Microcredit

This article is specific to small loans, often provided in a pooled manner.[1] For direct payments to individuals for specific projects, see Micropatronage. For financial services to the poor, see Microfinance. For small payments, see Micropayment.

Microcredit is the extension of very small loans (microloans) to impoverished borrowers who typically lack collateral, steady employment, or a verifiable credit history. It is designed to support entrepreneurship and alleviate poverty. Many recipients are illiterate, and therefore unable to complete paperwork required to get conventional loans. As of 2009 an estimated 74 million people held microloans that totaled US$38 billion. Grameen Bank reports that repayment success rates are between 95 and 98 percent.[2]

Microcredit is part of microfinance, which provides a wider range of financial services, especially savings accounts, to the poor. Modern microcredit is generally considered to have originated with the Grameen Bank founded in Bangladesh in 1983.[3] Many traditional banks subsequently introduced microcredit despite initial misgivings. The United Nations declared 2005 the International Year of Microcredit. As of 2012, microcredit is widely used in developing countries and is presented as having "enormous potential as a tool for poverty alleviation."[4] Microcredit is a tool that can be helpful to possibly reduce feminization of poverty in developing countries.

However, a skeptical approach is advisable when assessing the effectiveness of microcredit[5]. Critics argue that microcredit has not had a positive impact on gender relationships, does not alleviate poverty, has led many borrowers into a debt trap and constitutes a "privatization of welfare".[6] The first randomized evaluation of microcredit, conducted by Esther Duflo and others, showed mixed results: there was no effect on household expenditure, gender equity, education or health, but the number of new businesses increased by one third compared to a control group[7].

History

Early Beginnings

Ideas relating to microcredit can be found at various times in modern history, such as the Starr-Bowkett Society. Jonathan Swift inspired the Irish Loan Funds of the 18th and 19th centuries.[8] In the mid-19th century, Individualist anarchist Lysander Spooner wrote about the benefits of numerous small loans for entrepreneurial activities to the poor as a way to alleviate poverty.[9] At about the same time, but independently to Spooner, Friedrich Wilhelm Raiffeisen founded the first cooperative lending banks to support farmers in rural Germany.[10] In the 1950s, Akhtar Hameed Khan began distributing group-oriented credit in East Pakistan. Khan used the Comilla Model, in which credit is distributed through community-based initiatives.[3] The project failed due to the over-involvement of the Pakistani government, and the hierarchies created within communities as certain members began to exert more control over loans than others.[3]

Modern microcredit

Grameen Yunus Dec 04
Nobel laureate Muhammad Yunus, the founder of Grameen Bank, which is generally considered the first modern microcredit institution.

The origins of microcredit in its current practical incarnation can be linked to several organizations founded in Bangladesh, especially the Grameen Bank. The Grameen Bank, which is generally considered the first modern microcredit institution, was founded in 1983 by Muhammad Yunus.[3] Yunus began the project in a small town called Jobra, using his own money to deliver small loans at low-interest rates to the rural poor. Grameen Bank was followed by organizations such as BRAC in 1972 and ASA in 1978.[11] Microcredit reached Latin America with the establishment of PRODEM in Bolivia in 1986; a bank that later transformed into the for-profit BancoSol.[12] In Chile, BancoEstado Microempresas is the primary microcredit institution.[13] Microcredit quickly became a popular tool for economic development, with hundreds of institutions emerging throughout the third world.[3] Though the Grameen Bank was formed initially as a non-profit organization dependent upon government subsidies, it later became a corporate entity and was renamed Grameen II in 2002.[11] Muhammad Yunus was awarded the Nobel Peace Prize in 2006 for his work providing microcredit services to the poor.[14]

Principles

Economic principles

Microcredit organizations were initially created as alternatives to the "loan-sharks" known to take advantage of clients.[3] Indeed, many microlenders began as non-profit organizations and operated with government funds or private subsidies. By the 1980s, however the "financial systems approach," influenced by neoliberalism and propagated by the Harvard Institute for International Development, became the dominant ideology among microcredit organizations. The neoliberal model of microcredit can also be referred to as the institutionist model, which promotes applying market solutions as a viable way to address social problems.[15] The commercialization of microcredit officially began in 1984 with the formation of Unit Desa (BRI-UD) within the Bank Rakyat Indonesia. Unit Desa offered ‘kupedes’ microloans based on market interest rates.

Many microcredit organizations now function as independent banks. This has led to their charging higher interest rates on loans and placing more emphasis on savings programs.[3] Notably, Unit Desa has charged in excess of 20 percent on small business loans.[16] The application of neoliberal economics to microcredit has generated much debate among scholars and development practitioners, with some claiming that microcredit bank directors, such as Muhammad Yunus, apply the practices of loan sharks for their personal enrichment.[11] Indeed, the academic debate foreshadowed a Wall-street style scandal involving the Mexican microcredit organization Compartamos.[3]

Even so, the numbers indicate that ethical microlending and investor profit can go hand-in-hand. In the 1990s a rural finance minister in Indonesia showed how Unit Desa could lower its rates by about 8% while still bringing attractive returns to investors.[16]

