Microfinance or microcredit?

Written by  //  February 27, 2015  //  Aid & Development, Microcredit  //  No comments

Planet Rating is a specialized microfinance rating agency. Our GIRAFE methodology is continuously enhanced to follow the evolution of the sector. We are committed to contribute to the professionalization of the microfinance industry through higher transparency and access to financing.
Fonkoze is Haiti’s alternative bank for the organized poor. In fact, it is a family of three institutions working together shoulder-to-shoulder towards a single compelling mission: building the economic foundations for democracy in Haiti by providing the rural poor with the tools they need to lift themselves out of poverty.
Zafèn is a community of experienced and first-time lenders/donors who believe in the power of enterprise to foster sustainable economic development in Haiti.
The Foundation for Women (FFW) serves impoverished women locally and globally by funding and creating microcredit programs.
Women’s World Banking established in 1979 to be a voice and change agent for poor women entrepreneurs. Our goal is to continue to build a network of strong financial institutions around the world and ensure that the rapidly changing field of microfinance focuses on women as clients, innovators and leaders.
Sheila Arnopoulos: Saris on Scooters — How Microcredit is Changing Village India; Saris en scooter – La révolution du microcrédit dans l’Inde des villages

+++++++++++++++++

Microcredit oversold as anti-poverty tool, economists say
(Thomson Reuters Foundation) – Microcredit is no panacea for lifting millions of people from poverty, leading economists said on Friday in releasing research from seven countries that challenges a key development tool.
For over 15 years, extending microloans to very poor people has been hailed as a path out of poverty, especially for women.
Microcredit, pioneered by Muhammad Yunus, founder of Grameen Bank in Bangladesh and winner of the 2006 Nobel peace prize, has been promoted by development agencies as a route to self improvement for very poor families considered too risky by traditional banks.
Microfinanciers make tiny loans to small-scale entrepreneurs, who usually belong to a borrowers’ club that guarantees repayment. The idea is a family will invest in its business, generate more income and break out of aid dependency.
The industry, which has expanded dramatically since 1997, had reached 137.5 million families by 2010, according to Microcredit Summit Campaign, a non-profit which brings together microfinance practitioners.
But economic studies spanning four continents and seven countries conducted between 2003 and 2012 found that microcredit fell well short of its promise, and there was no clear evidence it reduces poverty.

2013

18 February
Bit loans
(The Economist|Schumpeter) … cashless transactions have been catching on fast in Nairobi and elsewhere in Africa. Microfinance organisations were among the pioneers. In Kenya, for instance, they started using M-PESA, the popular mobile money service, to hand out loans to small-time businesspeople in 2008, soon after its launch.
Musoni, a Kenyan microfinance firm with more than 10,000 customers and over $6.3m in loans since its launch in May 2010, is now taking the idea even further: in an effort to bypass banks and make microfinance more efficient, it has gone completely cashless—a worldwide first, claims Cameron Goldie-Scot, the firm’s chief operating officer.
Cashless transactions are more secure: they are traceable and hard to redirect. Yet combining mobile money with brick-and-mortar banks adds costs. Using services such as M-PESA also does not do much to improve microfinance organisations. Most already enjoy high repayment rates, around 97% in some cases. Efficiency gains require a more radical approach.
Hence Musoni’s going all digital. Its loan officers are armed with tablet computers and a custom application for collecting loan-applicant data.
Crowdfunding site looks to power rural world
Small donations made through crowdfunding sites have totaled more than $1.5 billion over the past five years, with double that expected to be raised in 2013. In Africa, SunFunder lends money from online contributions, with interest, that finance small-scale solar-powered systems, and it has found some success in making back its money. The New York Times (tiered subscription model)/Green blog (2/14)
Thai microlender “supertanker” only getting bigger
A Thai microfinance initiative is the biggest in the world, and growing. The Village and Urban Revolving Fund — described as a “microfinance supertanker” — is slated to receive $2.6 billion for its network of 80,000 village banks, adding to a $4.9 billion loan portfolio serving 8.5 million borrowers. The Economist (free content)/Schumpeter blog (1/1)

