Channeling Microfinance for the SDGs:
Small solutions to Big Problems

	Hari Srinivas
	Policy Analysis Series E-192. April 2023

Microfinance and SDGs There are a number of ways by which microfinance can promote financial inclusionFinancial Inclusion refers to a process whereby people are able to access and/or use financial services and products in the mainstream market that are appropriate to their needs and enables them to lead a normal social life. of low-income households and help in achieving the targets within a wide range of SDGs: Access to credit: Microfinance enables low-income households and small businesses to access credit, which can be used to start or expand a business, purchase assets, or invest in education or other income-generating activities. This can increase their income and improve their standard of living. Job creation: Microfinance can help to create jobs by enabling individuals and small businesses to start or expand their enterprises. This can lead to economic growth and improved living standards for individuals and their communities. Empowerment: Microfinance can empower low-income individuals, particularly women, by giving them greater control over their own financial resources and decision-making. This can help to increase their social and economic status and improve their ability to participate in the economy. Improving savings and financial management: MFIs provide various savings products and financial education to their clients. This can help individuals and small business owners to build their savings and improve their financial management skills, which can provide a buffer against financial shocks. Micro-insurance: Microfinance can also provide micro-insurance products to low-income clients, which can help them to protect themselves against risks such as illness, injury, or death, which can be a major cause of poverty. Support for entrepreneurship: Microfinance can support entrepreneurship by providing access to capital, financial education and other services to people who would otherwise not have access to these resources. This can help to promote innovation and increase productivity. Building SMEs: MFIs are able to reach to the informal sector, which is not served by traditional banks. By providing small loans to informal sector entrepreneurs, microfinance institutions can help to create and sustain SMEs which are important for economic growth and job creation. Supporting micro-enterprises: Microfinance can help micro-enterprises to grow and become more productive by providing access to credit, savings, financial education and other services. This can contribute to the development of industry, innovation and infrastructure in rural areas and low-income communities. Financing infrastructure development: MFIs can provide financing to small businesses and households to invest in infrastructure development, such as building or upgrading housing, sanitation, and other community facilities. Supporting small farmers and food producers: Microfinance can provide small farmers and food producers with access to credit, which can be used to purchase seeds, fertilizer, equipment, and other inputs. This can help to increase their productivity and income, and contribute to food security. Financing for agro-processing: Microfinance can also provide financing for small agro-processing businesses, which can help to add value to agricultural products, create jobs and boost the local economy. This can also help to increase the availability of food in local communities. Financing for storage and logistics: Microfinance can also support smallholder farmers and food processors by providing financing for storage and logistics, which can help to reduce post-harvest losses and increase the shelf life of agricultural products. Promoting sustainable agriculture: Microfinance institutions can also promote sustainable agriculture practices by providing financial services and training to farmers on sustainable farming techniques, water management and other practices that can help to increase productivity and resilience of farmers to natural disasters and climate change. Empowering women farmers: Microfinance can empower women farmers by providing them with access to financial services and training, which can help them to increase their productivity and income, and improve their ability to participate in the agricultural economy. Empowering women: Microfinance can empower women by providing them with access to financial services and training, which can help them to increase their income, improve their standard of living, and increase their social and economic status. Promoting women's entrepreneurship: Microfinance can support women's entrepreneurship by providing access to capital, financial education, and other services to women who would otherwise not have access to these resources. This can help to promote gender equality by increasing women's participation in the economy. Supporting women-led businesses: Microfinance institutions can also target their services to women-led businesses, which can help to increase the number of women-owned businesses and contribute to gender equality. Promoting gender-inclusive policies: Microfinance institutions can also promote gender-inclusive policies such as providing flexible loan terms and collateral-free loans, which can help to overcome barriers that women face in accessing financial services. Providing training and education: Microfinance institutions can also provide training and education on financial literacy, business management and other skills which can help low-income households to make informed financial decisions and to manage their businesses more effectively.

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.

SDGs Dimensions of Microfinance

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.

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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.

Channeling Microfinance

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.

References

• This work is based on the UN's information on the 17 SDGs, particularly the online repository:
  UNDESA (n.d.) "THE 17 GOALS | Sustainable Development" UN Department of Economic and Social Affairs, https://sdgs.un.org/goals

Hari Srinivas - hsrinivas@gdrc.org
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