ASEM Microfinance Key to Poverty Reduction
By Lee Hyo-sik
Staff Reporter
Asia-Europe Meeting (ASEM) finance chiefs from 43 member economies and representatives from six international organizations are expected to promote microfinance during the four-day annual gathering as a way of reducing poverty, narrowing income disparities and stimulating economic growth in the ASEM region.
On Sunday, South Korea, host of the 8th ASEM Finance Ministers' Meeting on Jeju Island on June 14-17, is scheduled to brief ASEM finance ministers and delegates on recent trends in the microfinancing in Asia and Europe, as well as its political and economic implications.
Microfinance is small credit granted to very poor people to help them launch income generating activities or develop small business. It also includes savings and micro insurance vehicles that enable poor populations to build up a cash reserve and to insure themselves against various risks, enabling the impoverished to increase their income and restore their dignity by providing access to financial services and escape from poverty by their own work.
Microfinance has been proven a very powerful tool for poverty reduction and economic development in developing countries, while it has become the means of mitigating the income gap between haves and have-nots, and stimulating economic growth in developed nations.
During the gathering, microfinance will be discussed as a focal point of enhancing mutual interest and cooperation among member economies as ASEM consists of diverse member countries with different stages of economic development.
Internationally concerted efforts will also be called for to stimulate advancement of micro-finance and hence help solving many socio-economic problems.
In member countries of the Association of Southeast Asian Nations (ASEAN) and China, there have been various types of microfinance providers, such as market-based financial institutions, credit unions and cooperative, village banks, and NGO-based microfinance institutes (MFIs).
In most ASEAN countries, NGO-based MFIs are the dominant micro credit providers, while rural credit cooperatives maintains a strong presence and more than 35,000 are known to be operating in China.
Above all, the Asia Development Bank (ADB) has been playing an important role in advancing microfinance in the region through technical assistance and funding to a number of MFIs.
In Europe, microfinance is regarded as an instrumental means to promote micro-enterprises and to reduce income disparity.
European Commission (EC) provides various support for microfinance in the small-and medium-enterprise (SME) policy and most MFIs with private initiatives are still in an early stage and operated by NGOs.
In new member economies of the European Union, along with the less developed traditional financial institutions, MFIs play a major player in the market. Public sector, including the EC, utilizes microfinance to reduce the gap with the ``old'' member countries by promoting micro-enterprises and stimulating economic development.
Microfinance is regarded as intersection of economic and social inclusion policies aimed at reducing the economic and social gap between the lagging and the developed regions.
In particular, European involvements in microfinance in less developed region are significant.
Focus primarily lies on Eastern Europe and Latin America, and many microfinance investment vehicles are launched through partnership between public and private sectors.
In particular, the public sector should target lower-tier MFIs that have not yet reached financial sustainability. It is important to promote lower tier MFIs toward larger and sustainable MFIs by providing supports such as technical assistance and ``green field'' investment.
MFIs should be regarded as social venture capital to strive for social changes through incubating and supporting micro-enterprises. The government should integrate measures to support MFIs into the broader context of SME policies.
During the ASEM finance ministers' meeting, the key issue will be to encourage expansion of microfinance network among member economies.
It is expected to be very beneficial to promote the extensive microfinance networks in European member countries in order to strengthen their presence in Asian member countries. Their experience on technical assistance as well as innovative funding methods would be greatly helpful to less developed Asian countries.
Financial incentives and support by public entities can be provided to microfinancing networks that make strenuous efforts to gear up activities in less developed Asian member countries.
It is also important to construct the information sharing channel among ASEM member countries to exchange ideas on microfinance and come up with better solutions. Information sharing channel specifically targeting ASEAN+3 can be established and then connected to European networks such as EMN and other private networks.
Microfinance networks play important roles in facilitating more efficient information sharing, broader opportunity for economy of scale and better marketability through standardization.