Microfinance and poverty: how migration policies and practices are changing

Print Friendly, PDF & Email


Vittorio Emanuele Agostinelli
Consulta giovanile del Pontificio Consiglio della Cultura



La microfinanza, e più specificamente il microcredito, ha vantaggi significativi che potrebbero essere sfruttati per migliorare la sostenibilità del reinserimento dei migranti. In quanto tale, viene regolarmente menzionata da professionisti ed esperti nel campo del reinserimento dei migranti. Tuttavia, pochissimi programmi di reinserimento dei migranti hanno incluso schemi di microcredito come forma o come complemento all’assistenza. Solo una solida base di dati consentirà un’inclusione differenziata ed efficace delle componenti della microfinanza nella programmazione del reinserimento.

Key Words:

Poverty, business, labor market, economic crisis, training, entrepreneurship, youth employment and education.

  1. The use of microcredit schemes in migrant reintegration context1.

Creating the wealth needed to promote self-sustaining and long-term poverty reduction comes from a mix of individual efforts, community involvement, governmental policies, and opportunities created by market forces. Even looking through an internal locus of control lens, interacting with other people and opportunities are required to create wealth and proposer in a modern society.

Microfinancing has been an extremely popular approach used in the development community in recent years. While the best-proven method to combat poverty is through the creation of a dynamic economy which provides more paid employment, other approaches, such as the use microfinancing, remittances, allowing a vibrant informal economy to flourish, and encouraging foreign investment are all approaches which can to a limited extent contribute to improving the lives of people currently living in poverty.

Microfinance, and more specifically microcredit, appears to have significant advantages that could be leveraged to improve reintegration sustainability. As such, it is regularly mentioned by practitioners and experts in the field of returning migrants’ reintegration when discussing avenues to strengthen the sustainability of reintegration. Yet, very few migrant reintegration programmes have included microcredit schemes as a form of or as a complement to reintegration assistance.

The EU-IOM Knowledge Management Hub produced a Knowledge Paper on the use of microcredit schemes in migrant reintegration context to inform and support reintegration practitioners considering including a microcredit component in their programme. It more generally targets any individual involved in migrant reintegration (including at policy and programme design levels) and in microfinance (including microfinance institutions’ staff considering targeting returnees). Building upon case studies and interviews with reintegration practitioners and microfinance experts, it seeks to analyse how microcredit could be used in the context of migrant reintegration programmes and to address the following questions:

Does microcredit constitute a valid alternative or complement to reintegration grants usually provided in the framework of reintegration programmes?

If so, in which contexts or under which conditions can it be envisaged?

What are the key considerations to take into account when designing and implementing interventions linking microcredit to migrant reintegration?

And what can reintegration organizations do to facilitate returning migrants’ access to microcredit, if relevant?

Returning migrants assisted under reintegration programmes often share specific characteristics that may plead for, plead against, or hinder their access to microcredit schemes. Returnees might be disconnected from their countries of origin (CoO), which often results in a loss of (a part of) their social support networks, in addition to encountering psychosocial challenges, such as isolation and hostile relations related to their return. Returnees also often face economic difficulties which are potentially exacerbated by existing debts.

Monitoring and evaluation data collected by IOM shows that 79% of returnees assisted by IOM use reintegration assistance to set up microbusinesses. A large number of returnees states that the reintegration assistance is insufficient to establish sustainable businesses and that they are lacking capital to run their business smoothly or expanding it. Those who managed to gather additional funding mostly relied on friends and relatives. Research also indicates that a large portion of returnees is indebted upon return, with the large majority of loans originating from friends and relatives, too. Microcredit has the potential to give returnees access to capital and thus allows them to strengthen or expand their businesses. A boost for income-generating activities enables them to afford key services and consequently to improve their and their relatives’ overall well-being and stability. Using microcredit in the context of reintegration also increases returnees’ ownership of their reintegration process. Finally, microcredit can create contact points between returnees and the local population when microloans are granted to mixed groups. Eventually, this can increase the returnees’ acceptance in the communities to which they are returning.

Yet, a number of obstacles remain for returnees to access microfinance services, such as the requirements set by MFIs (including in terms of income stability, of ID documents, or of minimum duration of residence in the CoO) or their negative attitude towards returnees. Moreover, given that a microloan constitutes a debt, it is of critical importance to manage the microcredit schemes carefully in order to avoid worsening the economic conditions of returnees.

In the field of migrant reintegration, very few projects seem to have included a microcredit component beyond simple referrals to MFIs. A few interesting projects that have piloted the use of microcredits as a form of support to returnee reintegration, are presented, although evidence on their outcomes is limited.

IOM’s Assisted Voluntary Return and Reintegration Assistance Program from Switzerland to Nigeria project offered advantageous credit conditions through the establishment of a revolving fund that allowed beneficiaries to expand their businesses. Although only a limited number of returnees participated in the microcredit scheme, the project provided some encouraging results, as most of the beneficiaries were able to repay their loans and some of them benefitted from several loan cycles.

IOM’s REMPLOY III project envisaged dedicated support by MFIs in several CoOs for migrants returning from Italy. Those with the most promising business plans were supported by MFIs to strengthen their business plans and eventually apply for a loan. While this project was promising, a lack of monitoring data prevents from drawing conclusions on its effectiveness.

The Prottasha project, which is being implemented in Bangladesh by IOM in partnership with BRAC, refers interested returnees to MFIs. The few returnees who were referred to MFIs and actually received a loan reported promising results regarding their individual economic situation and their ability to pay back the microloans. At the same time, challenges related to the status of returnees remain, such as the exclusion from traditional financial services but also the reluctance of MFIs to include returnees in their programmes. IOM and BRAC seek to facilitate returnees’ access to capital by advocating with finance institutions, supporting returnees in meeting the requirements for receiving loans, and exploring alternative ways to encourage returnees’ financial inclusion.

Microcredit can constitute a relevant and powerful complement to reintegration assistance, but it is not always an adequate instrument and it cannot be recommended as a general solution for returnees. It is critical to assess the relevance of proposing microcredit as a form of reintegration support to make sure that it does not harm returnees. The additional debt burden it puts on returnees, which might contribute to trapping them in a debt cycle, should receive special consideration. On the other hand, microcredit has the potential to be a useful tool that allows returnees to strengthen and/or expand their business activities and thus increasing their and their relatives’ economic stability and well-being.

There is potential to look further into ways of mobilizing capital to support returnees’ business activities other than loans from relatives or financial institutions (including MFIs). Beneficiaries can be grouped into collective projects that have the potential to attract diverse partners, such as social impact investors or the private sector. Moreover, other financial schemes based upon solidarity and peer support, such as savings groups, could be assessed in relation to reintegration support and reintegration organizations could envisage supporting communities of return in the establishment of financial support groups. This way, it is possible for returnees to avoid some of the strict requirements for receiving loans from traditional banks or MFIs, such as to provide ID documents or collaterals. Such financial schemes can engender social cohesion and solidarity, though the amounts available are usually limited and may not meet the returnees’ ambitions.

As the experiences related to the use of microcredit schemes in the context of migrant reintegration have remained very limited, there is a need to further pilot this approach in the framework of reintegration projects. Moreover, research on the use of microcredit – and more broadly microfinance – in the context of migrant reintegration should be boosted. Only a solid evidence base will allow for a differentiated and effective inclusion of microfinance components in reintegration programming.

EU – IOM Knowledge Management HUB, 2021, The use of microcredit schemes in migrant reintegration context, https://bit.ly/3oro41e

Print Friendly, PDF & Email
© 2019 Rivista Microfinanza. All Rights Reserved.