INTRODUCTION

Microcredit loans are intended for those who cannot qualify for loans from
traditional financial institutions. The loan terms are designed to help those
who only need a small amount of capital to facilitate their microenterprise.
Often, microcredit is organized around solidarity groups or village
banks. These groups are comprised of individuals in a community who
want microcredit loans. The purpose of such groups is to create a feeling of
community, provide a network for support and discussion, and back up one
anothers loans. Since microcredit loans do not require traditional collateral,
the members of the group act as insurance for each others loansif one
person defaults on a loan, the group members pay it back. Generally, before
anyone in the solidarity group or village bank can get an additional loan, all
members of the group must have their initial loan paid off.
Some organizations that offer microcredit also offer other financial services,
such as savings plans, insurance, and business training classes. Like
microcredit loans, these services are designed to help microenterprises
owners achieve growth and success in their business.

HISTORY

The founding of microcredit is generally attributed to Muhammad Yunus, an
economics professor from Bangladesh. In 1976, Yunus visited a local village
seeking fundamental solutions to poverty. He met a woman named Sufyia
who made and sold chairs to support her family. She relied on high-interest-
rate loans from village moneylenders to buy the materials. Because of the
severe terms of her loans, she had no way to improve her situation.
Recognizing that Sufyias situation was not unique, Yunus lent 856 taka
about 27 U.S. dollarsto 42 microenterprise owners. Not only did the loan
recipients pay back their loans promptly, but they were able to earn more
income and grow their businesses. Of this first experience, Yunus remarked,
If I could make so many people so happy with such a tiny amount of
money, why not do more of it?
Do more of it he did, thus beginning the international revolution of
microcredit. In 1983, Yunus founded Grameen Bank in order to offer
microcredit on a wider scale. Today, Grameen Bank serves over 2 million
borrowers in more than 80,000 villages. In 2006, the impressive global
impact of microcredit earned Yunus and Grameen Bank the Nobel Peace
Prize.
Of Yunus microcredit work, Elder M. Russell Ballard said, It impressed
me that Muhammad Yunus must have been prompted by the Spirit when he
organized a very unusual bank in Bangladesh, which some have said was the
beginning of microfinance. . . . Surely the Spirit of the Lord guided this
noble effort

Impact

Since the founding of microcredit, thousands of microcredit organizations
have sprung up around the globe. In 2007, over 100 million of the poorest
families received access to microcredit. As it spreads across the world,
microcredit looks to be a powerful force in helping individuals work their
way out of poverty with dignity.
President Gordon B. Hinckley spoke of the promise of microcredit. He said
that such loans can spell an actual change in [the loan recipients] future.
When given such credit these people become entrepreneurs, taking pride in
what they are doing and lifting themselves out of the bondage that has
shackled their forebears for generations. From a bread shop in Ghana to a
woodworking business in Honduras, we are making it possible for people to
learn skills they never dreamed of acquiring and to raise their standard of
living to a level of which they previously had little hope

Classification

classification of microcredit :
A)
Traditional informal microcredit (such as, moneylender's credit,
pawn shops, loans from friends and relatives, consumer credit in
informal market, etc.)
B)
Microcredit based on traditional informal groups (such as, tontin, su
su, ROSCA, etc.)
C)
Activity-based microcredit through conventional or specialised
banks (such as, agricultural credit, livestock credit, fisheries credit,
handloom credit, etc.)
D)
Rural credit through specialised banks.
E)
Cooperative microcredit (cooperative credit, credit union, savings
and loan associations, savings banks, etc.)
F)
Consumer microcredit.
G)
Bank-NGO partnership based microcredit.
H)
Grameen type microcredit or Grameen credit.
I)
Other types of NGO microcredit.
J)
Other types of non-NGO non-collateralized microcredit.
This is a very quick attempt at classification of microcredit just to
make a point. The point is ? every time we use the word
"microcredit" we should make it clear which type (or cluster of
types) of microcredit we are talking about. Otherwise we'll continue
to create endless confusion in our discussion. Needless to say that
the classification I have suggested is only tentative. We can refine
this to allow better understanding and better policy decisions.

