Microfinance is the provision of small loans and other financial services to people and small businesses that struggle to access conventional financing, often, but not exclusively in developing countries. Making finance available in this way helps people to develop businesses to support themselves, their families and their communities. Pioneered over 30 years ago, microfinance has now spread across the globe and has helped millions of the world's poorest people. Leading international banks and law firms such as Clifford Chance recognise the transforming potential of microfinance and are using their legal and financial skills to support it.
How does microfinance work?
Maya Mehta is a Senior Associate at Clifford Chance and head of the firm's recently launched global microfinance group, which consolidates the firm's extensive pro bono activities in this area. She describes how microfinance loans can enable those living in poverty to become more economically stable: "MFIs (microfinance institutions) will lend a small amount - as little as $20 - to a villager in, for example, Bangladesh, who might use that money to buy a cow she can milk to start her own business." Until relatively recently both the structures and the appetite to invest in these micro-enterprises had been lacking.
The impact of microfinance can reach far beyond the purely economic. "There are less obvious ways in which microfinance affects people's lives," explains Maya. "There are reports from some parts of the world which suggest that by making finance available you are enabling women to take financial control of the household, and by doing that microfinance has decreased domestic violence - because their male partners are then less willing to attack them. Microfinance has allowed women to emerge from behind closed doors in some countries because they are now participating in making business decisions and attending village meetings. On a personal level, it's rewarding to see the impact that microfinance is having on communities across the world and, as a lawyer, it's fantastic to be able to apply my skills to enable it to flourish."
What role do law firms such as Clifford Chance play?
As Maya explains, lawyers are valuable to microfinance initiatives: "We can apply the legal skills that we use in mainstream work to microfinance work as well. But we tailor our advice to the environment in which microfinance operates - these borrowers are several steps removed from the commercial banks."
The importance of lawyers to microfinance is increasing: "The microfinance industry has grown rapidly over the last few years, so there is an increased need for regulation. And as lawyers we can advise microfinance institutions on developing standardised structures and documentation to increase efficiency, so that institutions don't need to reinvent the wheel every time they embark on a new project," says Maya. Since 2006, Clifford Chance has been working on a pro bono basis with one of its major investment bank clients to develop a user-friendly, multi-jurisdictional legal template for microfinance loans.
Clifford Chance lawyers have helped with microfinance initiatives around the world, from Russia to Latin America and Africa, and even in East London. "We have been involved in an exciting project which will, we hope, enable microfinance to flourish in Haiti," says Maya. "We have also been working on other projects, for example loans in Sri Lanka and Bangladesh. Mobile phone banking, funded by microfinance loans, is a big thing in the industry right now - Kenya is one example of where it is really growing. It has transformed the lives of the rural poor, because it enables them to execute simple bank transactions without having to travel for hundreds of miles."
Can junior lawyers play a role in the microfinance group at Clifford Chance?
Maya's reply is an emphatic yes: "When we launched the group, overnight there was a wave of enthusiasm from trainees across the network. Trainees play a key role on our projects and have come up with inspiring new ways in which we can contribute to the microfinance industry."
How can you get involved with microfinance at Clifford Chance?
Clifford Chance has just launched Intelligent Aid, a microfinance competition for all non-final-year undergraduates. "The purpose of Intelligent Aid," says graduate recruitment partner Nick Swinburne, "is to allow students from any background to understand and to get interested in microfinance, and to think about how law firms and lawyers can help." You could also win some fantastic prizes. Each of the top three entrants will land a place on Clifford Chance's prestigious month-long London summer vacation scheme. For the top two entries there's also an iPad and the overall winner will be packing their bags for a long weekend in New York, to include a day at the firm's Manhattan office.
To enter, you'll first have to complete a written submission via the firm's website (see below for details), which will require you to champion a Clifford Chance approved charity to receive a donation of £1,000 and answer a two-part question to demonstrate your understanding of microfinance:
-How can microfinance provide society with the basic necessities of life?
-What role can the legal profession play in the evolution of microfinance?
In the second round, ten finalists will be invited to present their ideas in person to the judges. The prizes will then be awarded to the top three and the Clifford Chance Foundation will make a £1,000 donation to the charity championed by the winner.
Nick told us what the judges will be looking for in the initial submissions: "Something that's well written and punchy - an answer that brings home to us why microfinance is important, and how the legal profession can help in a commercial and practical way."
The competition is open for entries now, and the deadline for submissions is January 9, 2011.