I recently attended a small talk on microfinance program in Indonesia, and got involved in interesting discussion on how microfinance is transforming lives of millions in Indonesia and the world over. The speaker and most of the audience have the same impression that microfinance has provided necessary optimism that poverty can indeed be eradicated.
This event struck me, not just as a reminder that some good things are happening in Indonesia and microfinance field, but also a subtle reminder to my own brief encounter with microfinance. It was sort of a forgotten episode of my life and sunk at the very bottom of my consciousness.
In 1999, I had a two weeks experience staying with a field officer of Amanah Ikhtiar Malaysia (AIM) in Tumpat, Kelantan. I was doing a small research on AIM as part of my proposal writing process for my Master of Economics program at University of Malaya. I wanted to write on microfinance comparing Malaysian experience and that of Indonesia. However, after I get admission and learned other stuff, I lost interest and changed my final research paper to something else.
However, the experience stayed in me and it was a profound one. It opened my eyes to the reality of poor people in Malaysia, successful members of AIM, dedication of young field officers and to the many challenges facing AIM to transform lives in some of the poorest villages in Malaysia. AIM is probably among the most successful MFIs in the world, in terms of effectiveness in poverty reduction, thanks to its Grameen model operations and strong government support.
However, as it turns out later, the same government support has also somehow ‘paralysed’ AIM and other microfinance initiatives in Malaysia, although it has its own merit in overall poverty eradication endeavour. The MFIs have to continuously compete with politically motivated government programs (subsidy) that are aiming and targeting the same group of poor people in Malaysia, who are mostly live in the stronghold of opposition party. Not only the government created unnecessary competition in the field but it also created a disincentive for the poor to borrow from the MFIs and seek government grant instead.
AIM itself is not entirely commercially driven, since AIM is established and partly owned by Yayasan Pembangunan Ekonomi Islam Malaysia or YAPEIM, which is part of Prime Minister’s Department. It receives regular funding from government’s budget and thus affected by any political changes in the government.
I also learned, during this very brief encounter, that poverty reduction is not just a responsibility of the MFIs. In fact, Malaysian MFIs are not well known compared to Grameen bank or Banco del Sol, simply because Malaysian poor are different from the poor in many developing countries like Bangladesh or Colombia. The poor in Malaysia have a strong government on their side, politically motivated or not, and they live in a growing and robust economy where jobs and opportunities are aplenty.
Poverty reduction in Malaysia is very much a comprehensive program, rather than a piecemeal and sporadic efforts. Malaysian government realised that the causes of poverty were not just lack of access to finance, but also poor education, inadequate infrastructure, lack of jobs and missed opportunities. So, the government then invested a lot of money to build world class infrastructure, improved educational system, sent thousands of young people to study abroad, attracted FDIs to create jobs and provided numerous incentives for people to open up a business venture.
In the end, the success of Malaysia in reducing its poverty from 52.4% in 1970 to 5.5% in 2000 (according to a study) is not just a microfinance miracle. I believe it lies with the right development policy and implemented by the government who care of its own people, rich or poor. Of course, we can argue elsewhere on Malaysia’s growing inequality, lack of press freedom, corruption and many other things. But the fact that Malaysia has been successful in its fight against poverty stays.
In hindsight, with this massive cut in poverty, I think the role of Amanah Ikhtiar Malaysia and for that matter MFIs in poverty reduction is merely a minor one. Government policy indeed plays a bigger and more significant role in any attempt to eradicate poverty.***
Originally published on luqyantamanni.wordpress.com, May 12, 2012: view original.
