Microfinance Could Be Hazardous For Teens

Tuesday, January 19, 2010

Microfinance is on the rise and not only reaching women, but a growing number of female teens. One industry participant warns that lenders must step carefully with this age group to avoid causing unintended harm.

A variety of microfinance projects operate in Kalerwe Market in Kampala, Uganda.UNITED NATIONS, New York (WOMENSENEWS)-- Microfinance might be a panacea for women's poverty, as many claim, but concern is growing in the nongovernmental community about such loans to teens. Several in the field warn that microfinance loans to teen girls could actually increase their vulnerability.

Since the 1980s, microfinance has grown and spread to become a major tool in fighting poverty across the globe. Grameen Bank, a community development bank established by microfinance godfather and Nobel Prize winner Mohammed Yunus in 1983, has loaned money to over 7 million women in Bangladesh.

Loans for income-generating activities have rates of 20 percent, while loans for housing

are offered at 8 percent, according to the bank. People living in extreme poverty do not pay interest and students borrow at 5 percent. Over 90 percent of the bank's loans go to women.

Kiva, a microlending Web site headquartered in San Francisco, has loaned over $100 million through the Internet to small entrepreneurs since it started four years ago. Its interest rates vary locally. Kiva works with 134 field partners who disburse the loans, rather than financing individuals directly.

Last April, President Barack Obama announced a $100 million microfinance fund at a summit in Trinidad and Tobago that would help small businesses in Latin America and the Caribbean access credit through diverse microfinance institutions.

"The concept of microfinance is very popular," said Connie Lindsey, executive vice-president at Northern Trust, a Chicago-based financial holding company. "It brings finance to a level that makes it a little more understandable and real for individuals--that ripple effect of a small effort having a much larger impact."

Even though the interest rates on many of these small loans can be shockingly high, proponents argue microfinance empowers impoverished clients, mostly women, who lack other access to credit establish a sterling repayment record and to use the loans to run businesses that can meet basic household needs and improve women's social status.

More Damage Than Good

The explosion of microfinancing means this credit is not only reaching women, but also female teens.

In some cases that worries Judith Bruce, a senior associate of the New York-based Population Council.

"If we use the conventional economic approaches and drive them at poor girls they won't be successful at the very least," said Bruce in a phone interview. "At the very worst, they'll do more damage than good."

No microfinance program focuses solely on teens. In most countries, it is illegal to set up a contractual loan agreement with anyone under 18, though some microfinance organizations still lend to teens under the radar.

This means that, in practice, many microlending and credit programs include a segment of borrowers between the ages of 16 and 24.

Bruce said microfinancing can draw vulnerable female teens into assuming financial risk.

She gave this example: "Like a girl who may sleep with her boyfriend without a condom to get the money--to attend weekly microfinance meetings." In this case, the girl would use sex to get money to repay her loans and earn the group's social support in the process.

That view stems from the organization's experiences working in Kibera, the largest slum in Nairobi, Kenya's capital, and home to almost a million people.

Kibera is also one of the most studied slums in Africa, due to its proximity to U.N. agencies, as well as its location in Nairobi, the center of business in East Africa.

When the Population Council decided in 1999 to launch a trial program that would test giving loans to female teens they believed Kibera would be a good place to start. Here unemployed men and male guardians often harass female teens. Six girls to every one boy here are HIV-positive and forced early marriage is common.

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