Bangladesh maneuvering in Grameen tug of war
There is concern that the Bangladeshi government is seeking to take greater control of the the Nobel Prize-winning Grameen Bank, which could hurt the 8.3 million women who comprise the majority of shareholders. This year, a law was amended to give government appointees more power over the microfinance institution. The Guardian (London) (11/21)

Microinsurance links profit and purpose for farmers
Microinsurance companies have been reaching out to farmers in developing countries, and nearly 500 million are insured against crop failure, among other adverse events, largely in India and China. One company, LeapFrog Investment, helps prop up the most reputable microinsurance companies — merging profit with purpose. The Guardian (London) (6/29)

Kiva’s small loans boost small-scale clean energy
U.S. nonprofit Kiva Microfunds has been issuing microloans for small clean-energy projects in the developing world, including clean cookstoves and solar-powered lamps. One project supported by donations to Kiva uses a biodigester to convert livestock waste into fuel and fertilizer. Bloomberg/Sustainability (6/12)
5 microloan programs that work
Five microcredit programs in developing countries stand out among innovative ways to provide cash to farmers and owners of small businesses in rural communities. A farmer-to-farmer initiative requires loan recipients to offer equally affordable loans to their neighbors, while another program teaches techniques involving natural fertilizers, aquaculture and biogas. The Christian Science Monitor/Change Agent blog (5/30)