Group lending

Though lending to groups has long been a key part of microcredit, microcredit initially began with the principle of lending to individuals.[11] Despite the use of solidarity circles in 1970s Jobra, Grameen Bank and other early microcredit institutions initially focused on individual lending.[12] (A solidarity circle is a group of borrowers that provide mutual encouragement, information, and assistance in times of need, though loans remain the responsibility of individuals.[17][18]) Indeed, Muhammad Yunus propagated the notion that every person has the potential to become an entrepreneur. Yunus saw poverty eradication as being in the hands of the individual. Because of this, he promoted private ownership, and consequently, neoliberalism.The use of group-lending was motivated by economics of scale, as the costs associated with monitoring loans and enforcing repayment are significantly lower when credit is distributed to groups rather than individuals.[12] Many times the loan to one participant in group-lending depends upon the successful repayment from another member, thus transferring repayment responsibility off of microcredit institutions to loan recipients.[12]

Lending to women

Lending to women has become an important principle in microcredit, with banks and NGOs such as BancoSol, WWB, and Pro Mujer catering to women exclusively.[12] Pro Mujer also implemented a new strategy to combine microcredits with health-care services, since the health of their clients is crucial to the success of microcredits.[19] Though Grameen Bank initially tried to lend to both men and women at equal rates, women presently make up ninety-five percent of the bank’s clients. Women continue to make up seventy-five percent of all microcredit recipients worldwide.[12] Exclusive lending to women began in the 1980s when Grameen Bank found that women have higher repayment rates, and tend to accept smaller loans than men.[3]

Examples

Bangladesh

NABARD
Mumbai Headquarters of the National Bank for Agriculture and Rural Development of India, which on-lends funds to banks providing microcredit.

Grameen Bank in Bangladesh is the oldest and probably best-known microfinance institution in the world. Grameen Bank launched their US operations in New York in April 2008.[20] Bank of America has announced plans to award more than $3.7 million in grants to nonprofits to use in backing microloan programs.[21] The Accion U.S. Network, the US subsidiary of the better-known Accion International, has provided over $450 million in microloans since 1991, with an over 90% repayment rate.[22] One research study of the Grameen model shows that poorer individuals are safer borrowers because they place more value on the relationship with the bank.[23] Even so, efforts to replicate Grameen-style solidarity lending in developed countries have generally not succeeded. For example, the Calmeadow Foundation tested an analogous peer-lending model in three locations in Canada during the 1990s. It concluded that a variety of factors — including difficulties in reaching the target market, the high risk profile of clients, their general distaste for the joint liability requirement, and high overhead costs — made solidarity lending unviable without subsidies.[24] Microcredits have also been introduced in Israel,[25] Russia, Ukraine and other nations where micro-loans help small business entrepreneurs overcome cultural barriers in the mainstream business society. The Israel Free Loan Association (IFLA) has lent more than $100 million in the past two decades to Israeli citizens of all backgrounds.[26]

India

In India, the National Bank for Agriculture and Rural Development (NABARD) finances more than 500 banks that on-lend funds to self-help groups (SHGs). SHGs comprise twenty or fewer members, of whom the majority are women from the poorest castes and tribes. Members save small amounts of money, as little as a few rupees a month in a group fund. Members may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees. As SHGs prove capable of managing their funds well, they may borrow from a local bank to invest in small business or farm activities. Banks typically lend up to four rupees for every rupee in the group fund. In Asia borrowers generally pay interest rates that range from 30% to 70% without commission and fees.[27] Nearly 1.4 million SHGs comprising approximately 20 million women now borrow from banks, which makes the Indian SHG-Bank Linkage model the largest microfinance program in the world. Similar programs are evolving in Africa and Southeast Asia with the assistance of organizations like IFAD, Opportunity International, Catholic Relief Services, Compassion International, CARE, APMAS, Oxfam, Tearfund and World Vision.

United States of America

In the United States, microcredit has generally been defined as loans of less than $50,000 to people — mostly entrepreneurs — who cannot, for various reasons, borrow from a bank. Most nonprofit microlenders include services like financial literacy training and business plan consultations, which contribute to the expense of providing such loans but also, those groups say, to the success of their borrowers.[28] One such organization in the United States of America, the Accion U.S. Network is a nonprofit microfinance organization headquartered in New York, NY. It is the largest and only nationwide nonprofit microfinance network in the U.S.. The Accion U.S. Network is part of Accion International, a U.S.-based nonprofit organization operating globally, with the mission of giving people the financial tools they need to create or grow healthy businesses. The domestic Accion programs started in Brooklyn, NY, and grew from there to become the first nationwide network microlender.[29] U.S. microcredit programs have helped many poor but ambitious borrowers to improve their lot. The Aspen Institute’s study of 405 microentrepreneurs indicates that more than half of the loan recipients escaped poverty within five years. On average, their household assets grew by nearly $16,000 during that period; the group’s reliance on public assistance dropped by more than 60%.[30] Several corporate sponsors including Citi Foundation and Capital One launched Grameen America in New York. Since then the financial outfit – not bank - has been serving the poor, mainly women, throughout four of the city’s five boroughs (Bronx, Brooklyn, Manhattan, and Queens) as well as Omaha, Nebraska and Indianapolis, Indiana. In four years, Grameen America has facilitated loans to over 9,000 borrowers valued over $35 million. It has had, as Grameen CEO Stephen Vogel notes, “a 99 percent repayment rate.”[31]

Peer-to-peer lending over the Web

The principles of microcredit have also been applied in attempting to address several non-poverty-related issues. Among these, multiple Internet-based organizations have developed platforms that facilitate a modified form of peer-to-peer lending where a loan is not made in the form of a single, direct loan, but as the aggregation of a number of smaller loans—often at a negligible interest rate.