Classification can also be made in the context of the issue under
discussion. I am arguing that we must discontinue using the term
"microcredit" or "microfinance" without identifying its category.

Microcredit data are compiled and published by different
organizations. We find them useful. I propose that while publishing
these data we identify the category or categories of microcredit
each organization provides. Then we can prepare another set of
important information ? number of poor borrowers, and their
gender composition, loan disbursed, loan outstanding, balance of
savings, etc. under each of these categories, countrywise,
regionwise, and globally.

These sets of information will tell us which category of microcredit
is serving how many poor borrowers, their gender break-up, their
growth during a year or a period, loans disbursed, loans
outstanding, savings, etc. The categories which are doing better,
more support can go in their direction. The categories which are
doing poorly may be helped to improve their performance. For
policy-maters this will be enormously helpful. For analysis purpose
this will make a world of difference.

GRAMEEN CREDIT
Whenever I use the word "microcredit" I actually have in mind
Grameen type microcredit or Grameencredit. But if the person I am
talking to understands it as some other category of microcredit my
arguments will not make any sense to him. Let me list below the
distinguishing features of Grameencredit. This is an exhaustive list
of such features. Not every Grameen type programme has all these
features present in the programme. Some programmes are strong in
some of the features, while others are strong in some other
features. But on the whole they display a general convergence to
some basic features on the basis of which they introduce
themselves as Grameen replication programmes or Grameen type
programmes.
General features of Grameencredit are :
a)
It promotes credit as a human right.
b)
Its mission is to help the poor families to help themselves to
overcome poverty. It is targeted to the poor, particularly poor
women.
c)
Most distinctive feature of Grameencredit is that it is not based on
any collateral, or legally enforceable contracts. It is based on
"trust", not on legal procedures and system.
d)
It is offered for creating self-employment for income-generating
activities and housing for the poor, as opposed to consumption.
e)
It was initiated as a challenge to the conventional banking which
rejected the poor by classifying them to be "not creditworthy". As a
result it rejected the basic methodology of the conventional
banking and created its own methodology.
f)
It provides service at the door-step of the poor based on the
principle that the people should not go to the bank, bank should go
to the people.
g)
In order to obtain loans a borrower must join a group of borrowers.
h)
Loans can be received in a continuous sequence. New loan becomes
available to a borrower if her previous loan is repaid.
i)
All loans are to be paid back in instalments (weekly, or bi-weekly).
j)
Simultaneously more than one loan can be received by a borrower.
k)
It comes with both obligatory and voluntary savings programmes for
the borrowers.
l)
Generally these loans are given through non-profit organizations or
through institutions owned primarily by the borrowers. If it is done
through for-profit institutions not owned by the borrowers, efforts
are made to keep the interest rate at a level which is close to a
level commensurate with sustainability of the programme rather
than bringing attractive return for the investors. Grameencredit's
thumb-rule is to keep the interest rate as close to the market rate,
prevailing in the commercial banking sector, as possible, without
sacrificing sustain-ability. In fixing the interest rate market interest
rate is taken as the reference rate, rather than the moneylenders'
rate. Reaching the poor is its non-negotiable mission. Reaching
sustainability is a directional goal. It must reach sustainability as
soon as possible, so that it can expand its outreach without fund
constraints.
m)
Grameencredit gives high priority on building social capital. It is
promoted through formation of groups and centres, developing
leadership quality through annual election of group and centre
leaders, electing board members when the institution is owned by
the borrowers. To develop a social agenda owned by the borrowers,
something similar to the "sixteen decisions", it undertakes a process
of intensive discussion among the borrowers, and encourage them
to take these decisions seriously and implement them. It gives
special emphasis on the formation of human capital and concern for
protecting environment. It monitors children's education, provides
scholarships and student loans for higher education. For formation
of human capital it makes efforts to bring technology, like mobile
phones, solar power, and promote mechanical power to replace
manual power.
Grameencredit is based on the premise that the poor have skills
which remain unutilised or under-utilised. It is definitely not the
lack of skills which make poor people poor. Grameen believes that
the poverty is not created by the poor, it is created by the
institutions and policies which surround them. In order to eliminate
poverty all we need to do is to make appropriate changes in the
institutions and policies, and/or create new ones. Grameen believes
that charity is not an answer to poverty. It only helps poverty to
continue. It creates dependency and takes away individual's
initiative to break through the wall of poverty. Unleashing of energy
and creativity in each human being is the answer to poverty.