2011

Sheila Arnopoulos reports on the Microcredit Summit
Days of Reckoning for Microcredit at the 2011 Microcredit Summit in Spain and Muslim Women Shine at the 2011 Microcredit Summit and Nandini Azad – A Model for Social Performance
14 November
‘Microcredit is No Magic Wand Against Poverty’
(IPS) – While microcredit remains the best tool available to address poverty it is no magic wand and can only be a part of the larger development process, say experts gathered in this historic Spanish city.
What is the real potential of microcredit for reducing poverty? Are microcredit institutions enough to help the neediest? What works and what does not? These were the questions being asked as the Nov. 14 – 17 Fifth Global Microcredit Summit kicked off on Monday.
José Antonio Alonso, professor of applied economics at the Complutense University of Madrid, thinks that microcredit suffers from overblown expectations when the reality is that some goals are achievable and others are myths.
2,000 Poverty Fighters Expected to Join Queen of Spain for Global Microcredit Summit
(Microcredit Summit News) Today, some 2,000 poverty fighters from more than 100 countries will join the Queen of Spain, Nobel Peace Prize Laureate Muhammad Yunus and Danone Chairman Franck Riboud in this historic Spanish city for a monumental four-day global gathering of dignitaries, microfinance practitioners, donors and other poverty fighters from every region of the world. The Global Microcredit Summit 2011 comes at a critical time, with just four years left for the international community to reach the Millennium Development Goal of halving the world’s population living in extreme poverty by 2015.
Last week it was announced that 137.5 million of the world’s poorest families received a microloan in 2010, an 18-fold increase since the original Microcredit Summit in 1997, when only 7.6 million very poor families had a microloan. Assuming an average of five persons per family, these 137.5 million microloans affected more than 687 million family members. That astonishing accomplishment is reason enough to gather the leaders of the industry from across the globe to discuss how to further increase the impact that this powerful development tool has on the fight against global poverty.
6 November
THE WORLD SUMMIT ON MICROCREDIT AND THE FUTURE OF FINANCIAL INCLUSIVENESS
(IPS) Today Spain is the world’s second largest donor in the microfinance sector. The firm support for microfinance by the Spanish Agency for International Cooperation for Development (AECID) led the Microcredit Summit Campaign (MCS) to choose Spain as the host of the Fifth World Summit.
Microcredit has proven to be an efficient instrument in the fight against extreme poverty. Women in developing countries have been the main participants. However, in the last few years it has reached a turning point. First, the microfinance sector is undergoing a major reevaluation of its objectives. There is a raging theoretical and practical debate over its effects.The dramatic cases of nonpayment and arrears that have appeared in the media in recent months demonstrate that microcredit programmes that are badly run or fail to adequately calibrate risk can become an obstacle to emerging from poverty.
The most recent studies argue that microcredit always has a positive impact when it is tied to public policies to advance social cohesion and poverty reduction -like access to education and health care- functioning institutions, and an economic infrastructure that can generate real opportunities in employment and self-employment. Read more
19 October
Credible Future: Can Micro Loans Make a Macro Difference?
(IPS) Thousands of microfinance institutions serve tens of millions of the world’s poor, through massive operations in rural South Asia to fledgling enterprises in West African towns. This small-scale loan movement aimed at alleviating poverty can offer life-changing potential for people who would otherwise find it difficult to obtain loans from the traditional banking sector. But microcredit is not a miracle solution to ending global poverty. If high interest rates prevail, putting recipients at risk of repeat borrowing and cycles of debt, microfinance can also have unintended consequences. IPS tracks the spread of microcredit and its impact across the global South.
9 June
The bad – and good – news on microcredit
(CSM) Making tiny loans to the poor may not create successful new businesses as often as once hoped. But it provides an unexpected benefit by supplying cash for other crucial needs such as schooling, health care – even food.
n May, the government of Bangladesh forced Mr. Yunus out of his position with the Grameen Bank, saying he had mismanaged the bank. But even before his ouster, Yunus was calling for reforms in microlending, including capping interest rates. “Commercialization has been a terrible wrong turn for microfinance, and it indicates a worrying ‘mission drift’ in the motivation of those lending to the poor,” he said in a New York Times opinion piece in January. “Poverty should be eradicated, not seen as a money-making opportunity.”
Now a study published in the June 10 issue of journal Science provides more fodder for the debate over the value of microlending. It looked at microloans given to just under 1,000 people in the Philippines who run very small businesses. Economists Dean Karlan of Yale University and Jonathan Zinman of Dartmouth College compared the outcomes for two similar groups, one that received microloans and one that did not, over roughly a one- to two-year period.
Their findings? Microloans don’t help expand businesses nor did they contribute to a better sense of well-being among the borrowers.
But there were some surprising benefits. The loans helped families cope with other kinds of economic challenges, providing a way to manage their meager “cash flow.” They used the money to do things like pay school fees and medical bills, and sometimes just to buy food.
“It is likely that helping poor families borrow and manage cash flow – reliably, flexibly, and for a range of uses – will end up being the truly big idea behind microcredit, even if it’s not the big idea that inspired the global movement,” says Jonathan Morduch in an analysis piece that accompanies the study paper.
2 June
Microfinance Craze Conceals Multiple Problems
By Adam Robert Green
(IPS) LONDON – The microfinance industry is expanding at breakneck pace, with more banks and private equity firms now entering the fray. Yet there is growing unease about the naive assumptions, and evangelical predictions, of its advocates.
10 March
Forcing Yunus out
(sify)These are dog days for microfinance in South Asia. The Bangladesh government could not have done itself a greater injustice by successfully ousting, for the time being at least, Muhammad Yunus from the top position of the internationally renowned Grameen Bank. An appeal against the high court ruling is being made, and it remains to be seen whether the Supreme Court will overturn the verdict. A developing country like Bangladesh, still in need of global goodwill and assistance, can ill afford to squander the equity that Professor Yunus created for it, first by successfully pioneering the idea and practice of microfinance, and then winning the Nobel Prize for it. … Prime Minister Sheikh Hasina has unleashed an undisguised vendetta against a distinguished son of her nation.
The technical issue, whether Professor Yunus had broken the law of the land by remaining managing director beyond the retirement age, can only be decided by the courts. But Professor Yunus has held the position since 1983 and it is actually the government, and the courts, which are on trial and have to explain why they have woken up to the alleged illegality of staying beyond the age of 60 a good ten years late.
8 March
Yunus calls for ‘smooth’ transition at Grameen
(FT) Muhammad Yunus has indicated his willingness to step aside in an increasingly bitter row with the Bangladesh government over Grameen Bank, the institution he founded to promote microfinance.
In a statement, the man dubbed “banker to the poor” has appealed for a “smooth transition” of leadership at Grameen as he awaits a court ruling on the Bangladeshi central bank’s efforts to oust him. The court judgment could come as early as Tuesday.
11 February
Why I support Mohammed Yunus
Nobel Peace Prize winner Professor Mohammed Yunus is being investigated for alleged corruption by Bangladesh’s government. Nick Stace defends the man who has helped millions of the world’s poorest people.
(The Telegraph) … ever since Professor Yunus received the Nobel Prize in 2006 for his amazing work on micro credit, and his stand against corruption in politics in 2007, he has been distrusted by the Bangladeshi government. This has now taken a sinister turn with Sheikh Hasina, the Bangladeshi prime minister, giving credence to unsubstantiated claims of corruption at Grameen. According to supporters of Yunus, this is a clumsy attempt to wrestle the world’s leading social enterprise away from the poor.