Examples of platforms that connect lenders to micro-entrepreneurs via Internet are Kiva, Zidisha, and the Microloan Foundation. Another WWW-based microlender, United Prosperity, uses a variation on the usual microlending model; with United Prosperity the micro-lender provides a guarantee to a local bank which then lends back double that amount to the micro-entrepreneur. United Prosperity claims this provides both greater leverage and allows the micro-entrepreneur to develop a credit history with their local bank for future loans. In 2009, the US-based nonprofit Zidisha became the first peer-to-peer microlending platform to link lenders and borrowers directly across international borders without local intermediaries.[32] Vittana allows peer-to-peer lending for student loans in developing countries.[33]

Impact of microcredit

The impact of microcredit is a subject of much controversy. Proponents state that it reduces poverty through higher employment and higher incomes. This is expected to lead to improved nutrition and improved education of the borrowers' children. Some argue that microcredit empowers women. In the US, UK and Canada, it is argued that microcredit helps recipients to graduate from welfare programs.[34]

Critics say that microcredit has not increased incomes, but has driven poor households into a debt trap, in some cases even leading to suicide. They add that the money from loans is often used for durable consumer goods or consumption instead of being used for productive investments, that it fails to empower women, and that it has not improved health or education.[35]

The available evidence indicates that in many cases microcredit has facilitated the creation and the growth of businesses. It has often generated self-employment, but it has not necessarily increased incomes after interest payments. In some cases it has driven borrowers into debt traps. There is no evidence that microcredit has empowered women. In short, microcredit has achieved much less than what its proponents said it would achieve, but its negative impacts have not been as drastic as some critics have argued. Microcredit is just one factor influencing the success of a small businesses, whose success is influenced to a much larger extent by how much an economy or a particular market grows.[36]

Unintended consequences of microfinance include informal intermediaton: That is, some entrepreneurial borrowers become informal intermediaries between microfinance initiatives and poorer micro-entrepreneurs. Those who more easily qualify for microfinance split loans into smaller credit to even poorer borrowers. Informal intermediation ranges from casual intermediaries at the good or benign end of the spectrum to 'loan sharks' at the professional and sometimes criminal end of the spectrum.[37]

Improvement

Inside banco palmas woman
Many microfinance institutions also offer savings facilities, such as Banco Palma in Brazil shown here.

Many scholars and practitioners suggest an integrated package of services ('a credit-plus' approach) rather than just providing credits. When access to credit is combined with savings facilities, non-productive loan facilities, insurance, enterprise development (production-oriented and management training, marketing support) and welfare-related services (literacy and health services, gender and social awareness training), the adverse effects discussed above can be diminished.[38] Some argue that more experienced entrepreneurs who are getting loans should be qualified for bigger loans to ensure the success of the program.[39]

One of the principal challenges of microcredit is providing small loans at an affordable cost. The global average interest and fee rate is estimated at 37%, with rates reaching as high as 70% in some markets.[40] The reason for the high interest rates is not primarily cost of capital. Indeed, the local microfinance organizations that receive zero-interest loan capital from the online microlending platform Kiva charge average interest and fee rates of 35.21%.[41] Rather, the principal reason for the high cost of microcredit loans is the high transaction cost of traditional microfinance operations relative to loan size.[42] Microcredit practitioners have long argued that such high interest rates are simply unavoidable. The result is that the traditional approach to microcredit has made only limited progress in resolving the problem it purports to address: that the world's poorest people pay the world's highest cost for small business growth capital. The high costs of traditional microcredit loans limit their effectiveness as a poverty-fighting tool. Borrowers who do not manage to earn a rate of return at least equal to the interest rate may actually end up poorer as a result of accepting the loans.[43] According to a recent survey of microfinance borrowers in Ghana published by the Center for Financial Inclusion, more than one-third of borrowers surveyed reported struggling to repay their loans.[44] In recent years, microcredit providers have shifted their focus from the objective of increasing the volume of lending capital available, to address the challenge of providing microfinance loans more affordably. Analyst David Roodman contends that in mature markets, the average interest and fee rates charged by microfinance institutions tend to fall over time.[45]

Professor Dean Karlan from Yale University advocates also giving the poor access to savings accounts.[46]