Grameen brought credit to the poor, women, the illiterate, the
people who pleaded that they did not know how to invest money
and earn an income. Grameen created a methodology and an
institution around the financial needs of the poor, and created
access to credit on reasonable term enabling the poor to build on
their existing skill to earn a better income in each cycle of loans.

If donors can frame category wise micro credit policies they may
overcome some of their discomforts. General policy for microcredit
in its wider sense, is bound to be devoid of focus and sharpness.

ARTICLE
This form of microcredit the smallest of small loans, with no
collateral and few questions asked was pioneered by Grameen
Bank in Bangladesh and has long aimed to ease poverty in the
worlds developing countries, where rural villagers use it to buy
livestock, repair motorcycles or otherwise increase their income.
Since the financial crisis, microcredit has taken off in the United
States, attracting thousands of clients who do not qualify for
credit cards or traditional bank loans.
The purpose of the loans, as conceived by Muhammad Yunus,
the Nobel Prize-winning founder of Grameen Bank, is to help
countless millions of poor people unlock their inner
entrepreneur, to use money to make money, as he put it in a
telephone interview. But its newfound popularity may say more
about the increasingly unstable nature of American poverty, in
which credit is hard to come by and sustenance is cobbled
together from part-time jobs and threatened by unpredictable
expenses.
Families in rural Africa are more like U.S. families than
everyone wants to believe, said Jonathan J. Morduch, the
executive director of the Financial Access Initiative at New York
University, who has studied microcredit and is taking a close
look at the financial lives of low- and moderate-income
Americans. The hidden inequality in America is about
fundamental security, the ability to plan.
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.
Grameen America dispenses with the advice and makes smaller,
less formal loans at a lower cost. It hews closely to the model
developed in Bangladesh: borrowers form groups of five, approve
one anothers loans and make weekly payments at 15 percent
annual interest, a rate comparable to those charged by other
nonprofit lenders. That is far less than the rates of payday
lenders, which can charge 400 percent or more.
If everyone in the group repays on time, each member is entitled
to a larger loan in the next cycle. Members are supposed to be
below the federal poverty line when they join and use the money
for entrepreneurial purposes. Grameen does not ask if they are
legal residents.
The organizations formula has proved popular. Microlending in
general has boomed, more than tripling the number of borrowers
from 2008 to 2011, according to data collected by the Aspen
Institute and Grameen America. Grameen was founded in 2008
and has rapidly become a leader in the field.
It has 18,000 borrowers and as of last month lent more than
$100 million. There are six Grameen branches in New York and
five in other cities, including Los Angeles, Omaha and Charlotte,
N.C. Most borrowers, Grameen reports, repay their debt and
become repeat customers. Borrowers are also given savings
accounts and encouraged to save at least $2 a week.
But, with more than 45 million Americans living below the
poverty line, Grameen has barely scratched the surface of the
problem. And it is difficult to tell how well the program is
achieving its aim of lifting people into the middle class.
In Jackson Heights, borrowers said they used the money to buy
costume jewelry, Herbalife nutritional supplements or Mary Kay
cosmetics for resale in home-based businesses or door to door,
many supplementing income from another job like
housecleaning. Some make cakes or empanadas; others tailor
clothing or sell flowers. One woman buys designer clothes at
closeouts and resells them from a tiny shop on the second floor
of a commercial complex; another sends clothes home to the
Dominican Republic, where her sister sells them on the street.
Even those with established storefronts have turned to Grameen.
Guadalupe Perez, 51, took a loan when business fell off during
the recession. She and her husband were having trouble paying
rent on the party decoration store they had started with their life
savings. It opened up a way for me to keep my business, she
said through an interpreter, standing near a display of ribbons
and wine glasses that she had embellished with glittery designs.
I wanted to hear what the rules were for Grameen because I was
afraid of going to a bank. It was a loan that I could pay little by
little; I felt it was a good choice for me.
Ms. Perez has used subsequent loans to expand the size of her
store and now plans to invest in enough tablecloths to decorate
two parties at the same time. But the loans have not increased
her enthusiasm for entrepreneurship. Asked whether, had she
the chance to do it over, she would go into business for herself,
her answer was short and simple: no.
Ms. Perez said she and her husband worked every day and
earned $500 to $600 a week, or about $29,000 a year a very
low income by federal standards for New York. They are not
able to save.
Good data on the benefits of microcredit are scarce, and the few
randomized studies have not demonstrated that it substantially
improves prosperity in developing countries. In the United
States, data collected by the Field program of the Aspen Institute
show that microloans yield significant increases in income and
create jobs. Joyce Klein, the programs director, said the surveys
had limitations but more rigorous studies that included
randomized control groups would be prohibitively expensive.
Grameen says that its loan recipients have increased their
incomes by an average of $2,500 during each six-month loan
cycle, and that one in five hires an additional worker. But
Katherine Rosenberg, a senior vice president at Grameen,
acknowledged that pinning down income data is the groups
biggest challenge, because borrowers tend to think in terms of
whether they have enough to cover their next bill, not how much
they make over all. Ms. Rosenberg said many clients may not
earn more but instead work less, dropping one of several low-
wage jobs or taking advantage of the flexibility of self-
employment to spend more time with their children.
Elizabeth de Jesus, 45, is a hairdresser who, with Grameens
help, achieved her dream of opening her own salon in Corona,
Queens. But she is unable to estimate her annual income. I dont
know because I dont keep it, she said. I spend it all on the
payments, on the rent, on food. I spend it every week.
Grameen helps its clients in another way that many experts say is
more important than increasing income it establishes good
credit scores. Many poverty alleviation groups have shifted their
focus from saving to credit building, because people with poor or
no credit must leave large deposits for basic needs like utilities,
have trouble renting decent housing, pay much higher interest
rates and have a harder time finding jobs.
Nayrobi Gonzalez de Quiroz, 26, recently received her first
Grameen loan but decided not to follow through with her plan to
buy handbags for resale. After using about $200 to pay off a
debt, she said, she decided it was safer to leave the money in the
bank and make the payments from her earnings as a manicurist.
Here, you have to have good credit, she said. I have a young
son and I have to think about his future.
Millennium scheme
Micro Credit Scheme For Women