2010

Microfinance brings limited change for Afghan women
Efforts to help Afghan women create income generating businesses through microfinance loans are facing challenges related to social restrictions on women and religious objections to interest. Microfinance institutions have awarded $831 million in loans in the past seven years, 60% of them to women. AlertNet/Reuters (12/28)
9 December
Under water: The very future of microcredit in India is in danger, which is a shame for the country’s poor
(The Economist) … The country as a whole has seen a spurt in microcredit, overtaking, in the number of borrowers, Bangladesh, the global movement’s fountainhead. AP [Andhra Pradesh] accounts for at least half India’s total, with more than 25m borrowers, up from 8m in 2007. Indeed, the MFIs’ very success in AP is the source of their present troubles.
… Other countries’ microlenders, too, have had crises. In Pakistan’s Punjab province, for example, it became fashionable in 2008-09 for politicians to encourage borrowers to default on microloans. And this week the movement’s patron saint, Muhammad Yunus, a Bangladeshi economist and Nobel laureate, was cleared of allegations of diverting Norwegian aid money from one arm of his Grameen bank to another. The film making the accusations also aired arguments that microcredit may do more harm than good. In fact, research suggests that it does work—for some people some of the time, as you would expect. It is not a magic bullet, but nor is it intrinsically harmful. In Nagaram, where Mrs Anthaiah still has to pay off the moneylender with only her own labour to sell, her self-help group is arranging a loan to tide her over. India’s problem is not too much microcredit, but too little, too narrowly directed
Turmoil in India over high interest of microloans
Microlending has suffered a setback recently in India, where thousands of borrowers are refusing to repay loans at the urging of government leaders who are criticizing lenders for imposing especially high interest rates — ranging from 25% to 100% annually — and harassing borrowers. Some in government are blaming microlenders for the suicides of dozens of borrowers. The Wall Street Journal (10/28)
4 September
Africa’s outcasts build a new path out of poverty
Microfinance lender offers trust and sense of family along with money
Microfinance has been slow to reach sub-Saharan Africa, which has less access to banking than any other region of the world. Africa contains only 4 per cent of all the institutions that offer loans to low-income people worldwide.
Jamii Bora became so successful that it expanded into loans for school fees and housing. It created a health-insurance plan, a business academy, a counselling program for street beggars, and a treatment program for alcohol and drug addicts. Last year, it acquired a majority stake in the City Finance Bank in Nairobi, allowing it to expand its formal banking services for low-income people.
Despite the impressive growth, some experts question whether microfinance is the best model for solving Africa’s poverty problem.“That may help them add to their livelihoods, and in some cases it might tip them over the edge upwards out of dire poverty, but it isn’t a profound answer to systemic poverty and the disconnectedness of the poor.”
28 June
Fund aims to turn African science ideas into business
(SciDev.Net) The UN Economic Commission for Africa (UNECA) has launched a fund that it hopes will help turn scientific ideas into successful enterprises.
The African Science, Technology and Innovation Endowment Fund (ASTIEF), along with the African Science to Business Challenge (ABSC) were launched at the second Science with Africa Conference (23–25 June) in Addis Ababa, Ethiopia.
They aim to motivate inventors and innovators and spur on the development of sustainable industries and enterprises for the continent.
“The work of the fund will be to help translate scientific research and ideas into micro-entrepreneurship to spur socioeconomic growth on the continent,” Aida Opoku-Mensah, director of the ICT, Science and Technology Division at UNECA told .
23 May
In Haiti, small loans make a big impact
(Miami Herald) Microfinance organizations are working to lift Haiti out of poverty one tiny loan at a time.
Fonkoze is the largest microfinance organization in Haiti, as measured by the number of its clients, who are spread primarily outside of Port-au-Prince in the countryside.
Like the Grameen Bank, nonprofit Fonkoze describes itself as the bank of Haiti’s poor: It has 200,000 saving accounts as well as 45,000 loans, and has just also help launch a new pilot website, Zafèn, which it hopes will connect especially the Haitian Diaspora directly to business owners in Haiti who are looking for loans.
26 April
Microlender helps put cash into neediest Haitians’ hands
(Globe & Mail) Project Zafèn focuses on grassroots communities as key to igniting Haiti’s economic engine
A relatively small player in the Haiti’s banking sector with 42 outlets across Haiti, Fonkozé has proven itself one of the most nimble financial institutions in the quake’s aftermath. Fonkozé’s newest innovation for chipping away at that critical mass is called Project Zafèn, a post-earthquake lending and donation initiative that translates to “it’s our business” and aims to link prescreened non-profit and for-profit Haitian businesses with donors around the world.
16 April
Muhammad Yunus On Microfinance
(Forbes) While the U.S. government had to bail out traditional banks that were “too big to fail,” microfinance lenders and the businesses attached to them have not only avoided the brunt of the economic fallout all of this caused; many have thrived.