See also

References

  1. ^ "Kiva Is Not Quite What It Seems".
  2. ^ "What We Do - Grameen Foundation - Connecting the World's Poor to Their Potential".
  3. ^ a b c d e f g h i Bateman, Milford (2010). Why Doesn't Microfinance Work?. Zed Books.
  4. ^ Jason Cons and Kasia Paprocki of the Goldin Institute, "The Limits of Microcredit—A Bangladeshi Case" Archived 2012-01-16 at the Wayback Machine, Food First Backgrounder (Institute for Food and Development Policy), Winter 2008, volume 14, number 4.
  5. ^ Arp, Frithjof (12 January 2018). "The 34 billion dollar question: Is microfinance the answer to poverty?". Global Agenda. World Economic Forum.
  6. ^ Gina Neff:Microcredit, microresults The Left Business Observer #74, October 1996
  7. ^ Banerjee, Abhijit; Esther Duflo; Rachel Glennester; Cynthia Kinnan. "The miracle of microfinance? Evidence from a randomized evaluation". Retrieved 17 April 2012.
  8. ^ Aidan Hollis; Arthur Sweetman (March 1997). "Complementarity, Competition and Institutional Development: The Irish Loan Funds through Three Centuries" (PDF). Retrieved 30 January 2012.
  9. ^ Spooner, Lysander (1846). "Poverty: Its illegal causes and legal cure". Boston. Archived from the original on 25 October 2012. Retrieved 30 January 2012.
  10. ^ Deutscher Raiffeisenverband:The Raiffeisen organization: Beginnings, tasks, current developments Archived 2007-08-10 at the Wayback Machine, March 2011
  11. ^ a b c d Drake, Deborah (2002). The Commercialization of Microfinance. Kumarian.
  12. ^ a b c d e f Armendariz, Beatriz (2005). The Economics of Microfinance. Cambridge, Mass: The MIT Press.
  13. ^ de la Torre, Augusto; Gozzi, Juan Carlos; Schmukler, Sergio L. (2017). "Microfinance: BancoEstado's Experience in Chile". Innovative Experiences in Access to Finance: Market-Friendly Roles for the Visible Hand?. pp. 221–251.
  14. ^ Nobel Prize.org:The Nobel Peace Prize 2006:Muhammad Yunus, Grameen Bank, retrieved on 13 February 2012
  15. ^ Bisen, Arjun; Dalton, Bronwen; Wilson, Rachel (November 2012). "The Social Construction of the Microfinance Industry: a comparison of donor and recipient perspectives". Cosmopolitan Civil Societies: An Interdisciplinary Journal. 4.
  16. ^ a b "BRI-Unit Desa, Indonesia".
  17. ^ "Archived copy". Archived from the original on 2009-01-06. Retrieved 2014-07-30.CS1 maint: Archived copy as title (link)
  18. ^ Minilening uitleg. "Wat is een minilening ?". Minilening (in Dutch). Retrieved 16 December 2016.
  19. ^ Microfinance - Healthy Clients http://www.dandc.eu/en/article/pro-mujer-why-microfinance-institutions-should-offer-healthcare-services-too
  20. ^ University of Michigan, Urban and Regional Planning Economic Development Handbook: Microcredit strategies for assisting neighborhood businesses, 22 March 2005, retrieved on 13 February 2012
  21. ^ "Bank of America Issues Grants for Microloans". Wall Street Journal. October 6, 2010. Retrieved 30 January 2012.
  22. ^ "U.S. Network". 5 June 2014. Archived from the original on 2018-02-22. Retrieved 2015-05-19.
  23. ^ Federal Reserve Bank of Kansas City, The Creditworthiness of the Poor: A Model of the Grameen Bank, April 2010
  24. ^ Cheryl Frankiewicz. "Calmeadow Metrofund: A Canadian Experiment in Sustainable Microfinance", Calmeadow Foundation, April 2001.
  25. ^ Svivatomehet.org.il (in Hebrew)
  26. ^ Israel Free Loan Associantion, History of IFLA, "Archived copy". Archived from the original on 2013-10-04. Retrieved 2013-07-26.CS1 maint: Archived copy as title (link), July 26, 2013
  27. ^ Nimal A. Fernando:Understanding and Dealing with High Interest Rate on Microcredit, Asian Development Bank, May 2006, p. 1
  28. ^ Dewan, Shaila. "Microcredit for Americans". nytimes.com.
  29. ^ Accion U.S. Network
  30. ^ "Can Microcredit Work in the United States?". hbr.org. 1 November 1999.
  31. ^ Bayrasli, Elmira. "Microfinance in America?". forbes.com.
  32. ^ "Zidisha Set to "Expand" in Peer-to-Peer Microfinance", Microfinance Focus, Feb 2010 Archived 2010-02-28 at the Wayback Machine
  33. ^ Rao. L. (2010). Vittana Applies The Kiva Model To Help Finance Education In Developing Countries. Retrieved March 9, 2011, from https://techcrunch.com/2010/03/15/vittana-applies-the-kiva-model-to-help-finance-education-in-developing-countries/
  34. ^ Nitin Bhatt, Gary Painter, and Shui-Yan Tang, 1999. “Can Microcredit Work in the United States?”, Harvard Business Review, November-December 1999 Issue. Retrieved March 06, 2018, from https://hbr.org/1999/11/can-microcredit-work-in-the-united-states - "U.S. microcredit programs have helped many poor but ambitious borrowers to improve their lot. The Aspen Institute’s study of 405 microentrepreneurs indicates that more than half of the loan recipients escaped poverty within five years. On average, their household assets grew by nearly $16,000 during that period; the group’s reliance on public assistance dropped by more than 60%."
  35. ^ Tonelli M. and C. Dalglish, 2012. “Micro-Credit is Necessary but Not Sufficient for Entrepreneurs in Desperate Poverty”, FSR Forum, Vo.14, Issue 4 (p.16-21). ISSN 1389-0913 Retrieved July 12, 2012, from https://jeffersonal.issuu.com/secretarisfsr/docs/fsr_forum_14-04_lr/18 - "U.S. microcredit programs have helped many poor but ambitious borrowers to improve their lot. The Aspen Institute’s study of 405 microentrepreneurs indicates that more than half of the loan recipients escaped poverty within five years. On average, their household assets grew by nearly $16,000 during that period; the group’s reliance on public assistance dropped by more than 60%."
  36. ^ "Microcredit doesn't live up to promise of transforming lives of the poor, 6 studies show". EurekAlert!.
  37. ^ Arp, Frithjof; Ardisa, Alvin; Ardisa, Alviani (2017). "Microfinance for poverty alleviation: Do transnational initiatives overlook fundamental questions of competition and intermediation?". Transnational Corporations. United Nations Conference on Trade and Development. 24 (3): 103–117. doi:10.18356/10695889-en. UNCTAD/DIAE/IA/2017D4A8.
  38. ^ Holvoet, Nathalie. "The Impact of Microfinance on Decision-Making Agency: Evidence from South India".
  39. ^ Goetz; Gupta (1996). "Who takes the credit?Gender, Power, Control over loan use in Rural credit program in Bangladesh" (PDF). World Development. 24 (1): 45–63. doi:10.1016/0305-750x(95)00124-u.
  40. ^ McFarquhar, Neil (April 13, 2010). "Banks Making Big Profits From Tiny Loans". New York Times.
  41. ^ "Kiva Help - Interest Rate Comparison". Kiva.org. Archived from the original on August 3, 2009. Retrieved October 10, 2009.
  42. ^ "How Kiva works - Kiva".
  43. ^ "Microfinance: Do the micro-loans contribute to the well-being of the people or do they leave them even poorer due to high interest rates? - Quora".
  44. ^ http://centerforfinancialinclusionblog.files.wordpress.com/2011/11/111108_cfi_over-indebtedness-in-ghana_jessica-schicks_en_final.pdf
  45. ^ Roodman, David. "Due Diligence: An Impertinent Inquiry Into Microfinance." Center for Global Development, 2011.
  46. ^ BBC:Business Weekly, 2 August 2009

