Churchill heads the ILO’s social finance programme, based in Geneva, Switzerland, but has more than two decades’ experience in his domain--in the field, research and as an author and editor of over 40 documents. He first came to the world of microfinance after serving as a teacher and volunteer through the Peace Corps in Jamaica, where he saw the main driver of children not attending school was lack of money but that, in order for those parents to start and sustain their businesses, they needed not just cash injections, but links to ongoing financial services.  

Natalie A. Gerhardstein: Let’s talk about protecting the working poor in the 21st century through responsible finance. What are some of the most pressing challenges you see from your perspective when it comes to microfinance, both generally and in your own line of work?

Craig Churchill: The digitisation of microfinance is creating huge opportunities which is enabling it to reach market segments that it wasn’t able to reach and have cost efficiencies it didn’t have before. It’s creating the next wave of major challenges, specifically related to over-indebtedness. Being able to just use your phone to get credit quickly at the odd hours of the day is a huge temptation. I think before the big complaint around the microfinance model was group lending and it would take several weeks, it was very inefficient and time-consuming, and a lot of operational costs associated with that but more importantly there’s the opportunity costs on the clients. Now it has gone so far that people can just get credit on their phone any time. It’s almost to the other extreme, and it’s fueling over-indebtedness but also consumption rather than being factored into employment or business creation activities. That’s one of the big risks I’m anxious about: burgeoning over-indebtedness and seeing it in places where the markets are more digitized. 

A big piece of it is the way microcredit/microfinance was originally structured was typically around supporting microenterprises, small businesses, and what we found is those businesses have not created many new jobs. So what’s happened is the microcredit model has succeeded in stabilising jobs, making it so these businesses are able to get through difficult periods more easily, and made those businesses perhaps more resilient. But it’s not creating a lot of new jobs. 

The two different approaches we are seeing the community embrace to try to tackle this is a more integrated or holistic approach, saying credit by itself is not sufficient. We need to provide other services as well, businesses with training, market linkages. One approach is combining financial and non-financial services to enhance the businesses. The other approach is to go upmarket and say, micro is fine, but let’s see what we can do about SMEs, and those are the ones that are really going to be creating jobs. Let’s look not at the subsistence businesses but those that have already made some progress and what we can do to support them and make sure they have access to finance. 

Let’s talk a bit more about the bridge you mentioned, combining financial and non-financial services for a more holistic approach. Can you give us an idea about how you envision that?  

Typically, it would be around entrepreneurship training, business skills, marketing, market linkages, all on the business side. Then the next bucket of interventions would be more around occupational safety and health risks. Often when you look at the businesses that microlenders or microfinance institutions are lending to, they’ve often got some serious exposure to occupational safety and health risks. Chemicals aren’t stored in ideal conditions, or people doing welding and don’t have protective clothing. There’s quite some deplorable conditions in these businesses. I want to make the argument that the lenders who are lending to these businesses should be concerned about these risks because if their clients are exposed to these risks, then the lenders are also exposed to these risks. 

The approach in the past was to focus on credit or financial services, stick to the core business, make that business sustainable. And I want to argue that the field staff, the agents, interacting with these businesses can cost-effectively and efficiently provide some guidance and support to their businesses, about the risks that they’re exposed to in order to help them come up with some solutions to manage those risks more effectively. 

2019 marks the 100th anniversary of the ILO. Can you give us more insight into the work you’re doing there? 

A big agenda for the ILO centenary has been the future of work--automation or artificial intelligence that’s going to change the nature of work quite significantly. And people are going to sort of be outsourced into the gig economy and not going to have the types of social protection benefits that they have had through employers. There’s a lot of concern about what’s happening in work environments and how it’s changing because of technological developments. One of the things I find interesting in that conversation is that people in developed countries, like Luxembourg or other places in Europe, and North America certainly, are concerned about the negative ramifications and how people may be displaced, and losing their jobs or being forced into the gig economy, whereas in emerging markets they see some of these technological developments more as opportunities to facilitate linkages. They’ve been sort of isolated from markets, for example, so being able to have technology or AI platforms to support interventions could enable them to leapfrog to a different stage of development. 

European Microfinance Week will bring together international experts in microfinance and financial inclusion in Luxembourg on 20-22 November. Click here for the full programme or more information.