Microfinance and street children: is microfinance an appropriate tool to address the street children issue ?

2.1.2. Why do MFIs and YSOs avoid street children?70(*)

a. The MFI's perspective

1) Street Children are too poor. An important element which may impact the reluctance of MFIs to serve youth is the poverty criteria, where street children are generally perceived as «destitute» or extremely poor. One might wonder why this may be problematic, as microfinance institutions exist to serve the poor. However, even if MFIs exist for the poor, international evidence show that extremely poor (i.e. the poorest of the poor) are generally excluded from microfinance interventions. Indeed, Hickson (nd) points out that «the majority of poverty-focused microfinance programs incorporate client selection criteria which attempt to limit participation to poorer households». Dalley-Harris (2003) interestingly indicates how the conventional wisdom that was prevalent 20 years ago and which was perceiving the poor people as unbankable is being repeated with the extremely poor people nowadays, perceiving them as unbankable because their sources of income is unstable. However, field experiences deny this wisdom. Grameen Bank, BRAC and SEWA learned through experience that conventional financial strategies for the poor did not make much difference at all for the extreme poor (Simanowitz 2002; Khandker 1998)^70(*).

2) Street Children are too young. MFIs may believe that young people do simply not need financial services because they are too young to need manage their money. And even if they need it, MFIs may argue, as pointed by Nagarajan (2004), that child advocates oppose youth access to microfinance as it could create more child labourers vulnerable to exploitation ; that work may divert the child's attention from schooling and that work may inhibit the child's physical and psychological development.

3) Street Children are too risky. As underlined in our introduction, one of the reason that lead microfinance organisations targeting women was the risk mitigation, women's repayment rates being far superior to those of men. Regarding street children/youth, two parameters may increase the risk's perception function of the MFI: first, they are children/youth and second, they are street based. As children/youth, they are assumed to be less expeienced than adults in managing a business and to have a higher propensity to use loans in a non-productive way. As street-based, they are assumed to be «criminals», non trustable and highly mobile. Moreover, street children may not have any collateral, such as a home or a land and, worse, may not even have parents or other family members who have any collateral.

4) Street children are too costly. Many agree that street children need a mixture of financial and non financial services. However, a «microfinance plus program is generally costly to administer, and may face difficulty in achieving viability without continued subsidies» (Nagarajan, 2004). Indeed a knowledgeable staff aware of both microfinance and street children needs to be recruited in order to deal with the various issues facing the children during their livelihoods. Therefore, targeting street children may affect the MFI's sustainability.

5) Street Children can not legally be our clients. The question of regulation is a very important issue. Indeed, many countries around the world require a minimum age of 18 for eligibility to enter into a legally binding contract (Mc Nulty and Nagarajan, 2005).

b. The YSO's perspective

1) Street children are not capable and need to be rescued from the street work life. Many youth organisations philosophy is built on a paradigm which perceives street children as vulnerable people which do not have any capacities and which do need to be protected from any working opportunity. This view is largely built on what we described in our first chapter as «the abolitionist or child-centred approach» and does not permit any provision of financial services, as this could be an incentive for the child to start working.

2) We are child specialists, not microfinance specialists. Such programs may need some specialized staff in microfinance in order to manage it efficiently as well as an effective management structure. Indeed, an organisation which has never provided services like savings mobilization or business training must invest a lot to set up an «effective administrative system and training for both programme and management staff» (Foy, 2001). Moreover, SKI explains how work with street children requires a lot of energy from the staff in order to understand the street children's livelihoods.(Foy, 2001).

3) Providing financial services to them is too costly. Youth organisations do often survive thanks to limited subsidies and are not self-sufficient. This means that adding a microfinance activity targeting street children may need to divert a part of their actual subsidies to the program in order to finance the credits provided and the management costs underlined in our previous points.

4) We can not legally provide financial services. Legal barriers can lead many of them to avoid providing such financial services. Indeed, «national and international legal frameworks placed on an organisation's activities could further undermine the potential of microfinance. These include, for instance, whether or not NGOs are allowed to conduct income-generating activities to support their programs; whether only those registered as financial institutions are allowed to carry out microfinance activities; and whether there are legal restrictions on the acceptance of deposits by non-bank organisations» (Foy, 2001)

* ⁷⁰ Quoted in Davis (2000)