Poverty and Microfinance in Suriname - Week 2

In 2004, the individual poverty headcount in the country of Suriname reached an alarming 67% (Assessment of the Supply and Demand of Microfinance Services for Very-Low Income Populations in Guyana and Suriname). Although the causes of poverty are numerous and varied, it is certain that once caught in its vicious cyclical, poverty is often difficult to break free from. Experience has shown that there are two approaches proven to be successful in breaking the cycle: acquiring productive assets and education (A Microenterprise Training Guide for Peace Corps Volunteers). However, each of these approaches require funds to initiate and in most developing countries access to capital to obtain these funds is not readily available.

Land ownership is one of the most common means of capital and in Suriname almost all of the land is state-owned. Land leases ranging from 40 to 75 years are sold to citizens but the government reserves the right to revoke the lease and take back the land at any time. Even though Surinamers hold these long-term leases, they do not own a reliable asset with which to secure a loan from a bank and get the funds necessary to acquire productive assets or to access education.

In 1992 a Peace Accord was written to formally end the hostilities that existed in Suriname from 1986-92. Within this accord a provision which gave hope to the issue of property rights stated that “the government shall endeavor that legal mechanisms be created, by which citizens who live and reside in a tribal setting will be able to secure a real title to land in their respective living areas” (IADB, Governance in Suriname). However, to date, very little progress has been made toward this end and thus the people of Suriname remain without such rights and within the cycle of poverty.

The problem of the world’s poor being caught in the poverty cycle is not uncommon and for decades relief organizations and aid workers have been searching for answers. In 1983, inspired by the works of Dr. Akhtar Hameed Khan who founded the Pakistan Academy for Rural Development, Muhammad Yunus founded the Grameen Bank to address the financial woes of the world’s poor. Yunus’s bank pioneered small scale lending or “microcredit” as a means to eradicate poverty. Through small loans, Yunus was able to lend microentrepreneurs funds to expand existing microenterpriseses and develop other income-generating activities. His work has spawned similar organizations both for-profit and non-profit that are using this “micro” approach as an alternative to charity and a means to gaining access to financing without capital assets.

Along the same lines of the Grameen Bank, thousands of institutions dedicated to financing on a “micro” level have been popping up all over the world. Microfinance Institutions (MFI) are taking it one step further though and are offering other financial services such as insurance and technology education in addition to microcredit to help the poor start self-sustaining businesses to escape poverty. The income generated from the businesses that are developed give the microentrepreneur the freedom to invest in productive assets which help expand the business and lift them out of poverty. In addition, the income is being used to educate the children of the microentreprenuers which has a similar long-term effect of diminishing poverty.

As with most matters that address social issues, skeptics exist and argue that microfinance is doing more harm than good. It is thought that the inflated interest rates MFIs are charging to cover the high cost of administering these small loans is bringing the poor deeper in debt. Cynics speculate that loans are being used “to pay off old debts or to buy consumer goods, not to generate income.” A 2004 study conducted by the aid group CARE Bangladesh substantiated these claims (Time, 4/16/07). According to an international aid expert Thomas Dichter, “Fighting poverty is hard work. It takes institutional reform and cultural change. You can’t fix these things by bringing in a truckload of money” (Newsweek 4/9/07).

Currently, microfinancing in Suriname is in the nascent stages of development. It is murky at best as to how local financial institutions will proceed with plans to administer small scale loans. But it is evident that the people of Suriname need alternative financial resources in order to break the cycle of poverty that exists in the country today. If the government continues to ignore the needs of its people, it will only be hampering national development given that the informal sector, comprised in part by many of these poor microentreprenuers, accounts for nearly 15% of GDP (Suriname Country Profile, 2006 Economist Intelligence Unit).

In the coming months I will be exploring the existence of microfinancing in Suriname more in-depth. I will be talking with financial institutions, NGO’s, as well as those in need of loans. I hypothesize that indicators for stagnant development of microfinancing in Suriname will point to institutional dysfunction among lending entities in Suriname as well as a lack of infrastructure and resources to access the interior jungle where the truly poor reside.