The Millennium Development Ambassadors Microcredit Scheme for
Women is designed to expand opportunities for people living in
poverty by supporting them with education, platform and finance to
empower themselves and others. The scheme is designed to ensure that
persons living in poverty are able to address their challenges, empower others to
overcome poverty and contribute to the welfare and well being of their families
and communities. The Millennium Development Ambassadors partner with local
women and community organizations to reach people traditionally left behind
such as women and the rural poorwith microloans and other services that can
help families break the cycle of poverty.
Recent affairs
More than 10,000 micro-lending organizations are today providing loans to 25
million poor people throughout the world, most of them women. The number of
these organisations grew dramatically during the 1990s, spurred by the notion of
'self-help' and a faith in the creditworthiness and entrepreneurial potential of the
poor. But is the current euphoria over micro-credit missing some fundamental
questions? Does micro-credit really reach the poorest? Does it really empower
women?
Micro-credit in India: The early years/ Scale of micro-credit in India/ Micro-
credit, poverty reduction and empowerment/The flip side: Problems of
micro-credit
Micro-credit for the poor has emerged as an idea that appeals to several sections
of people. In principle, even the world's poorest people can acquire savings and
investment if they have access to capital. The strategy is redistributive (appeals
to liberals), entrepreneurial (appeals to conservatives) and empowering (appeals
to radicals). The emergence of micro-credit as an alternative to the existing
methods of addressing rural poverty through the provision of credit has
questioned the fundamentals of the development paradigm in developing
countries.
Though it was not the first microlending institution, the famed Grameen Bank
(http://www.grameen-info.org/) of Bangladesh has become the most celebrated
and widely imitated. Grameen, which began as an experiment initiated in 1976 by
economist Muhammed Yunus, became a full-fledged bank in 1983. In a Muslim
country with strong patriarchal traditions, empowering women, as Grameen did,
had social-change implications far beyond immediate entrepreneurship. It also
made sound business sense, since repayment rates remained high, generally
above 95%.
International donor agencies frustrated with negligible results in other sectors
were drawn by the comparatively low costs of micro-credit programmes, which
did not simply give away money but actually made a profit while carrying out their
professed mission of poverty alleviation and women's empowerment.
The Grameen model has inspired more than 10,000 microlending organisations
providing loans to more than 25 million poor people throughout the world, most of
them women. The number of these organisations grew dramatically during the
1990s, spurred by the notion of self-help and a faith in the creditworthiness and
entrepreneurial potential of the poor. The movement took off with strong support
both from the free-enterprise zealots of the right and the anti-poverty warriors of
the left.
But three decades into the vast social experiment of lending to the poor, many
questions remain. Does micro-credit really help the world's poorest citizens?
Does it genuinely empower women? How well has the Grameen model worked in
other countries? And can we expect it to be sustainable without subsidy?
Micro-credit in India: The early years
Micro-credit is not a new idea in India. Research conducted in India by t he
National Bank for Agriculture and Rural Development ( NABARD)
(http://www.nabard.org/) during the early-80s showed that despite a wide
network of rural bank branches which implemented specific poverty alleviation
programmes that sought creation of self-employment opportunities through bank
credit for almost two decades, a very large number of the poor continued to
remain outside the fold of the formal banking system.
NABARD had been set up in 1982 under an Act of Parliament as a development
bank to provide and regulate credit and other facilities for the promotion and
development of agriculture, cottage and village industries, handicrafts and other
allied economic activities in rural areas with a view to promoting integrated rural
development and securing prosperity of rural a
Rural development, special schemes and rural banking could not tackle the
widespread poverty in rural areas. Research indicated that existing banking
policies and procedures were perhaps not suited to the immediate needs of the
very poor. What they really needed was better access to these services and
products, rather than cheap, subsidised credit. The priority of the rural poor
