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Time Line

Microfinance and Human Trafficking: Models for Prevention and Rehabilitation

Jeanne Crump, HTC Associate

Tuesday, June 30, 2015

In the last 20 years, the microfinance field has made significant progress in closing the global economic inequality gap. It has also been a useful tool in preventing the root causes of vulnerability many trafficking victims fall prey to. In addition, microfinance programs that provide human trafficking survivors access to microcredit can be a helpful resource in the rehabilitation process.

Microcredit is defined as the extension of small, short-term loans to the very poor who lack the traditional physical collateral that large institutional lenders typically require.1 Within the past decade, there have been considerable efforts made within the microfinance community to implement programs and services directly targeting and serving vulnerable populations of human trafficking.

A microfinance trailblazer, Grameen Bank, was one of the first micro-lending institutions in the world. One of the bank’s primary programs is the Struggling Members (Beggars) Program, operating in Bangladesh. Within the country it is estimated there are more than 700,000 beggars, located primarily in the capital city of Dhaka. Although general economic hardships force many into begging – such as unemployment – some are abducted by organized crime syndicates who torture, starve, and then force victims to beg on the streets.

The Struggling Beggars Program, established in 2002, is unique to Grameen Bank in that it caters directly to beggars and features key differences from its prime basic loan product, such as having collateral-free loans with no interest charge, flexible repayment schedule with no fixed installment dates, and longer terms for repayment with much smaller payments. The program encourages members to start businesses, either within a group or independently, and installments must be paid from money earned from new business, not begging. As of 2011, there were 88,613 Struggling Members in the program, and at least 19,763 have left begging.2

Debt bondage is another form of slavery that is widespread and rife throughout the world. The Asia-Pacific region has a very large population of people, often entire families, trapped in a cycle of debt where they work for little to no wages in a endless effort to repay an outstanding balance. This debt originates when the very poor or socially excluded populations take up work with an employer who advances the individual or family money to provide for basic necessities.

Between the years 2003 and 2006, the International Labour Organization (ILO) implemented the microfinance program ‘Prevention and Elimination of Bonded Labour in South Asia’ (PEBLISA). Operating in Tamil Nadu, India, the PEBLISA program was an effort to keep freed laborers out of debt bondage and help prevent the level of debt that current laborers were accumulating from increasing.3

The PEBLISA project had three main initiatives: social empowerment, provision of basic services, and economic empowerment. The microfinance services offered under the latter initiative were coupled with skills training opportunities and support for income-generating activities to help families decrease their dependence on their employer.

An assessment was made of the PEBLISA program in 2006 by the French Institute of Pondicherry, which looked primarily at levels of indebtedness and ownership of assets – both which aimed to assess economic empowerment. Findings revealed that as a result of the ILO project, households had increased their total debt, but improved the “quality” of debt and had also increased their assets.4 These outcomes indicate that families were less in debt to employers, demonstrating that they were less vulnerable to situations of debt bondage in the future.

Likewise, in Cambodia, the organization Pact established the program WORTH, whose main goal is to increase literacy, savings, and microenterprise for vulnerable, poorer women in order to eliminate root causes of trafficking. The program establishes women’s empowerment groups and sustainable income-generating activities. The women become bankers and lenders of funds that they own and manage independently. The WORTH program was modeled after a very successful USAID sponsored program in Nepal, which has since been implemented in 12 countries.

Microfinance initiatives provide training, education, and skill building that can make a difference in impoverished communities and can assist in preventing generational vulnerability to trafficking or debt bondage. But, microfinance is not an overarching solution to preventing trafficking. In some cases, interest rates on loans and the pressures to repay create an even more dangerous situation for an already-exploited population. Studies have also found that monthly repayments were often paid from sources such as moneylenders or family members, not the profit from enterprises.5 When examining rehabilitation efforts for survivors of human trafficking, it is important to keep this fact in mind.

Financial empowerment is just one of many initiatives in the prevention and restoration of those exploited in situations of human trafficking; one that clearly has a strong precedent, but that needs stronger evaluative measures in order to fully gauge its long-term impact.