rakha khan

Bibliography

Following is a selected bibliography about microcredit.

  • Adams, Dale, Doug Graham and J.D. Von Pischke (eds.). Undermining Rural Development with Cheap Credit. Westview Press, Boulder, Colorado, 1984.
  • Bateman, Milford. 'Why Doesn't Microfinance Work? The Destructive Rise of Local Neoliberalism'. Zed Books, London, 2010.
  • Drake, Deborah, and Elizabeth Rhyne (eds.). The Commercialization of Microfinance: Balancing Business and Development. Kumarian Press, 2002.
  • Rhyne, Elizabeth. Mainstreaming Microfinance: How Lending to the Poor Began, Grew and Came of Age in Bolivia. Kumarian Press, 2001.
  • Fuglesang, Andreas and Dale Chandler. Participation as Process – Process as Growth – What We can Learn from the Grameen Bank. Grameen Trust, Dhaka, 1993.
  • Gibbons, David. The Grameen Reader. Grameen Bank, Dhaka, 1992.
  • Harper, Malcolm and Shailendra Vyakarnam. Rural Enterprise: Case Studies from Developing Countries. ITDG Publishing, 1988.
  • Hulme, David and Paul Mosley. Finance Against Poverty. Routledge, London, 1996.
  • Johnson, Susan and Ben Rogaly. Microfinance and Poverty Reduction. Oxfam, Oxford UK, 1997.
  • Kadaras, James & Elizabeth Rhyne. Characteristics of equity investment in microfinance. Accion International, 2004.
  • Khandker, Shahidur R. Fighting Poverty with Microcredit. Bangladesh edition, The University Press Ltd, Dhaka, 1999.
  • Ledgerwood, Joanna. Microfinance Handbook. Washington, D.C., World Bank, 1998.
  • Rutherford, Stuart. ASA: The Biography of an NGO, Empowerment and Credit in Rural Bangladesh. ASA, Dhaka, 1995.
  • Small Enterprise Development. Intermediate Technology Publications, London.
  • Todd, Helen Women at the Center: Grameen Borrowers After One Decade. University Press Ltd, Dhaka, 1996.
  • Wood, Geoff D. & I. Sharif (eds.). Who Needs Credit? Poverty and Finance in Bangladesh. University Press Ltd., Dhaka, 1997.
  • Yunus Muhammad, Moingeon Bertrand & Laurence Lehmann-Ortega, "Building Social Business Models: Lessons from the Grameen Experience", April-June, vol 43, n° 2-3, Long Range Planning, 2010, p. 308-325"
  • Tonelli M. and C. Dalglish, 2012. “Micro-Credit is Necessary but Not Sufficient for Entrepreneurs in Desperate Poverty”, FSR Forum, Vo.14, Issue 4 (p.16-21). ISSN 1389-0913
  • Yunus, Muhammad. Banker to the Poor: Micro-Lending and the Battle Against World Poverty. Public Affairs, 2003.
  • Padmanabahn, K.P., Rural Credit, Intermediate Tech. Publ. Ltd., London 1988.
  • Germidis D. et al.,Financial Systems and Development: what role for the formal and informal financial sectors?, OECD, Paris 1991.
  • Robinson, Marguerite S., The microfinance revolution, The World Bank, Washington D.C., 2001.
  • Mauri, Arnaldo, (1995): A new approach to institutional lending and loan administration in rural areas of LDCs, International Review of Economics, ISSN 1865-1704, Vol. 45, no. 4, pp. 707–716.
  • Goetz, A.-M.; Sengupta, R. (1996). "Who Takes the Credit? Gender, Power and Control over Loan Use in Rural Credit Programmes in Bangladesh". World Development. 24: 45–63. doi:10.1016/0305-750x(95)00124-u.
  • Johnson, S. 1997. Gender and Micro-finance: guidelines for best practice. Action Aid-UK.
  • Kabeer, N. 1998. 'Money Can't Buy Me Love'? Re-evaluating Gender, Credit and Empowerment in Rural Bangladesh. IDS Discussion Paper 363.
  • Mayoux, L. 1998a. Women's Empowerment and Micro-finance programmes: Approaches, Evidence and Ways Forward. The Open University Working Paper No 41.
  • Rahman, A (1999). "Micro-credit Initiatives for Equitable and Sustainable Development: Who Pays?". World Development. 27 (1): 67–82. doi:10.1016/s0305-750x(98)00105-3.
  • CHESTON, S. and KUHN, L. (2002). Empowering Women through Microfinance. Pathways Out of Poverty: Innovations in Microfinance for the Poorest Families.
  • Harper, A. ( 1995). Providing women in Baltistan with access to loans – potential and problems. Lahore, AKRSP Pakistan.
  • Mutalima, I. K., 2006, Microfinance and Gender Equality: Are We Getting There?: Micro Credit Summit, Halifa, Royal Tropical Institute and Oxfam Novib.