appeared to be consumption credit, savings, production credit and insurance.
Consumption needs included credit for short periods for emergent needs, which
were usually met by informal sources at exploitative interest rates, as poor
borrowers were unable to offer banks any security for small consumption loans.
Banks in turn faced constraints due to the high transaction costs involved in
processing small amounts to borrowers scattered in rural areas, as well as
concerns related to loan recovery.
Against this background, a need was felt for alternative policies, systems and
procedures, savings and loan products, complementary services, and new
delivery mechanisms which would fulfil the requirements of the poorest,
especially of the women members of such households. The Grameen Bank in
neighbouring Bangladesh had already proved a successful model of
microlending in South Asia. The self-help group model, pioneered by the
Grameen Bank, emerged as a viable strategy to tackle these issues both for
borrowers as well as banks.
Scale of micro-credit in India
There are several micro-finance implementing organisations in the government
as well as non-government sectors. Leading national financial institutions like the
Small Industries Development Bank of India (SIDBI) (http://www.sidbi.org/) , the
National Bank for Agriculture and Rural Development (NABARD) and the
Rashtriya Mahila Kosh (RMK) (http://www.rmk.org/) have played a significant role
in promoting micro-credit. Small Industries Development Bank of India (SIDBI),
an apex financial institution for the promotion, financing and development of
small-scale industries in India, has launched a major project christened SIDBI
Foundation for Micro Credit (SFMC)
(http://www.sidbi.com/english/products/sfmc/sfmc.asp) as a proactive step to
facilitating accelerated and orderly growth of the micro-finance sector in India.
SFMC is expected to emerge as the apex wholesaler for micro-finance in India,
providing a complete range of financial and non-financial services such as loan
funds, grant support, equity and institution-building support to retailing Micro
Finance Institutions (MFIs) so as to facilitate their development into financially
sustainable entities, besides developing a network of service providers for the
sector.
In order not to equate micro-finance with credit for micro enterprises but also
include savings, consumption loans, housing loans and insurance services, the
task force on micro-finance set up by NABARD came up with a definition which
has become the definitive one. Micro-finance is provision of thrift, credit, and
other financial services and products of very small amounts to the poor in rural,
semi-urban or urban areas, for enabling them to raise their income levels and
improve living standards.
With over 11 million poor households accessing banking services including
micro-credit through their 700,000 Self-Help Groups (SHGs), the SHG-bank
linkage programme led by NABARD in India claims to be the largest and fastest-
growing micro-finance programme of the world. Today, over 2,800 NGOs and
30,000 branches of 500 banks are associated with the programme.
The size and types of implementing non-government organisations (NGOs)
range from very small to moderately big organisations involved in savings and/or
credit activities for individuals and groups. These NGOs adopt a variety of
approaches, and tend to operate within a limited geographical range. A few like
PRADAN, ICECD, MYRADA (http://www.myrada.org/), SEWA
(http://www.sewa.org/) operate on a larger scale and have been successful in
replicating their experiences in other parts of the country; they also act as
resource organisations. While a few lending organisations do lend directly to
borrowers, most rely on self-help groups (SHGs) to provide the linkage with
borrowers.
In the absence of accurate data to assess the size of the market, players in the
micro-credit sector have resorted to rough estimations. Given that there are 75
million poor households in India, of which 60 million are in rural areas and 15
million in urban, estimates of the size of the market vary from setting an average
financing requirement of Rs 2,000 per poor household to Rs 6,000 in rural and
Rs 9,000 per urban household. This works out to a MF demand of around Rs
50,000 crore. And this does not include housing which can be estimated at
another Rs 1,000 crore annually.
The growth and activity of MF agencies and NGOs -- which are usually the
medium of finance dispensation and administration -- should be viewed against
the backdrop of this huge market potential. By current estimates there are more
than 2,000 NGOs involved in helping banks identify self-help groups to lend to
under NABARD's Self-Help Groups-Bank linkage programme alone
(http://www.nabard.org/oper/oper.htm). According to published figures, the bank