Grameen Bank’s payback rate is 95%. They also have a beggars program that currently lends to hundreds of thousands of Bangladesh’s most impoverished. Yet, beggars do not default on loans.
15 April
Microcredit summit challenges leaders to think outside the box
(Media Global) The purpose of the summit was to discuss microfinance and its relation to the environment, agriculture, and health, with a strong focus on empowering the world’s poorest, particularly youth and slum dwellers.
In the past, organizations have blindly sent billions of dollars of aid to Africa expecting that poverty will decrease radically. However, many organizations are finding that poverty levels have stayed the same or even increased. Politicians are left perplexed as to what the right course of action should be going forward. They are also learning that in order to achieve social change, there needs to be a different approach to the problem.
14 April
Banks Making Big Profits From Tiny Loans
In recent years, the idea of giving small loans to poor people became the darling of the development world, hailed as the long elusive formula to propel even the most destitute into better lives … the phenomenon has grown so popular that some of its biggest proponents are now wringing their hands over the direction it has taken. Drawn by the prospect of hefty profits from even the smallest of loans, a raft of banks and financial institutions now dominate the field, with some charging interest rates of 100 percent or more. Kiva, MicroPlace and 3-Digit Lending Rates
7 April
How Liberal MPs spend their Easter vacation
Mr. McCallum, the Liberal finance critic, is in Kenya, attending a microcredit conference with RESULTS Canada, an advocacy group for the world’s poorest. The trip is sponsored by RESULTS and he is the only MP to come along. The finance critic says he has become an advocate for Canada to increase its contributions to microcredit programs, which he says are “certainly not a panacea” but have been a “cost-effective instrument” in lifting thousands of people out of extreme poverty.
22 March
MFTransparency has received grant from the Ford Foundation to promote fair and transparent pricing in the microfinance industry in Argentina, Bolivia, Colombia and Ecuador. The effort, known as the Transparent Pricing Initiative, will launch later this month.
The grant will enable MFTransparency, the industry leader in issues of transparent pricing, to collect and publish complete and comparable data on the interest rates and fees charged to microfinance clients in the participating countries.
9 March 2010
Wominnovation: Some innovations help women more than others
The scooter—an innovation that is far from new—is now liberating Asian women
(The Economist) TWO recent innovations have garnered a lot of attention for the way they empower women. One is microcredit, a system of lending to very poor people, the majority of whom are female microentrepreneurs who are thus helped to climb out of poverty. The other is the mobile phone, which among other things has led to the emergence of an army of “telephone ladies” in countries such as Bangladesh, who earn a decent living by buying a phone and renting it out to other villagers.
2 December 2009
How To Measure Microfinance’s Social Impact
(Forbes) Two recent studies have sparked debates over the benefits of giving out small loans to the world’s poor.
Two new studies have raised doubts about long-held beliefs in microfinance. The studies–which used randomized, controlled trial methodologies–did find that microloans helped poor entrepreneurs boost profits in their businesses. However, the studies found little impact on health, education, average consumption, women’s decision making or self-reported well being.
10 September
Small loans making a big difference in South Asia
(BBC) Leaders from South Asian microfinance institutions (MFIs) recently took part in a week-long workshop in Sri Lanka in an attempt to ensure the rapidly growing sector is as well run as possible.
24 June 2009
Lending Talent, and Money, on a Micro Scale
Government agencies and international aid groups have long supported programs that train the world’s poor in how to start and run their own businesses. The training is seen as a way to end hunger and stabilize societies. The nonprofit research group Innovations for Poverty Action in New Haven, Conn., published a paper in May that found that Peruvian villagers who had received microloans and had been randomly selected to receive business training performed significantly better than peers who had received loans and no financial education.
2 July 2008 (Wednesday Night #1374)
Today, microcredit loans encourage community groups in developing countries to work interdependently to gain the knowledge and independence that will enable them to contribute to their community to a far greater extent than previously possible. Paradoxically, in Haiti, well intended donation of free food provides unfair competition for the food for sale by micro-financed enterprises there.
With increasing success, it is possible for individuals to invest in microcredit enterprises on the Internet or on the New York market.
[In Canada, Citizens Bank provides a global microcredit investment product, the “Shared World” term deposit. Among credit unions, VanCity offers a similar product
aimed at helping immigrant and refugee entrepreneurs build their credit ratings, access loans and gain Canadian experience. Other organizations, such as Oikocredit and Kiva offer Canadians ways to invest non-RRSP funds to support microcredit.
Web-based Kiva, reportedly the fastest growing non-profit in history, has funded more than 26,000 loans around the world, with a 99.8 per cent repayment rate. The Kiva website allows investors to lend to specific entrepreneurs in $25 increments and monitor their progress along the way.

