Microfinance: Towards Advancing Human Security

January 26, 2025

Loosely defined as “a type of banking service provided to low-income individuals or groups who otherwise wouldn't have access to financial services,” microfinance is growing to hold increasing importance in promoting financial inclusion worldwide. This is particularly pressing for the 1.4 billion people (over 17% of the world’s population) who are still not integrated into formal banking structures.

The roll-out of microfinance initiatives has considerably increased in recent years; however, the long-term impact of these initiatives will primarily rely on bridging the digital divide, identifying effective mechanisms to access hard-to-reach populations, and establishing resilient and adaptable evaluation mechanisms. 

Collectively, these efforts can foster greater financial security globally and, more broadly, contribute to strengthened human security, a comprehensive and holistic approach to security which aims to account for the day-to-day challenges facing people.

The Digital Financial Inclusion for Youth Economic Empowerment Project: A Case in Point 

Education Above All Foundation (EAA), through its programme Silatech, in partnership with Gojo & Company Inc., launched The Digital Financial Inclusion for Youth Economic Empowerment Project in 2022. The project intends to reach 89,600 young people across Cambodia, India, and Sri Lanka. In Sri Lanka alone, the project has reached over 20,000 young entrepreneurs. These results reinforce microfinance’s transformational potential and ability to support the economic mobility of hard-to-reach populations in developing countries. 

The project’s success can be attributed to its ability to address the aforementioned challenges– expanding access to digital platforms in hard-to-reach populations and maintaining regular oversight to ensure the continued growth of beneficiaries’ ventures. Sejaya, a Sri Lankan-based microcredit company that financially supports marginalized and underprivileged communities, has been indispensable to achieving the project’s ambitious targets. 

By working alongside local communities spread across Sri Lanka’s 9 provinces, Sejaya has facilitated beneficiaries’ access to digital resources and enhanced the reach and scope of diverse income-generating activities. The Pasio community, a digital platform where users market and sell their products, has been critical to the project’s implementation. To date, over 96% of beneficiaries have reported significant increases in their income. 

By tapping into youth’s entrepreneurial capacities, the Digital Financial Inclusion for Youth Economic Empowerment project is harnessing young peoples’ active economic participation, promoting domestic production, and contributing to the diversification of local markets. In Sri Lanka, it is also empowering women, many of whom are mothers, to attain financial independence. Looking ahead, maximizing the project’s success will hinge on sustaining collaborative efforts and utilizing local institutional support. 

Beyond the Project: Why Microfinance is the Future 

The world today faces a series of complex and interconnected challenges, making adopting nuanced and inclusive solutions imperative. Microfinance’s targeted approach can help address gaps in large-scale initiatives. At times, the relatively broader scope of large-scale initiatives misses the opportunity to engage communities lacking access to global, regional, and national markets. 

In the MENA, microfinance can empower the region’s largest demographic– it's youth. Over 25% of the region is between 10-24 years old, and in the Gulf Cooperation Council (GCC), over 50% of the sub-region’s population is under 25. As of 2023, youth unemployment rates in the Middle East were reportedly the highest in the world at a soaring 28%. This necessitates financially supporting young entrepreneurs. Through expanding microfinance initiatives across the region, states can benefit from decreasing poverty rates and economic marginalization, particularly for youth, and can also aid the advancement and scaling of innovative solutions that can tackle challenges from food security to economic diversification. 

Efforts are currently underway across the region. Recognizing the potential of freelancers and single-owned businesses, banks across the UAE are increasingly widening access to short-term small loans. Dr. Khalid Al Ghazzawi, CEO of Bahrain’s Ebdaa Microfinance company, is also in talks to expand the firm’s operations into Saudi Arabia, highlighting the importance of cross-regional efforts. 

Microfinance’s potential to drive sustainable economic growth and durable human security is immense. It is an asset that can supplement efforts to address poverty, economic marginalization, and youth’s active economic participation. However, yielding the benefits of microfinance-based initiatives will rely on establishing thorough, cooperative, and robust frameworks.