Written by Judith van Doorn and Craig Churchill. Published February 2004 for Social Finance Programme of International Labor Organization for International Program on the Elimination of Child Labour. 46 pages, available at: Geneva, February 2004. http://www.oit.org.pe/ipec/documentos/microfinance_guideline.pdf
The International Labor Organization’s (ILO) Social Finance Programme, along with staff from the International Program on the Elimination of Child Labor (IPEC) drafted these guidelines on how microfinance can be used to eliminate child labor practices in poor regions.
The general rules from this paper are intended for IPEC officials working on child labor reduction projects. They are to be loosely followed, since it is essential for programs to adapt to local contexts.
Microfinance can help reduce the need for child labor through two main mechanisms: (1) Income generation: Since microfinance loans are meant to be used for income generating purposes, they reduce the need to rely on child labor as a source of family income. (2) Risk management: Microfinance serves as a risk management tool that helps reduce the need for families to resort to child labor when attempting to cope with vulnerability shocks.
The authors detail certain necessary conditions for microfinance to be successful in reducing child labor. A thorough situation analysis involves taking into account demand considerations (to discern whether financial services are demanded by families and are appropriate to address their needs), market considerations (to determine the characteristics of target population relating to poverty concentration, mobility, and level of risk), supply considerations (to determine which institutions are already providing services in the area), and external environment considerations (to find out the inflation rate, interest rate ceilings, credit culture, and possible savings restrictions), before deciding whether microfinance is an appropriate strategy for child labor intervention.
The paper then offers recommendations on designing a program that provides sustainable financial services to make a long-term impact on populations. These recommendations include considering appropriate interest rates, high loan recovery, cost-efficiency, size of loans, well-trained and motivated staff, as well as appropriate policies to guide and oversee financial operations. The authors advise that IPEC projects ought to partner with existing microfinance institutions (MFIs), instead of creating new microfinance schemes from scratch. These partnerships between IPEC project organizers and established MFIs have greater potential to be effective s in reducing child labor, since IPEC can simply improve upon existing MFIs’ organized programs to suit their plans. MFIs will also help to ensure long-term benefits, since they will most likely continue to provide their financial services long after the IPEC projects are over.
The remainder of the paper discusses details regarding import design aspects of microfinance schemes related to credit, savings and insurance. The authors also discuss the process of grant provisions to MFIs and organizations to be allocated to clients. They conclude by analyzing effective mechanisms to monitor and evaluate these projects to ensure that programs are making an impact on child labor intervention.
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