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Part I: Introduction

Recognition of the importance of microfinance as a crucial development tool for poverty reduction has increased during the last two decades. The United Nations, in its General Assembly Resolution 52/94, passed on 18 December 1997, noted in particular that in many countries of the world microcredit programmes have succeeded in generating productive self-employment by providing access to small capital for people living in poverty, as well as increased participation in the mainstream economic and political process of society. The resolution welcomed the launching of different microcredit initiatives and acknowledged their important contribution to poverty eradication, empowerment of women and social elevation. It called upon the relevant organs, organizations and bodies of the UN system, particularly its funds and programmes, to explore the inclusion of the microcredit approach in their programmes as a tool for the eradication of poverty and further developing, where appropriate, other microfinance instruments. Microfinance is defined as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance.

FAO, as part of the UN system, has been involved in credit initiatives for the fisheries, forestry and agriculture sector, consistent with its mandate of raising standards of living and improving the conditions of rural populations. Based on experiences gained through FAO-executed field projects and through the cooperation with national financial institutions and non-governmental organizations (NGOs), guidelines have been prepared and widely distributed on the management of revolving loan funds and credit programmes for fishing communities, and a number of regional and national workshops have been organized to provide guidance and facilitate access of the fisheries sector to institutional credit.[1]

More recently, FAO formulated a strategic framework for 2000-2015 that identifies the reduction of food insecurity and rural poverty as a major strategy. Among others, the strategy involves the promotion of sustainable rural livelihoods and more equitable access to resources, particularly of the vulnerable and disadvantaged groups, such as small-scale fishing and fish farming households. Microfinance programmes are seen as a means for such communities to gain access to much-needed and appropriate credit services.

The demand for financial services in the fisheries sector is diverse and requires differential financial products and services. Microfinance is just one means in the continuum of providing financial services to cater for this demand. Characterized by small loans, microfinance has inherent limitations in terms of financing the capital investment needs of the fishing industry. It should therefore not replace traditional lending products from mainstream financial institutions, since they are still required to finance large-scale investment needs and priorities necessary for fisheries growth and development and, most important, for the implementation of the Code of Conduct for Responsible Fisheries (CCRF) and the related programmes of action, which are the priority concerns in the medium and long term (FAO, 1995b). With regard to these types of investment and credit needs, the FAO Management Guidelines on Revolving Loan Funds and Credit Programmes for Fishing Communities, first published in 1989, still remain valid.

It is in this context that the role and contribution of microfinance programmes in small-scale fishing and fish farming communities must be viewed. Most microfinance programmes are generally aimed to promote and protect income and empower specific sectors of the population. More specifically, the development objectives of microfinance for poor fishing communities are to enable fishing households to increase income, smoothen consumption, develop microenterprises, manage risks better and enhance earning capacities, thus reducing economic and social vulnerability. Because women constitute a significant proportion of poor fishing households, microfinance should also serve as an effective tool to assist and empower women in fishing communities.

Poverty is multidimensional and its removal is dependent on other factors. As a caveat and in the overall context of poverty reduction, microfinance therefore should be seen as just one tool, among many development tools, for alleviating poverty. The Table presents the results and impacts of microfinancial services in the reduction of poverty.

Guidelines and basic considerations in providing microfinance to fisheries and aquaculture comprise Part II of this publication. A brief background and the principles of microfinance are given, followed by an explanation of the factors that must be considered at the country, local and sector levels, for an effective delivery of microfinance services. Lending models, methodologies and policies relevant to fisheries as well as important considerations for implementing savings and deposit services are discussed, together with the roles of financial institutions, government and donors as partner institutions in microfinance delivery.

The Report of the Regional Workshop on Microfinance Programmes in Support of Responsible Aquaculture and Marine Capture Fisheries in Asia, held in Chiang Mai, Thailand from 16 to 20 December 2002, forms Part III of the publication. The workshop was attended by 31 participants from eight South and Southeast Asian countries: Bangladesh, India, Malaysia, Nepal, the Philippines, Sri Lanka, Thailand and Viet Nam. The purpose of the workshop was to draw conclusions from the experiences of these countries with microfinance programmes in fisheries in order to provide guidance on enhancing the contribution of microfinance to food security and poverty alleviation in fishing and farming communities, as well as the adoption of responsible fishing and aquaculture practices.

Part IV of the publication presents two case studies of microfinance programmes in the context of FAO-executed fisheries projects in the Philippines and Viet Nam.

Microfinance poverty reduction nexus

Financial service


Impact on poverty

Credit facilities of microfinance institutions (MFIs)

Enable advantage to be taken of profitable investment opportunities

Lead to adoption of better technology

Enable expansion of microenterprises

Diversification of economic activities

Enable consumption smoothening

Promote risk taking

Reduce reliance on expensive informal sources

Enhance ability to face external shocks

Improve profitability of investments

Reduce distress selling of assets

Increase economic growth

Higher income

More diversified income sources

Less volatile income

Less volatility in household consumption

Increase household consumption

Better education for children

Reduce severity of poverty


Reduce social exclusion

Savings facilities

More financial savings

Income from savings

Greater capacity for self-investments

Capacity to invest in better technology

Enable consumption smoothening

Enhance ability to face external shocks

Reduce need to borrow from moneylenders at high interest rates

Enable purchase of productive assets

Reduce distress selling of assets

Improve allocation of resources

Increase economic growth

Reduce household vulnerability to risks/external shocks

Less volatility in household consumption

Greater income

Reduce severity of poverty


Reduce social exclusion

Insurance services

More savings in financial assets

Reduce risks and potential losses

Reduce distress selling of assets

Reduce impact of external shocks

Increase investments

Greater income

Less volatility in household consumption

Greater security

Payments/money transfer services

Facilitate trade and investments

Greater income

Higher consumption

Source: Asian Development Bank, 2000.

[1] See FAO Fisheries Reports Nos 435, 480, 496, 516, 535, 540, 549 and 577 (FAO, 1990a; 1994a,b; 1995a; 1996a,b; 1997; 1998); FAO Fisheries Technical Paper No. 312 (FAO, 1990b); and FAO, 1989. Complete entries can be found in the Bibliography in Part II, pp. 20-21.

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