No: MC/IP.01

Microcredit schemes designed to help millions of the poorest people throughout the world are in danger of running out of steam, experts warn, because too much money is being thrown at them too quickly. Microfinance institutions offer loans to people in developing countries who would not be able to get credit elsewhere to start small businesses. There is now a fear, however, that they may have outgrown their communities and could stop focusing their work on the poorest of the poor.

If growth occurs too quickly, or if the goal of expansion is put ahead of sustainability, programmes may have more clients than they can serve effectively, microcredit experts warned. There is a risk that the microcredit initiative to combat poverty could be derailed by an indiscriminate flow of resources to programmes that are not ready for rapid growth, experts argue.


Last year's "Microcredit Summit" in Washington launched a campaign to provide 100 million of the poorest families, especially women, with credit for self-employment and other financial services by the year 2005.

Women account for over 900 million of the estimated 1.3 billion people living in absolute poverty, and micro-financiers, such as the widely-imitated Grameen Bank of Bangladesh, specifically set out to help them. Some 94 percent of Grameen's 1.8 million borrowers are women. Muhammad Yunus, founder and managing director of the Grameen Bank and co-chair of the Micro-credit Summit Council of Practitioners, says that not enough people will benefit if donors come up with too much money.

"The point is not to pour in so much money that it kills the existing initiatives, but to help build more and more grass-root organisations and create institutions and policies," said Yunus.

Albertine Gnanazan Hepie, Minister of Family and Women Promotion in the Ivory Coast and a member of the campaign executive committee, said that there should be as many microcredit institutions as possible if the majority of really destitute people are to be helped. "Seventy per cent of women in the Ivory Coast are in the so-called informal sector and do not yet have access to credit," she added.

Ismail Serageldin, vice-president for environmentally and socially sustainable development at the World Bank and chair of the Consultative Group to Assist the Poorest (CGAP), warned last month that "the (summit) figures are indicative figures - the real issue is capacity building."


"We warn of the danger of measuring progress by how much money is available for micro-finance, because if you do so you risk killing it. Mobilising money is not the problem; the real problem is how to structure the system," said Serageldin in Washington.

During the 1997 summit, the United Nations Development Programme committed 40 million dollars over 18 months to a "Micro-start programme. Since then, the African Development Bank freed up 21.5 million dollars over two years for micro credits, and the International Fund for Agriculture has provided 130 million dollars annually for micro-finance activities.

Twenty-nine bilateral and multilateral agencies have already joined the microcredit council, and multilateral donors and U.N. agencies are devoting more and more resources to micro credit programmes. The first meeting of Microcredit Summit's 15 Councils, made up of more than 2,250 institutions, was held in June 1998 in New York to address common problems in reaching the summit's goals.


"The aim of reducing by half the number of the poorest people, is achievable," says Winifred Pinger, co-chair of the Microcredit Summit Council of Parliamentarians, "We find that very considerable progress has been made , because more and more institutions have joined this campaign, including the practitioners, those who actually have to do the job on the spot."

A United Nations General Assembly resolution on microcredit last December called upon the international donor community to support the strengthening of existing and emerging micro credit institutions.

The resolution also urged non-governmental organisations, the civil society and the private sector to support and incorporate and related services in their programmes for the eradication of poverty.

A survey of microcredit programmes released here says that, while programmes are reporting significant progress in reaching greater numbers of clients, there is still much work to be done in determining whether this growth represents an increase in the number of the poorest families being served.

"We have surveyed the 1,150 practitioners of the microcredit summit campaign, and it was found that the 458 who responded are now reaching 8 million clients who are very poor," said Sam Daley-Harris, Director of the micro credit summit campaign.

Of the remaining 92 million additional clients needed to reach the summit's goal, it is estimated that 88 million will come from developing countries and 4 million from industrialised countries.


"The challenge that we are finding is that we don't have simple, verifiable measurements to identify those who are among the poorest in their community," said Daley-Harris.

To fill this gap, the summit has established a Poverty Measurement Discussion Group to help identify poverty measurements intended to assist micro-finance practitioners in identifying and reaching the poorest families.

"At the moment what you've got determines whether you are creditworthy or not, and that's why (financial institutions) say that the poor are not creditworthy," Yunus said.

Source : by Niccolo Samo TERRAVIVA monthly, published by North-South Centre of the Council of Europe and inter-press service : April 1998, No: 16.