External links

2006 Nobel Peace Prize

The 2006 Nobel Peace Prize was awarded to Muhammad Yunus and Grameen Bank "for their efforts through microcredit to create economic and social development from below".

Banco Azteca

Banco Azteca is a bank which operates in Mexico, Panama, Guatemala, Honduras, Peru and El Salvador. The company's products are consumer credit for goods, personal loans, small business loans, credit cards, mortgages and payroll systems.

In March 2002, Banco Azteca was formed when Grupo Elektra received the required financial services licence. The bank began operating on October 30, 2002.

The bank was criticized in a 2007 BusinessWeek magazine article for abusing microcredit practices in Mexico due to lax bankruptcy, consumer protection and interest rates laws of the country.

Betty-Jean Maycock

Betty Jean Maycock Harrington (born December 13, 1942) is a former Olympic gymnast from Cleveland, Ohio. Maycock was a member of the American gymnastics team that placed ninth at the 1960 Summer Olympics. Prior to the Olympics, she was part of the first collegiate women's gymnastics team in the United States at Kent State University in 1959 while still a student at Kent State High School. She also won four medals at the 1959 Pan American Games. Following the Olympics, she returned to college, graduating cum laude from Kent State in 1964, and later earned a Ph.D. in Child Development from the University of Maryland. She was married to Robert Sutton Harrington (1942–1993) in 1976, and has two daughters, Amy and Ann. She currently works with the organization Microcredit in Africa, which implements microcredit projects in Niger.

Compuscan

Compuscan is a South African credit bureau that provides consumer and commercial credit information within South Africa and other African nations.

Founded in 1994 and headquartered in Stellenbosch, South Africa, Compuscan is a subsidiary of South African-based Compuscan Information Technologies. The company, which was originally focused on providing credit history reporting for microcredit transactions, is among South Africa’s leading credit bureaus and is a member of the nation’s Credit Bureau Association. The company also provides microcredit reporting services in the neighboring republics of Botswana and Namibia.In 2006, Compuscan was selected by the Bank of Uganda to build the first-ever Ugandan Credit Reference Bureau. This system, which was formally introduced in 2008, required Ugandan financial institutions to issue smart cards to their borrowers as part of a borrower identification program.

Cooperative banking

Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.

Cooperative banking, as discussed here, includes retail banking carried out by credit unions, mutual savings banks, building societies and cooperatives, as well as commercial banking services provided by mutual organizations (such as cooperative federations) to cooperative businesses.

A 2013 report by ILO concluded that cooperative banks outperformed their competitors during the financial crisis of 2007-2008. The cooperative banking sector had 20% market share of the European banking sector, but accounted for only 7 per cent of all the write-downs and losses between the third quarter of 2007 and first quarter of 2011. Cooperative banks were also over-represented in lending to small and medium-sized businesses in all of the 10 countries included in the report. Credit unions in the US had five times lower failure rate than other banks during the crisis and more than doubled lending to small businesses between 2008 - 2016, from $30 billion to $60 billion, while lending to small businesses overall during the same period declined by around $100 billion. Public trust in credit unions stands at 60%, compared to 30% for big banks and small businesses are eighty percent less likely to be dissatisfied with a credit union than with a big bank.

FINCA International

FINCA International is a non-profit, microfinance organization, founded by John Hatch in 1984. Sometimes referred to as the "World Bank for the Poor", FINCA is the innovator of the village banking methodology in microcredit and is widely regarded as one of the pioneers of modern-day microfinance. With its headquarters in Washington, D.C., FINCA has 20 affiliated host-country institutions (affiliates), in Latin America and the Caribbean, Africa, Eurasia and the Middle East and South Asia. Along with Grameen Bank and Accion International, FINCA is considered to be one of the most influential microfinance organizations in the world.

Grameen Bank

Grameen Bank (Bengali: গ্রামীণ বাংক) is a microfinance organisation and community development bank founded in Bangladesh. It makes small loans (known as microcredit or "grameencredit") to the impoverished without requiring collateral.

Grameen Bank originated in 1976, in the work of Professor Muhammad Yunus at University of Chittagong, who launched a research project to study how to design a credit delivery system to provide banking services to the rural poor. In October 1983 the Grameen Bank was authorised by national legislation to operate as an independent bank.

The bank grew significantly between 2003 and 2007. As of January 2011, the total borrowers of the bank number 8.4 million, and 97% of those are women. In 1998 the Bank's "Low-cost Housing Program" won a World Habitat Award. In 2006, the bank and its founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize.

Impact of microcredit

The impact of microcredit is a subject of much controversy. Proponents state that it reduces poverty through higher employment and higher incomes. This is expected to lead to improved nutrition and improved education of the borrowers' children. Some argue that microcredit empowers women. In the US and Canada, it is argued that microcredit helps recipients to graduate from welfare programs. Critics say that microcredit has not increased incomes, but has driven poor households into a debt trap, in some cases even leading to suicide. They add that the money from loans is often used for durable consumer goods or consumption instead of being used for productive investments, that it fails to empower women, and that it has not improved health or education.

