Economics Professor Stephen DeLoach examines issues related to microfinance
In his 2015 Distinguished Scholar Lecture, DeLoach discussed the role of financial services in alleviating extreme poverty.
Over the last 15 years, increasing attention has been paid to the problem of extreme poverty. For example, among eight "Millennium Development Goals" established by the United Nations in 2000 was the ambitious initiative to cut in half the percentage of people around the world living in extreme poverty, defined as existing on less than $1.25 per day. That number had been estimated to be about 2 billion people in 1990 – about 30 percent of the world population. While that percentage has been cut roughly in half, a billion people worldwide still remain trapped in extreme poverty.
Stephen DeLoach, economics professor in Elon's Martha and Spencer Love School of Business, suggests that these international efforts to reduce poverty helped ignite what he calls the "microfinance revolution."
DeLoach examined his research April 7 in his 2015 Distinguished Scholar Lecture, titled, "Saving Billions: The Impact of Microfinance on World Poverty." The lecture is given annually by the recipient of the university's Distinguished Scholar Award, which recognizes a faculty member whose research has earned peer commendation and respect, and who has made significant contributions to his or her field of study.
In explaining microfinance, DeLoach detailed how over the past 10 years, the movement won the attention of such world leaders as former President Bill Clinton, Nobel Peace Prize-winner Muhammad Yunus of the Grameen Bank (who has visited Elon), and celebrity Oprah Winfrey. The drive to advance microfinance is especially strong on U.S. college campuses, including at Elon, which includes a student microfinance initiative.
"The timing was right for a new market-based approach to poverty reduction," DeLoach said, "It relied on getting financial services to the poor." Often, the beneficiaries were women entrepreneurs who were empowered through small loans to start a small enterprise and begin to lift their families out of extreme poverty.
DeLoach says he was first exposed to how families cope with living in extreme poverty 12 years ago when he was part of an Elon faculty development experience in the Yucatan. In Tinum, Mexico, he met a Mayan family that was working very hard to make a living growing crops and cattle, trying to establish a fish farming co-op, running a snack stand and hand-making hammocks for sale to tourists. The nearest bank was 12 miles away.
"This family suffered from what economists call the 'triple whammy.' They had an unpredictable income. As a result they had to hold multiple jobs, because just one job was too risky. And they had poor access to financial services," DeLoach said.
The last problem, the lack of basic financial services (credit, savings and insurance), was especially difficult. Since they had no place to put their savings, they had to hold their wealth in tangible assets, such as livestock.
To learn more about the role financial services can play in the lives of the poor, DeLoach and former student, Erica Lamanna, started studying microfinance in Indonesia seven years ago. This was an interesting case study, since the Indonesian Bank BRI has a long history of operation throughout the country, making over $10 billion in loans and holding more than $13 billion in deposits.
Working with a large data set available in that Southeast Asian country, he found that, in the aftermath of the Asian financial crisis, children living in villages where BRI banks opened grew faster than those who lived in places where a bank closed. His most recent research looks at families that were experiencing health problems, correlating that data with the distance to the local BRI banks.
In examining 6,000 households in extreme poverty, DeLoach found that only about 2 percent of their assets were in savings. "That's 2 percent of their total assets of about $2,000 – that's $40 of savings," DeLoach said. "Everything else is a fixed asset, their homes or livestock, for example."
When a bread-winner in a family gets sick, there are immediate problems. "Here's where a simple illness like the flu can be really costly. For 15 percent of Indonesians, they've got to start selling something (to survive)."
Selling assets in time of a health crisis can be devastating, since the family often could not get the full value of their possessions. Even a short illness could wipe out the family assets. So it's no surprise that family food consumption and total assets decrease for households that have no access to banks for their savings.
DeLoach says the term "microcredit" has become a catchword that experts in the field are starting to shy away from. "Microfinance is just finance. It's just banking."
DeLoach is in the process of finalizing his microfinance study and is working on the first draft of his paper. In the nearly two decades that he has been at Elon, he has had 20 papers published in peer-reviewed journals, has published a book chapter and presented multiple times at top international economics conferences. His work has been cited more than 370 times. In 2009 he received the Martha and Spencer Love School of Business Dean’s Award for Excellence in Scholarship, and in 2010 he was the Hollingsworth Visiting Scholar at Furman University.
DeLoach has mentored more than 50 undergraduate projects that resulted in presentations at national and regional conferences. He received doctoral and master’s degrees in economics from Michigan State University and a bachelor’s degree in business administration from the University of Nebraska.