Article: African Microfinancers Must Learn to Deal With HIV/AIDS, Experts Say

06 March 2001

Article: African Microfinancers Must Learn to Deal With HIV/AIDS, Experts Say

USAID survey is at heart of special study

By Jim Fisher-Thompson
Washington File Staff Writer

Washington -- Microfinance institutions (MFIs) in sub-Saharan Africa that make small loans, mostly to women, must learn to deal with the threat of HIV/AIDS if they are to continue to flourish, say two development specialists who prepared a report on MFIs for the United Nations, supported by the U.S. Agency for International Development (USAID).

The joint study, prepared by Joan Parker and Kelly Hattel, specialists with the research firm Development Alternatives Inc., of Bethesda, Maryland, attempts to gauge the extent of the problem and offers possible solutions.

The two researchers spoke about their research at a February 27 forum on "AIDS in the Background: Is African Microfinance at Risk?" The event was sponsored by the Johns Hopkins Paul Nitze School of Advanced International Studies (SAIS).

Parker said their report, "The Role of Microfinance in the Fight Against AIDS," was based on a survey conducted in the summer of 2000 and paid for by USAID's Office of Microenterprise Development. Their findings were based on responses from 22 African MFIs that explored the effects of HIV/AIDS on MFIs and their clients, as well as MFI responses to the crisis.

According to Parker, microfinance, or the provision of small loans called microcredit to people traditionally excluded from the formal banking system, is available to around two million households in sub-Saharan Africa.

The MFIs in the USAID survey are located in the following countries: Burkina Faso, Ghana, Kenya, Malawi, Mozambique, Namibia, Rwanda, Somalia, South Africa, Tanzania, Togo, Uganda, Zambia, and Zimbabwe. Operating for an average of five years, the MFIs in the survey service some 7,500 clients, 79 percent of whom are women.

Parker said, "We were able to use the USAID data to expand the survey to more MFIs in Africa, which then became the basis of the U.N. report."

The development expert said MFIs have made a considerable contribution to reducing poverty in many places in sub-Saharan Africa. But now, those gains are being undermined by a health care catastrophe that threatens the lives of an estimated 25 million people in the region who are infected with HIV/AIDS, a degenerative and fatal disease that has no known cure.

The impact of the disease is already being felt by microlenders, who reported in their responses to the DAI survey that MFI loan defaults "are definitely on the rise." Sixty percent of the MFI respondents also reported higher rates of illness among their clients.

The reality today, according to the study, is that with U.N. data showing household incomes in Africa dropping by 30-60 percent because of AIDS, MFI borrowers are increasingly sickening and dying before they can pay back their loans, which, in turn, undercuts the ability of the institutions to continue operating.

Without exception, MFIs told the study that their clients were under extreme economic stress because of HIV/AIDS. They cited medical expenses as the greatest economic problem (95 percent), followed by obtaining food for the family (86 percent), paying funeral expenses (77 percent), and caring for orphans (50 percent).

The answer, the report said, is that "households most negatively affected by HIV/AIDS may need to leave the microfinance institution until they are back on their feet. Indeed, accepting additional debt [loans] under those conditions may further harm the household's economic position."

So that MFIs can stay in business, the study said, "most observers and practitioners agree that the most important role of microfinance is to continue to serve [only] those households that can make use of financial resources."

Parker also told the forum that "microfinance is not a burial program, but an ongoing, productive economic program" that needs to find ways to cope with the new economic and social realities posed by HIV/AIDS in Africa.

According to the study, MFIs in Uganda are taking an innovative approach to the problem, in part because the country's national leadership "has openly confronted HIV/AIDS. In this country, microfinance organizations can speak more openly with clients about health concerns in general, HIV/AIDS specifically, and their changing household needs."

Hattel said a good example of a Ugandan MFI is the Foundation for International Community Assistance (FINCA), a "village bank" established in 1992 that operates in "high-prevalence" AIDS areas throughout the nation.

The Ugandan MFI has designed a number of financial products for its clients, including:

-- health insurance that pays for a certain amount of AIDS treatment;

-- a savings plan used by clients to accumulate savings "above the amount required to collateralize [serve as security for] their loans. This product highlights the value of savings that are not held as collateral, and are available to clients as needed" for possible health expenses;

-- life insurance through a partnership with a U.S. company, American International Group (AIG). The policy insures clients' outstanding loan balances at time of death, which protects their families from assuming the burden of repayment. It also protects FINCA from loan defaults due to death; and

-- AIDS education seminars conducted in cooperation with the Church of Uganda Doctors. The sessions are usually conducted at the same time as village bank meetings.