The available evidence indicates that in many cases microcredit has facilitated the creation and the growth of businesses. It has often generated self-employment, but it has not necessarily increased incomes after interest payments. In some cases it has driven borrowers into debt traps. In addition, it can produce unintended rent-seeking entrepreneurship.

There is no evidence that microcredit has empowered women. In short, microcredit has achieved much less than what its proponents said it would achieve, but its negative impacts have not been as drastic as some critics have argued. Microcredit is just one factor influencing the success of a small businesses, whose success is influenced to a much larger extent by how much an economy or a particular market grows. A critical review of 58 papers covering experiences in 18 countries concluded "there is no good evidence for the beneficent impact of microfinance on the well-being of poor people" and that "the greatest impacts are reported by studies with the weakest designs".The attempt to objectively evaluate the impact of microcredit on a global or a local scale is marred by numerous methodological challenges. There are only few rigorous evaluations of microcredit, and much of the literature on the impact of microcredit is based in anecdotal reports or case studies that are not representative. Even among the rigorous evaluations many "suffer from weak methodologies and inadequate data", according to a systematic literature review of the impact of microcredit conducted in 2011 by a group of researchers on behalf of UKAid. A 2008 review of over 100 articles on microcredit found that only 6 used enough quantitative data to be representative, and none employed rigorous methods such as randomized control trials. Rigorous impact evaluations using control and treatment groups are difficult to undertake today, because microcredit is so common in developing countries today that few locations remain where such a research setting can still be applied. Further complicating impact studies is the often highly politicized context of poverty alleviation initiatives.

International Year of Microcredit

International Year of Microcredit is a special event of the United Nations which took place in the year 2005. The event highlighted microfinance as an instrument for socioeconomic development.

The event was launched on November 18, 2004.

List of banks in Tajikistan

This is a list of banks in Tajikistan. In addition to the central bank, there are 17 licensed commercial banks as of September 30, 2018, including branches of foreign banks. Other deposit-taking and credit extending institutions in the country consist of 25 microcredit deposit organizations, 6 microcredit organizations and 31 microcredit funds.

List of microcredit lending websites

This is an incomplete list of microcredit lending social websites:

Kiva (organization)

United Prosperity (organisation)

Wokai

Energy in Common

World Vision

Vittana

MicroPlace

Zidisha

Micro-enterprise

A micro-enterprise (or microenterprise) is generally defined as a small business employing nine people or fewer, and having a balance sheet or turnover less than a certain amount (e.g. €2 million or PhP 3 million). The terms microenterprise and microbusiness have the same meaning, though traditionally when referring to a small business financed by microcredit the term microenterprise is often used. Similarly, when referring to a small, usually legal business that is not financed by microcredit, the term microbusiness (or micro-business) is often used. Internationally, most microenterprises are family businesses employing one or two persons. Most microenterprise owners are primarily interested in earning a living to support themselves and their families. They only grow the business when something in their lives changes and they need to generate a larger income. According to information found on the Census.gov website, microenterprises make up 95% of the 28 million US companies tracked by the census.

Microcredit Regulatory Authority

Microcredit Regulatory Authority (MRA) is the central body to monitor and supervise microfinance operations of non-governmental organizations of the Republic of Bangladesh. It was created by the Government of People's Republic of Bangladesh under the Microcredit Regulatory Authority Act (Act no. 32 of 2006). License from the Authority is mandatory to operate microfinance operation in Bangladesh as an NGO.

On September 28, 2012 at the Alliance for Financial Inclusion's Global Policy Forum 2012, the bank made a commitment under the Maya Declaration to promote agent and mobile banking, implement consumer protection initiatives, and establish a credit bureau for the MFI sector.

Microcredit Summit Campaign

The Microcredit Summit Campaign, an American non-profit organization, started as an effort to bring together microcredit practitioners, advocates, educational institutions, donor agencies, international financial institutions, non-governmental organizations and others involved with microcredit around the goal of alleviating world poverty through microfinance.

Microcredit for water supply and sanitation

Microcredit for water supply and sanitation is the application of microcredit to provide loans to small enterprises and households in order to increase access to an improved water source and sanitation in developing countries. While most investments in water supply and sanitation infrastructure are financed by the public sector, investment levels have been insufficient to achieve universal access. Commercial credit to public utilities was limited by low tariffs and insufficient cost-recovery. Microcredits are a complementary or alternative approach to allow the poor to gain access to water supply and sanitation.Funding is allocated either to small-scale independent water-providers who generate an income stream from selling water, or to households in order to finance house connections, plumbing installations, or on-site sanitation such as latrines. Many microfinance institutions have only limited experience with financing investments in water supply and sanitation. While there have been many pilot projects in both urban and rural areas, only a small number of these have been expanded. A water connection can significantly lower a family's water expenditures, if it previously had to rely on water vendors, allowing cost-savings to repay the credit. The time previously required to physically fetch water can be put to income-generating purposes, and investments in sanitation provide health benefits that can also translate into increased income.

