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Meaningful help for self-help
– by Dominik Hartmann
© Achenbach & Pacini/VISUM/Lineair
Thanks to Bolsa Familia, more children are attending school
Poverty and economic inequality have considerably declined in Brazil – partly as a result of economic growth and political stability, and partly thanks to Bolsa Familia, microloans and a variety of other social policy measures. For good reason, Bolsa Familia is hailed as the international model for conditional cash transfer programmes (CCTPs). It provides financial aid to poor Brazilian families if they meet certain conditions, such as sending children to school regularly, taking advantage of free medical check-ups and undergoing compulsory vaccinations.
CCTPs thus promote health and education, while helping to reduce child labour at the same time. Social democrats and free-market liberals regard them as cost-efficient and effective. These programmes serve the goal of human development in the sense of maximising people’s self-determination and personal responsibility (see box next page).
Long-term microcredit programmes are also held in high esteem. Success stories of small businesses, expanding microfinance institutes (MFI) and repayment rates of up to 99 % have even aroused the interest of big commercial banks. The collapse of MFIs in Andhra Pradesh in India last year certainly dampened the euphoria somewhat, however.
Nevertheless, politicians, researchers, business leaders and non-governmental organisations (NGOs) still appreciate the idea of helping poor people with relatively little money – whether from a CCTP pot or a microloan fund – to help themselves. Of course, there is criticism too. CCTPs have been accused of encouraging assistentialism and passivity, microloans have been charged with failing to promote sustainable development unless they go along with systemic measures geared to improve the business environment in general. Brazil shows that the combination of CCPTs and microfinance makes sense.
Depending on income and number of children, families receive between 68 reals and 200 reals (€ 30 to € 87) a month from Bolsa Familia. Nobody can live on that money, especially in large cities, where everything is more expensive and there are fewer opportunities to earn money. But the moderate security provided by Bolsa Familia enables many people to send their children to school, to look for a job or to set up a small business.
In small towns and villages, Bolsa Familia is a double blessing: the immediate impacts are regular school attendance and use of healthcare services, and the indirect impact is poor people’s greater freedom of choice. Bolsa Familia is certainly not a cure-all for poverty. But the money reaches the people who need it and broadens their scope for self determination.
Risk of overindebtedness
The microfinance boom in recent years made it easier for poor people to get loans and invest in a small business – a grocery store, a repair shop or a garment-making operation, for example. Whether those businesses succeed depends partly on the general business environment, which governments must foster and cultivate. Infrastructure matters, since telecommunications, water and power supply, but also social services in schools and hospitals all make a difference. In Brazil, there is unfortunately often reason to complain about corruption and nepotism, which lead to less-than-optimal use of government funds.
Essentially, though, microloans allow members of poor population groups to take advantage of a business opportunity when they see one – and Bolsa Familia provides those who run reasonable risks a basic safety net.
Microloans, however, harbour a risk of unsustainable debt. Since social pressure leads to higher repayment rates, most microloans in Brazil are granted to groups of three to five members. Today, a number of NGOs as well as state-run and commercial banks hand out microcredits. Many small-scale entrepreneurs have become clients of several lenders, often as members of different groups with different payment terms and interest rates.
Instituto Estrela is a Paraíba-based MFI, which is very serious about serving clients well and giving them good advice. Edinalda Lima, its leader, warns that some small entrepreneurs overreach themselves and become insolvent: “Some are very successful at first, and quickly take out more loans. But they lose focus, and if their business runs into seasonal problems or fails to perform as anticipated, they fall behind with repayments and find themselves up to their ears in debt.“
In view of growing competition, some MFIs have lowered their bar for credit. All too often, MFIs measure staff performance in terms of new customers. The snag is that, for some clients, the extra microloan is really just an additional burden. MFIs and their employees must not lose sight of the core idea of microcredit, which is to give people the chance to escape poverty themselves, Lima insists.
It is a government duty to create an appropriate environment in which borrowers can generate more business – and thus prevent unsustainable debt. At the same time, all institutions involved in MFI activities need to cooperate more effectively. More should be done to improve the flow of information between MFIs, educational establishments, regional government agencies and NGOs.
Many synergies and a great deal of know how remain untapped so far because MFI staff’s knowledge is not made full use of. These people often have an in-depth understanding of local markets and prices, profit margins and market opportunities as well as small entrepreneurs’ strengths and weaknesses. More exchange between the agencies involved in the microcredit business would contribute to clients’ business success. The Brazilian non-profit organisation SEBRAE (Agência de Apoio ao Empreendedor e Pequeno Empresário) helps small and medium-sized enterprises nationwide by offering training and information tailored to their skills and needs.
On the whole, Brazil has done a good job of promoting small-scale entrepreneurship. Bolsa Familia, rising funds for microloans, intelligent policy measures and new laws to formalise businesses and provide social safeguards to small entrepreneurs are all about providing effective help for self-help. The Micro and Small Businesses Act, for example, is specifically designed to motivate small-scale entrepreneurs to leave the shadow economy and join the social security system. All they need to do is to register with the relevant agency. They will then qualify for simplified – and significantly lowered – tax rates (Imposto Simples) and social benefits such as maternity allowance or pension and health insurance for the entire family.
Small entrepreneurship is advancing in Brazil, and accordingly self-determination and human development are advancing too. Now it is up to the new government of President Dilma Rouseff to build on the achievements of her predecessors Fernando Henrique Cardoso (1995 – 2002) and Luiz Inácio Lula da Silva (2002 – 2010).