loans disbursed under this programme in fiscal 2002 were Rs 545.4 crore to
around 240,000 SHGs. The average loan size per Self-Help Group was Rs
22,240.
Other agencies, like the Swayamsidha Project launched in 2001 under the
Department of Women and Child Development are garbed in the language of
womens empowerment rather than in economic terms
(http://wcd.nic.in/chap7.htm). Swayamsidha, or the Integrated Womens
Empowerment Programme (IWEP), no more than a recast Indira Mahila Yojana
and Mahila Samriddhi Yojana, has the lofty aim of holistic empowerment of
women through awareness generation, economic empowerment and
convergence of various schemes through the formation of SHGs. The scheme,
which aims to benefit almost 10 lakh women through 53,000 SHGs, has an
outlay of Rs 116.30 crore, funded by the World Bank.
With micro-credit becoming financially viable, even commercial banks like ICICI
and international banks like Citibank and Rabobank have entered the field. The
benefits to the borrower in purely commercial set-ups need further evaluation.
Micro-credit, poverty reduction and empowerment
The main benefits of micro-credit appear to be: reduced vulnerability of the poor
to adverse circumstances, increased consumption in the same group, and
empowerment of women (http://www.unitus.com/wwd_borrowerprofs.asp).
The major spin-off of the micro-credit movement at the grassroot level has been
the fact that women have used this system to come out and join a mainstream
activity in the village. In many areas, particularly where there has been support
from NGOs or strong SHGs, women have gained a voice and been able to use
this space to come out of their traditional roles into a more proactive male
space. In many instances, gender and caste subordination has been questioned.
Women have been able to mobilise capital, and in the process have acquired
skills that have enhanced their economic, social and political power. This positive
growth has usually been where SHGs are linked with NGOs that have facilitated
training and capacity-building with additional inputs.
However, despite the spread of micro-credit programmes and their growing
popularity with policymakers, hard data is somewhat lacking. There is little
standardisation across studies as to how to define critical processes and
measures of success. The definition of poverty, and especially reduction in
poverty, tends to vary from study to study. Womens empowerment is another
very nebulous term. Many terms and processes are redefined on an ad hoc basis
each time a new study is conducted. Much of the literature on the subject of
micro-credit appears to be at the stage of observation and anecdotal evidence.
The flip side: Problems of micro-credit
Micro-credit has certain inherent weaknesses, often overlooked in the hype about
its purported benefits.
Difficulties of micro-enterprise: The gender dimension
One of the most fundamental problems with micro-credit programmes is the
difficulty in actually turning a profit on the loans. In the first place, borrowers must
bear not just the cost of the loan and interest payments, they must also invest a
significant part of their time in group activities mandated by their programmes.
The loans usually finance some type of traditional womens work (such as
papad-making or weaving and sewing) which is not seen as fit for men to do.
This leads women to rely on their female children for supplemental labour, and
thus female children are under increased pressure to stay out of school so that
they can help contribute to the family income. Studies have found that women
value wage employment over credit because of stability and a collective
workspace which provides information and solidarity. The status and material
benefits of income wage employment are more likely to promote economic and
social empowerment as women have a greater degree of control over the money
they earn in employment. (http://www.prospect.org/print/V14/5/polakow-
suransky-s.html)
Also, all investments may not return a profit. In this event the money to repay the
loan must come from reduced consumption or borrowing from some other
source, usually on worse terms. Activists in Rajasthan have demonstrated how
women take loans from village moneylenders at exorbitant rates to pay off loans
from SHGs. Another problem is the capture of the loans by male relatives. In
some cases, male relatives use female borrowers as fronts to get relatively low
interest loans. These loans may or may not be used to benefit the family, and the
female borrowers rarely see any benefit at all. And yet, the women are still held
responsible for repayment of the loans
(http://www.indiatogether.org/women/finance/macrohype.htm).
In fact, the chances of a female-headed enterprise succeeding at all are often