Sadly, Canada’s six big banks are among those conspicuously missing from the picture, as are all the major investment funds. Poverty News
17 April 2008
As microfinance grows, are women left behind?
Women are increasingly less able to take advantage of microfinance programs, even as the financial tool grows in popularity, according to a report from Women’s World Banking. As many microfinance institutions grow, they tend to provide a smaller share of their loans to their original customer base — women in need of funds to run small businesses. TIME (4/17)
April 5, 2008
Microfinance’s Success Sets Off a Debate in Mexico
(NYT) VILLA DE VÁZQUEZ, Mexico — Carlos Danel and Carlos Labarthe turned a nonprofit that lent money to Mexico’s poor into one of the country’s most profitable banks.
But not all of their colleagues in the world of microlending — so named for the tiny loans it grants — are heaping praise on the co-executives of Compartamos. Some are vilifying them as “pawnbrokers” and “money lenders.”
They are the center of a fractious debate: how far should microfinance go toward becoming big business?
At one end stand traditional microlenders, like the economist Muhammad Yunus, founder of the most famous microlender, the Grameen Bank, and winner of the 2006 Nobel Peace Prize. At the other are the Two Carloses, as they are widely known in this tight-knit world that gave them their start as starry-eyed idealists.
Microlenders, the original and still the most common type of microfinance organization, help the poor start or expand businesses in places most banks shun, like the slums of Calcutta or these impoverished hills in Mexico’s sugar cane country, three hours south of Mexico City. Their efforts are widely considered successful in transforming the lives of developing-world entrepreneurs, particularly women, and their families.
Many microlending advocates, including Mr. Yunus, say that success is threatened by Mr. Danel and Mr. Labarthe’s market-oriented model, with its emphasis on investor returns.

Leave a Comment

comm comm comm