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Microfinance and the food crisis

Plan's microfinance solutions aim to enable families to better cope with adverse situations, such as food crisis.
Plan's microfinance solutions aim to enable families to better cope with adverse situations, such as food crisis.
In January 2008, non-stop rainfall in Ecuador saturated the land and destroyed over 296,000 acres of crops.  

PHOTO: Plan Staff
In January 2008, non-stop rainfall in Ecuador saturated the land and destroyed over 296,000 acres of crops.

PHOTO: Plan Staff

Hunger is one the most debilitating aspects of poverty: it cripples individuals, families, communities — and entire nations.

Right now, over one billion people in developing countries need food. We cannot afford to ignore the global food crisis.

What’s behind the global food crisis?

A number of factors have contributed to the current food crisis: high oil prices and transportation costs, growing demand for food, commodity speculation, crop damage due to pests, disease, floods and drought, and crop diversion for biofuels.

One child dies of hunger every five seconds (U.N. World Food Programme). Think about this: one child every five seconds. And this is not necessarily because there is not enough food in the world. A food crisis does not, by definition, mean a food shortage. Hunger is always knocking on the door of the poor and any increase in inflation, in food prices, will affect their ability to eat.

According to the U.N. Food and Agricultural Organization, worldwide food costs rose almost 40 percent in 2007 (dairy prices alone rose nearly 80 percent!). As of December 2007, this increase caused 37 countries to declare food crisis status.

Having access to financial services (savings, loans and financial transfers) is a high priority for people living in poverty. Loans and savings help households cope with emergencies and economic shocks by helping them to continue to provide for the basic rights and needs of children even during times of economic stress.

More long-term solutions are needed

Even though enough food is produced globally to feed the planet, 850 million people go to bed hungry every night (Source: www.alertnet.org).

Food aid can provide a quick, temporary fix, but aid agencies — including the WFP — agree that longer-term solutions, such as strengthening sustainable agricultural practices and reducing poverty, are really what the poor need.

In developing countries, one in four children lives in extreme poverty. Globally, approximately 980 million people live in extreme poverty. These are households in which children are often the first to feel the effects of economic shocks, facing reduced food intake, or forced to leave school to earn income for the family.

Improving household economic security is an absolute priority for those living on the margins of survival.

Investing in microfinance to escape the poverty trap

Microfinance, one support mechanism toward achieving economic security, provides households with greater flexibility in managing resources and, thus, more ways of coping with adversity.

Plan is committed to increasing access to microfinance services for the poor, with special emphasis on access for women. Plan has been building its capacity in this area since 1994 and is strongly positioned to take this work forward.

We work in partnership with local microfinance service providers as well as organizations that help communities organize their own savings and credit associations. The aim is to establish and support lending and saving programs that can eventually become financially self-sufficient.

These women in Niger used a loan from Plan's microfinance program to invest in their market business. Photo by Karim Abdoulaye

Microfinance success in even the poorest communities

To date, Plan Niger’s microfinance program has created a network of 536 women’s savings and loan groups known as Wayborey Kokaro Nafa (WKN), with more than 9,400 shareholders, all women.

In 2007 Plan Niger successfully expanded this program, setting a benchmark in the West Africa region. A system of Village Savings & Loan associations was set up, building on the success of WKN. These are community-based savings and credit associations with between 10 and 25 members, who regularly save their own money in the form of shares. The shares are deposited into a credit fund that women can borrow from. Both the share prices and the loan rates are set by the associations, which are self-managed to encourage institutional independence and sustainability, so that even the poorest can take part. What is more, because all transactions are carried out during association meetings, the program has a high level of transparency. By June 2007, 12 associations with 238 members had been set up.

Empowering women on all fronts through microfinance solutions
The savings and loan system is just one side of WKN’s activities. Empowering women involves also giving them the chance to read and write to better know their rights and to have the basic skills to run the savings groups.

In 2007, 35 adult learning centers were opened, offering the opportunity for more than 1,000 women to enroll. Haoua Seydou, from the community of Darey Maliki (Dosso), is a 19 year-old mother of two who dropped out of primary school after an early marriage: “Attending the literacy center has been a rebirth for me… I hope that my children won’t be trapped into what I’ve been through.”

Hadjo Yayé, a woman from the community of Tchara Béri — and a shareholder of the savings group Wafakey — is an unwavering rural entrepreneur in the capital-intensive cassava retail business. The loan she received from her savings group helped her expand the supply of the goods she sells, giving her the opportunity to make more money.

In fact, because Hadjo’s business is profitable in a country where the food shortage has become endemic, she was able to pay back two-thirds of what she owed long before the loan period expired. “This activity enables me to cover my needs and those of my family. If my business keeps on growing at a steady rate, I will take on more loans so I can expand my activities.”

The causes of poverty are not solely economic, but combating poverty must include raising the means of livelihood and disposable income of poor families. Overcoming poverty also requires improving how income is spent within a household so that nutritional, health, educational and other needs of children — especially girls — are met.