Microfinance

Microfinance is a category of financial services targeted at individuals and small businesses who lack access to conventional banking and related services. Microfinance includes microcredit, the provision of small loans to poor clients; savings and checking accounts; microinsurance; and payment systems. Microfinance services are designed to be more affordable to poor and socially marginalized customers and to help them become self-sufficient.Microfinance initially had a limited definition - the provision of microloans to poor entrepreneurs and small businesses lacking access to credit. The two main mechanisms for the delivery of financial services to such clients were: (1) relationship-based banking for individual entrepreneurs and small businesses; and (2) group-based models, where several entrepreneurs come together to apply for loans and other services as a group. Over time, microfinance has emerged as a larger movement whose object is "a world in which as everyone, especially the poor and socially marginalized people and households have access to a wide range of affordable, high quality financial products and services, including not just credit but also savings, insurance, payment services, and fund transfers."Proponents of microfinance often claim that such access will help poor people out of poverty, including participants in the Microcredit Summit Campaign. For many, microfinance is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses; for others it is a way for poor to manage their finances more effectively and take advantage of economic opportunities while managing the risks. Critics often point to some of the ills of micro-credit that can create indebtedness. Due to diverse contexts in which microfinance operates, and the broad range of microfinance services, it is neither possible nor wise to have a generalized view of impacts microfinance may create. Many studies have tried to assess its impacts.

Muhammad Yunus

Muhammad Yunus (Bengali: মুহাম্মদ ইউনূস; born 28 June 1940) is a Bangladeshi social entrepreneur, banker, economist, and civil society leader who was awarded the Nobel Peace Prize for founding the Grameen Bank and pioneering the concepts of microcredit and microfinance. These loans are given to entrepreneurs too poor to qualify for traditional bank loans. In 2006, Yunus and the Grameen Bank were jointly awarded the Nobel Peace Prize "for their efforts through microcredit to create economic and social development from below". The Norwegian Nobel Committee said that "lasting peace cannot be achieved unless large population groups find ways in which to break out of poverty" and that "across cultures and civilizations, Yunus and Grameen Bank have shown that even the poorest of the poor can work to bring about their own development". Yunus has received several other national and international honours. He received the United States Presidential Medal of Freedom in 2009 and the Congressional Gold Medal in 2010.In 2008, he was rated number 2 in Foreign Policy magazine's list of the 'Top 100 Global Thinkers'.In February 2011, Yunus together with Saskia Bruysten, Sophie Eisenmann and Hans Reitz co-founded Yunus Social Business – Global Initiatives (YSB). YSB creates and empowers social businesses to address and solve social problems around the world. As the international implementation arm for Yunus' vision of a new, humane capitalism, YSB manages incubator funds for social businesses in developing countries and provides advisory services to companies, governments, foundations and NGOs.

In 2012, he became Chancellor of Glasgow Caledonian University in Scotland. Previously, he was a professor of economics at Chittagong University in Bangladesh. He published several books related to his finance work. He is a founding board member of Grameen America and Grameen Foundation, which support microcredit.

Yunus also serves on the board of directors of the United Nations Foundation, a public charity created in 1998 by American philanthropist Ted Turner's $1 billion gift to support UN causes.In March 2011, the Bangladesh government fired Yunus from his position at Grameen Bank, citing legal violations and an age limit on his position.

United Prosperity (organisation)

United Prosperity is a not-for-profit Web-based microcredit organisation.Unlike most microcredit or person-to-person lending organisations, United Prosperity does not directly lend to the micro-entrepreneur, but instead the micro-loans are used to provide a guarantee to a local bank, which lends to the micro-entrepreneur. Typically the local bank will lend about twice the amount provided by the micro-lender's guarantee, thus providing greater leverage than traditional micro-credit.Another claimed benefit of this approach is that the micro-entrepreneur develops a relationship and, most importantly, a credit history with their local bank, enabling the micro-entrepreneur to become independent of the micro-lenders in the long term. A criticism of traditional microcredit models is that they can create a long-term dependency between the micro-lenders and the micro-entrepreneur as the micro-entrepreneur never builds a relationship with local banks.

Women's empowerment

Women's empowerment is the process in which women elaborate and recreate what it is that they can be, do, and accomplish in a circumstance that they previously were denied. Empowerment can be defined in many ways, however, when talking about women's empowerment, empowerment means accepting and allowing people (women) who are on the outside of the decision-making process into it. “This puts a strong emphasis on participation in political structures and formal decision-making and, in the economic sphere, on the ability to obtain an income that enables participation in economic decision-making.” Empowerment is the process that creates power in individuals over their own lives, society, and in their communities. People are empowered when they are able to access the opportunities available to them without limitations and restrictions such as in education, profession and lifestyle. Feeling entitled to make your own decisions creates a sense of empowerment. Empowerment includes the action of raising the status of women through education, raising awareness, literacy, and training. Women's empowerment is all about equipping and allowing women to make life-determining decisions through the different problems in society.Alternatively, it is the process for women to redefine gender roles that allows for them to acquire the ability to choose between known alternatives whom have otherwise been restricted from such an ability. There are several principles defining women's empowerment such as, for one to be empowered, they must come from a position of disempowerment. Furthermore, one must acquire empowerment themselves rather than have it given to them by an external party. Other studies have found that empowerment definitions entail people having the capability to make important decisions in their lives while also being able to act on them. Lastly, empowerment and disempowerment is relative to other at a previous time; therefore, empowerment is a process, not a product.Women empowerment has become a significant topic of discussion in development and economics. It can also point to the approaches regarding other trivialized genders in a particular political or social context.

Women's economic empowerment refers to the ability for women to enjoy their right to control and benefit from the

resources, assets, income and their own time, as well as the ability to manage risk and improve their economic status and well being.While often interchangeably used, the more comprehensive concept of gender empowerment refers to people of any gender, stressing the distinction between biological and gender as a role.

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