quite small in situations where women do not have access to -- leave aside
control of markets. In fact, as micro-credit programmes become more
successful and hand out more loans, more people enter the local marketplace as
micro-entrepreneurs. Nan Dawkins Scully of t he Women's Micro-credit
Accountability Network (WOMAN) writes that the cumulative effect of rising
costs, declining demand, and competition from both cheap imports and increased
entrants into the sector leads to shrinking profits in informal-sector trade. In
other words, the initial success of micro-enterprises can lead to subsequent over-
competition problems, especially when international trade liberalisation is
factored into the equation. A few micro-entrepreneurs in a given area may be
able to turn a profit. A large number probably cannot. A related problem is the
durability of poverty reduction. Infusions of cash in almost any amount are bound
to have some effect on the poverty-stricken borrowers. But this does not
necessarily mean that the effect will be permanent (
http://www.ieo.org/kav001.html).
D onors and advocates consistently over-exaggerate the power of micro-
enterprise credit and related assistance, while ignoring key structural issues that
are far more pertinent to the long-term problem of women and poverty i.e.,
agrarian reform, programmes favouring export production (typically male-
dominated) over subsistence crops (typically female-dominated), and trade
agreements structured in the interests of transnational corporations. The
cumulative effect of rising costs, declining demand, and competition from both
cheap imports and increased entrants into the sector leads to shrinking profits in
informal-sector trade, says Scully.
Inability to reach the poorest of the poor
A second important drawback to micro-credit programmes is that they dont
reach the poorest members of society. The poorest have a number of constraints
-- fewer income sources, worse health and education -- which prevent them from
investing the loan in high-return activity. It has also been found that the poorest
need tiny loans which are not cost-effective even for micro-credit programmes.
This section also places the greatest demands on micro-credit training
programmes, which makes the cost of lending even higher. As researcher Linda
Mayoux notes, as micro-credit programmes are pressured to become more self-
sufficient, the incentive to lend to such desperately poor borrowers evaporates.
Four years ago, the United Nations was blunt in a report by Secretary General
Kofi Annan to the General Assembly. A certain sense of proportion regarding
micro-credit would seem to be in order, the report said. It added that lending to
the poor had to be accompanied by training, information and access to land,
among other things. In some of the lowest-income countries, lack of access to
land is the most critical single cause of rural poverty, the United Nations said.
(http://www.womensenews.org/article.cfm/dyn/aid/1239/context/cover/)
Micro-credit dependency
Another possible failure of micro-credit programmes lies behind the statistics.
Some researchers have proposed the idea that the high repayment rates,
repeated borrowing, and low drop-out rates indicate a dependency on micro-
credit programmes rather than an attraction to successful micro-credit
programmes on the part of poor borrowers. Many borrowers have no alternative
to borrowing from micro-credit programmes, and consequently cannot afford to
default. Neither can they afford to stop borrowing or drop-out of the programmes.
In order to stay in good standing with the micro-credit programme, borrowers
may even be forced to resort to pawnbrokers or other alternative sources of
funding. This is a significant failure, since micro-credit programmes tout
themselves as more progressive alternatives to the existing systems of informal
credit which could be exploitative, such as share-cropping, debt bondage, and so
on. (http://www.thehindu.com/2004/07/02/stories/2004070204221200.htm)
The current wave of euphoria over micro-credit misses the salient question:
Since a majority of people have neither the skills nor the inclination to be
entrepreneurs, why are micro-enterprises proliferating? It has been clear for
decades that the informal sector is a depository for the victims of the failure of the
formal sector. As long as micro-enterprise development is offered as a substitute
for meaningful social development, for employment that offers real security, for
viable small-farm and enterprise production, and for fundamental changes in the
economic policies prescribed by institutions such as the World Bank and IMF, it
will only impede progress toward finding real answers to the very real problem of
poverty in the South.
What is the difference between microfinance and
microcredit?


