NON-governmental organisations (NGOs) must consider their capacity to manage microfinance programmes. The widespread poverty, with all the problems that come with it, is the greatest challenge of our time. Traditional aid has not helped in solving the problems. One kind of development activity, which promotes financial sustainability for the individual as well as for society, is micro finance (MF). But even micro finance institutions or MFIs, are often dependent on financial support.
Have microcredit programmes generated positive results for the poor and poor women in particular? While answering this particular question, we should say that numerous studies and evaluations have demonstrated a rise in incomes and other indicators of standard of living from microcredit programs. A large number of these programmes have focused on supporting women, who bear the brunt of poverty and have been left out of most poverty reduction programmes in the past. Under many programmes, women make up as many as 90 per cent of borrowers. Lending to women is also assumed to result in a greater multiplier effect because women pass on the benefits to children, through increased spending on the household, education and nutrition.
In many cases, microcredit has contributed to changes in attitude about women's contribution to, and role in, economic and social development. Specifically, microcredit has resulted in increased recognition of women's productive role. Earning our own money allows us to do what we want with it. It also brings us 'izzat' honour or respect because the money proves our contribution. Otherwise, we work like animals, we are never given credit for our contribution and even our own men say that we do not work. When we have our own money we are no longer 'mohtaj' (dependent to the point of being at the other person's mercy. The word is often used for the physically disabled)." (The quotation here is from a Pakistani entrepreneur, in Nighat Said Khan, 1984).
Whether or not they are poor, women may take advantage of their newfound financial independence to assert themselves, stand up to abusive spouses or serve as role models in the community.
Another burning question is that why do not the poorest women and men participate in microcredit programs? There are several reasons why the poor do not participate in microcredit programmes. The leading cause is self-exclusion. The poorest, especially the poorest women, often lack confidence, skills, and market contacts. They consider themselves unable to repay debt. This may be particularly relevant to women, who may have limited control over the revenues used for repayment. Some analysts refer to the poorest as "debt-averse." One might also say they have more to lose if their investment doesn't pan out. Some women do not join due to social sanctions which restrict their mobility (Hashemi in Wood and Sharif, 1997).
Even where targeting is highly effective, self-selection appears to be the leading reason why the ultra-poor are excluded from microcredit programmes.
Studies on women's control of credit in Bangladesh indicate that most women borrowers have only partial control over loans, or have relinquished all control to male members of the family. Moreover, women with greater control over loans tend to be those engaged in traditional home-based activities (Goetz and Gupta, 1994). The majority of microcredit is used to finance livelihood (survival) activities such as trading (e.g., vegetable vending) and food processing (e.g., paddy husking). These activities are more opportunistic than entrepreneurial and carry a lower risk of generating negative results (such as increased indebtedness, increased vulnerability).
However, returns on labour tend to be low, and possibilities to expand income beyond marginal increases (i.e. in the medium and long term) are minimal. Survival activities offer only limited potential for significant and sustained increases in income. There is a qualitative difference in the "entrepreneurial" businesses.
All economies rely upon the financial intermediary function to transfer resources from savers to investors. In market economies, this function is performed by commercial banks and the capital markets. The poor would borrow relatively small amounts, and the processing and supervision of lending to them would consume administrative costs that would be disproportionate to the amount of lending. The absence of commercial banks has led to non-conventional forms of lending. The recent prominence given to microcredit owes much to the success of a relatively few microcredit programmes and their increasing scale. The Grameen Bank of Bangladesh, the most prominent of the successes, now reaches over 2.0 million people, with cumulative lending of about $2.1 billion. Similar successful examples are known in Latin America (e.g., Banco Solidario in Bolivia) and less so in Africa (the Kenya Rural Enterprise Programme is a good example). Progress has also been recorded in several transition economies, mixed in some cases. Such institutions have not only achieved a degree of success, but they have also managed to attract donor support and press attention.
Pioneered by Grameen Bank, micro-credit has proved to be an exceptionally effective tool for poverty alleviation and approach to development. The Grameen Bank model of credit delivery to the rural poor - especially women - has proved that the poor can lift themselves out of poverty through their own efforts and industry provided they are given access to capital. By 2006, nearly 80 per cent of poor households have taken part in micro-credit programmes, and a majority of those have improved their economic condition. The micro-finance sector is set to push boundaries further with the development of micro-insurance schemes.
Developing countries could benefit by instituting similar comprehensive programmes, eventually involving the private sector and, where applicable, efficient NGOs. The United Nations could provide more robust technical assistance programmes in that direction. A crucial part of any future effort should be to strengthen the administrative structures of existing microcredit institutions proliferate. It is possible that economies of scale are important in micro lending. Dynamic leadership and paid management staff are probably crucial. The provision of information on available services to the poor is particularly essential. This is not at present the case, even in some advanced developing countries. Information on services for the poor is rarely made readily available.
Microcredit, however, is not a panacea. Realising its limitations, some organisations have already begun to develop new programmes and approaches to reach those presently excluded by microcredit programmes. In some areas, another way to increase the incomes of the poor and promote gender equity is to support labour movements where the poor, and poor women in particular, are involved in new economic sectors. Due to liberalised trade and rapid economic growth in many Asian economies, low-paying employment and piece-rate work in and around free trade zones is increasing rapidly, often with mixed consequences, especially for women. In many contexts, organising women to bargain for fair wages, benefits and working conditions is an appropriate intervention to fight poverty and promote gender equity.
Finally, it is important to acknowledge that microcredit may not be the appropriate intervention in all cases. If very few programs have actually helped the poorest of the poor, is this due to program failure, or because credit is not always the most appropriate approach to supporting the efforts of the poor? As one researcher noted, microfinance institutions' apparent "failure" to reach the poor may not be a failure at all, "but rather, a realisation that microcredit is not the way out of poverty for all the poor." (Zaman1997, 253).
