closer examination, it becomes easy to understand what makes the microfinance businesses so effective. First, microfinance clients (individual borrowers) consist of people with a strong desire to start or to expand their occupations, but may have had trouble obtaining funding from formal financial institutions. Examples of such candidates include females working in a male-dominant business society or an individual who has neither a steady income nor an asset base to secure a bank loan.
Even before any loans are provided, a micro-finance loan representative pays weekly visits to the borrowers, first providing assistance in the form of education. The representative educates loan candidates in the forms of providing financial advice and holding group seminars. On average, a single loan representative is responsible for 200 individual borrowers, consuming much of the representative’s time
To offset the high operating costs which arise from such time demands, microfinance loan interest rates have to be set relatively high. Amazingly, however, the default rates are very low, even below 2% among some micro-finance institutions.
With the examples from foreign countries in hand, Jacques Attali encourages Japanese ODA (overseas development assistance) to be more active in this field. Last year, Kimio Fujita, the former president of JICA (Japan International Cooperation Agency) and also a member of the board of directors of PlaNet Finance Japan, also emphasized the importance of microfinance for Japan in the field of global cooperation.
However, Japan is still at an early stage in the microfinance field and possesses low levels of entrepreneurship, especially in the field of finance. To solve this issue, there should be more active involvement from the private sector.
Whenever Japanese ODA assists microfinance projects in developing countries, young staff from the private sector should be encouraged to go along, so that they can use their professional skills to help with implementation. In return, they will gain valuable learning experiences to implement a micro-finance business model in their respective companies.
Ron Bevacqua
Ron Bevacqua, Executive Director, PlaNet Finance Japan
Endemic poverty is one of the world’s leading problems. The inability of poor people to become economically independent and self-sustainable is one of the most serious challenges to world peace and stability in the 21st century. It is a human condition which cannot be overlooked.
Microfinance has proven to be the most effective tool in addressing this crisis. A small loan, a savings account, an insurance policy, or affordable way to send a paycheck home can make all the difference to a low-income family or small-scale enterprise. With those services supporting them, they can move beyond day-to-day survival and begin planning for the future. That means they can invest in better nutrition, housing, health, and education for their children. They can create productive businesses and recover more quickly in the aftermath of natural or man-made disasters. In short, they can take real strides towards breaking the vicious circle of poverty and vulnerability.
However, microfinance’s impact goes beyond fighting poverty. By giving beneficiaries the incentive to establish economic and social linkages where none existed before, microfinance helps build the foundations for civil society. It is therefore an important contributor to peace and stability wherever it is practiced.
Microfinance is not charity. It is a way to extend the same rights and services to low-income households that are available to everyone else. Most important, microfinance recognizes that poor people are part of the solution. It builds on their ideas, energy and vision.
The ideas, energy and vision of small-scale businessmen form the foundation of the Japanese economy as well. In many ways one could say that the small businessperson is a representative of the Japanese spirit. The support that microfinance gives to small business is something Japan understands implicitly.
Moreover, the way microfinance is practiced represents a prototype for a new and more effective kind of ODA because it involves cooperation between the various stakeholders in the world of development, including governments, corporations, foundations, think-tanks and NGOs.
Through PlaNet Finance Japan’s efforts, I hope that microfinance will become an increasingly important tool in Japan’s ODA toolbox.