Channeling Microfinance for the SDGs:
|Policy Analysis Series E-192. April 2023|
The document "Channeling Microfinance for the SDGs: Small solutions to Big Problems" discusses the potential of microfinance in helping to achieve the United Nations' Sustainable Development Goals (SDGs).
Microfinance, which is the provision of financial services to low-income individuals and small businesses, can be an effective tool in reducing poverty and promoting economic growth, as well as supporting other SDGs such as ending hunger, achieving gender equality, and building resilient infrastructure. The article explains how microfinance can be used to provide access to credit, create jobs, empower low-income individuals, improve savings and financial management, and provide micro-insurance.
It also highlights the potential of microfinance in supporting specific SDGs such as SDG 1 (No Poverty), SDG 2 (Zero Hunger) and SDG 8 (Decent Work and Economic Growth). Overall, the article argues that microfinance can play an important role in achieving the SDGs and can be a powerful tool for addressing global poverty and promoting sustainable development.
These services are typically provided by microfinance institutions (MFIs), which are organizations that specialize in serving low-income and financially underserved communities. Microfinance is designed to help individuals and small businesses start or expand their enterprises, improve their standard of living, and increase their economic opportunities.
Microfinance can take many forms, including group-based lending, individual lending, savings-led financing and micro-insurance. Microfinance can be seen as an effective tool to fight poverty, promote entrepreneurship and contribute to the economic development.
Microfinance and the SDGs
Microfinance can help in implementing the SDGs by providing access to financial services for underserved populations, such as low-income individuals and small businesses. This can help to reduce poverty and promote economic growth, which are key components of several of the SDGs, including SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth), and SDG 9 (Industry, Innovation and Infrastructure).
Microfinance can also support other SDGs, such as SDG 2 (Zero Hunger) by helping small farmers and food producers access credit, and SDG 5 (Gender Equality) by providing financial services to women who may otherwise be excluded from the formal financial system.
|The text box on the right outlines some of the ways by which microfinance can help in achieving the targets within a wide range of SDGs.||⇨|
Reducing Poverty by Providing Microfinance Services
SDG 1 aims to "End poverty in all its forms everywhere."
Some of the key provisions of this goal include reducing the number of people living in extreme poverty; reducing income inequality; creating economic opportunities, particularly for the most vulnerable and marginalized groups; building resilience to economic, social and environmental shocks and disasters; and other provisions on agriculture and economic growth and broader sustainable production and consumption.
Microfinance can form an important part of a larger and comprehensive poverty reduction strategy, and can provide key financial products and instruments that can help in reducing poverty.
Microfinance and Decent Work and Economic Growth
SDG 8 aims to "Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all."
Some of the key provisions of this goal include promoting sustained economic growth, achieving full and productive employment, promoting decent work for all, reducing inequality, promoting sustainable industrialization, supporting SMEs, strengthening the participation of developing countries in the global economy, investing in infrastructure and innovation, and improving social protection.
Microfinance, when integrated with other broader policies and initiatives, can have a bigger impact on economic growth and decent work.
Facilitating Industry, Innovation and Infrastructure through Microfinance
SDG 9 aims to "Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation."
The SDG 9 was set up with the objective of a number of key provisions in mind, including building resilient infrastructure, promoting inclusive and sustainable industrialization, fostering innovation, developing quality, reliable, sustainable and resilient infrastructure, enhancing scientific research and capacity building, encouraging public-private partnerships and other forms of cooperation, addressing the needs of developing countries, and also promote sustainable cities and human settlements.
When systems for the sustained provision of microfinance are put in place, it can help build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation.
Achieving Zero Hunger by Providing Microfinance
Achieving SDG 2 was envisaged by targeting a number of key strategies including, for example, ending hunger, achieving food security, improving nutrition, promoting sustainable agriculture, supporting smallholder farmers, reducing food loss and waste, enhance the resilience of livelihoods in dryland areas, promoting the use of sustainable agricultural practices, as well as increasing investment in rural development.
While a number of policies and strategies have to be put in place to achieve SDG 2, microfinance can accelerate the creation of a world free of hunger.
Microfinance and Gender Equality
SDG 5 aims to "Achieve gender equality and empower all women and girls."
It aims to do this by provisions such as achieving gender equality, empowering women and girls, eliminating violence against women and girls, eliminating harmful practices, ensuring equal rights to economic resources, enhancing the use of enabling technology and other provisions.
Integrating microfinance policies with other broader gender policies and initiatives will further achieving gender equality.
Much can be done to channel microfinance to facilitate smooth implementation of the SDGs, and to enable its key provisions:
► Provide low-income individuals and small businesses with access to credit, which can be used to start or expand a business, purchase assets, or invest in education or other income-generating activities.
... therefore increase income, create jobs, and promote economic growth.
► Support entrepreneurship by providing access to capital, financial education, and other services to people who would otherwise not have access to these resources.
... therefore promote innovation and increase productivity.
► Create and sustain SMEs by providing small loans to informal sector entrepreneurs
.... therefore facilitate economic growth and job creation, and contribute to industry, innovation and infrastructure.
► Support agriculture and rural development by providing credit and other financial services to smallholder farmers and rural entrepreneurs,
.... therefore increase productivity, income and food security.
► Promote gender equality by targeting their services to women-led businesses, providing financial education and training to women, and implementing gender-inclusive policies.
... therefore promote gender equality
► Invest in infrastructure and innovation, such as transportation, communication and energy systems,
... therefore increase productivity and economic growth
► Improve social protection by providing access to social security, such as unemployment benefits, pension, and health care, to all, especially the most vulnerable and marginalized groups
... therefore facilitate decent work and economic growth.