Have microcredit programmes generated positive results for the poor and poor women in particular? While answering this particular question, we should say that numerous studies and evaluations have demonstrated a rise in incomes and other indicators of standard of living from microcredit programs. A large number of these programmes have focused on supporting women, who bear the brunt of poverty and have been left out of most poverty reduction programmes in the past. Under many programmes, women make up as many as 90 per cent of borrowers. Lending to women is also assumed to result in a greater multiplier effect because women pass on the benefits to children, through increased spending on the household, education and nutrition.
In many cases, microcredit has contributed to changes in attitude about women's contribution to, and role in, economic and social development. Specifically, microcredit has resulted in increased recognition of women's productive role. Earning our own money allows us to do what we want with it. It also brings us 'izzat' honour or respect because the money proves our contribution. Otherwise, we work like animals, we are never given credit for our contribution and even our own men say that we do not work. When we have our own money we are no longer 'mohtaj' (dependent to the point of being at the other person's mercy. The word is often used for the physically disabled)." (The quotation here is from a Pakistani entrepreneur, in Nighat Said Khan, 1984).
Whether or not they are poor, women may take advantage of their newfound financial independence to assert themselves, stand up to abusive spouses or serve as role models in the community.
Another burning question is that why do not the poorest women and men participate in microcredit programs? There are several reasons why the poor do not participate in microcredit programmes. The leading cause is self-exclusion. The poorest, especially the poorest women, often lack confidence, skills, and market contacts. They consider themselves unable to repay debt. This may be particularly relevant to women, who may have limited control over the revenues used for repayment. Some analysts refer to the poorest as "debt-averse." One might also say they have more to lose if their investment doesn't pan out. Some women do not join due to social sanctions which restrict their mobility (Hashemi in Wood and Sharif, 1997).
Even where targeting is highly effective, self-selection appears to be the leading reason why the ultra-poor are excluded from microcredit programmes.
Studies on women's control of credit in Bangladesh indicate that most women borrowers have only partial control over loans, or have relinquished all control to male members of the family. Moreover, women with greater control over loans tend to be those engaged in traditional home-based activities (Goetz and Gupta, 1994). The majority of microcredit is used to finance livelihood (survival) activities such as trading (e.g., vegetable vending) and food processing (e.g., paddy husking). These activities are more opportunistic than entrepreneurial and carry a lower risk of generating negative results (such as increased indebtedness, increased vulnerability).
However, returns on labour tend to be low, and possibilities to expand income beyond marginal increases (i.e. in the medium and long term) are minimal. Survival activities offer only limited potential for significant and sustained increases in income. There is a qualitative difference in the "entrepreneurial" businesses.
All economies rely upon the financial intermediary function to transfer resources from savers to investors. In market economies, this function is performed by commercial banks and the capital markets. The poor would borrow relatively small amounts, and the processing and supervision of lending to them would consume administrative costs that would be disproportionate to the amount of lending. The absence of commercial banks has led to non-conventional forms of lending. The recent prominence given to microcredit owes much to the success of a relatively few microcredit programmes and their increasing scale. The Grameen Bank of Bangladesh, the most prominent of the successes, now reaches over 2.0 million people, with cumulative lending of about $2.1 billion. Similar successful examples are known in Latin America (e.g., Banco Solidario in Bolivia) and less so in Africa (the Kenya Rural Enterprise Programme is a good example). Progress has also been recorded in several transition economies, mixed in some cases. Such institutions have not only achieved a degree of success, but they have also managed to attract donor support and press attention.
Pioneered by Grameen Bank, micro-credit has proved to be an exceptionally effective tool for poverty alleviation and approach to development. The Grameen Bank model of credit delivery to the rural poor - especially women - has proved that the poor can lift themselves out of poverty through their own efforts and industry provided they are given access to capital. By 2006, nearly 80 per cent of poor households have taken part in micro-credit programmes, and a majority of those have improved their economic condition. The micro-finance sector is set to push boundaries further with the development of micro-insurance schemes.
Developing countries could benefit by instituting similar comprehensive programmes, eventually involving the private sector and, where applicable, efficient NGOs. The United Nations could provide more robust technical assistance programmes in that direction. A crucial part of any future effort should be to strengthen the administrative structures of existing microcredit institutions proliferate. It is possible that economies of scale are important in micro lending. Dynamic leadership and paid management staff are probably crucial. The provision of information on available services to the poor is particularly essential. This is not at present the case, even in some advanced developing countries. Information on services for the poor is rarely made readily available.
Microcredit, however, is not a panacea. Realising its limitations, some organisations have already begun to develop new programmes and approaches to reach those presently excluded by microcredit programmes. In some areas, another way to increase the incomes of the poor and promote gender equity is to support labour movements where the poor, and poor women in particular, are involved in new economic sectors. Due to liberalised trade and rapid economic growth in many Asian economies, low-paying employment and piece-rate work in and around free trade zones is increasing rapidly, often with mixed consequences, especially for women. In many contexts, organising women to bargain for fair wages, benefits and working conditions is an appropriate intervention to fight poverty and promote gender equity.
Finally, it is important to acknowledge that microcredit may not be the appropriate intervention in all cases. If very few programs have actually helped the poorest of the poor, is this due to program failure, or because credit is not always the most appropriate approach to supporting the efforts of the poor? As one researcher noted, microfinance institutions' apparent "failure" to reach the poor may not be a failure at all, "but rather, a realisation that microcredit is not the way out of poverty for all the poor." (Zaman1997, 253).
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