Although often used interchangeably, microfinance and microcredit
are in fact quite distinct. Microfinance is a much broader concept than
microcredit and refers to loans, savings, insurance, money transfers,
and other financial products targeted at poor and low-income people.
Microcredit refers more specifically to making small loans available to
poor people, especially those traditionally excluded from financial
services, through programmes designed specifically to meet their
particular needs and circumstances. Typically, the characteristic
features of microcredit are that:

Loans are usually relatively short term, less than twelve months
in most instances and often even six months or less, and
generally for working capital with immediate regular weekly or
monthly repayments they are also disbursed quickly after
approval. Loans are usually quite small to begin with; typically
they are in the range of $100-500. As borrowers regularly repay
their loans and demonstrate their creditworthiness, they
become eligible for larger loans.
The traditional lenders requirements for physical collateral such
as property are usually replaced by a system of collective
guarantee (or solidarity) groups whose members are mutually
responsible for ensuring that their individual loans are repaid.
Alternatively, borrowers may be requested to find one or two
personal guarantors often these are respected local
community leaders.
Loan application and disbursement procedures are designed to
be helpful to low income borrowers they are simple to
understand, locally provided and quickly accessible with
minimal paperwork.

Success story

Nuria's dance school a reality thanks to a micro loan
Nuria Ventura's dream of opening her own dance school in
Barcelona came true thanks to a microcredit. "Without the
microcredit I couldn't have opened the school: the school
provides me with stability, it's my future."
Nuria Ventura is a choreographer, artistic director, flamenco dancer,
contemporary dancer, as well as the director and professor of a dance
school. Her plan to open her own dance school was made possible in
2007 thanks to an EU-supported microcredit worth 25,000 that
enabled her to rent the premises and renovate them for the school's
activities.
There were initially 20 students but the number has gone up to 60 in
less than two years. "I would like the school to be a leading dance
school in the region, to be associated with the best professionals in the
field. And I'd also like to see the number of students rise." Nuria's
school creates employment as well: she now has 10 part-time
employees.
"Getting the microcredit was easy: I presented my plan together with
my CV and they considered the plan viable. I also had a clear business
idea with related professional training, so I was chosen."
The 2007-13 Competitiveness and Innovation Framework Programme
offers possibilities for microcredit guarantees through financial
instruments managed by the European Investment Fund. Under the
instrument "SME Guarantee Facility Microcredit Window", the EIF
provides loan guarantees to microcredit organisations for loans of up
to 25 000 to micro-enterprises (those with up to nine employees).
Thanks to microcredits backed by the EU, many entrepreneurs in
Europe have the opportunity to start or develop a small business.
MicroBank, the social bank of the Spanish bank La Caixa, gives out
microcredits guaranteed by EU programmes to people who cannot get
loans from other banks. This way, less-advantaged people get an
opportunity to develop themselves, and further create jobs and
increase production