Micro credits:

Microfinance as a panacea for poverty reduction and

a source of economic growth?

Prepared by Jenny Eisold Bachelor student at the University of Applied Sciences Dresden

International Business Second Semester

Report distributed July 2, 2010

Prepared for Kate Urban-Greatorex University of Applied Sciences Dresden

TABLE OF CONTENTS 1. EXECUTIVE SUMMARY 1 2. INTRODUCTION 4 2.1 Background 4 2.2 Objectives 4 2.3 Scope and Limitations 4 2.4 Context, Complication and Questions 5 3. A FINANCIAL INNOVATION FOR DEVELOPING COUNTRIES 7 3.1 History and Purpose 7 3.2 Concept 9 3.2.1 Characteristics of the Microcredit System 10 3.2.2 Summary of Various Operative Microfinance Models 12 3.2.3 Urgent Needs of Microfinance Using the Example of the Rural Women’s Situation in Asia and the Pacific 15 3.3 The Implementation of Micro Credits in Indian SHGs 16 3.4 Impact 17 3.4.1 The Impact of Micro Credits on Rural Woman in Asia 17 3.4.2 Measuring Social Performance and Impact 19 3.5 General Criticism 21 4. THE INDIGENOUS ADIVASI 21 4.1 The Basics 22 4.2 Microfinance Actors in India 22 4.3 Implementation 23 4.4 The SHGs’ Impact on the Indigenous Population 25 4.5 Conclusion 27 5. THE ROLE OF MICROFINANCE IN INDUSTRIALISED COUNTRIES 28 5.1 European Microfinance Fund 28 5.2 Micro Credits in Germany 30 6. CONCLUSIONS AND RECOMMENDATIONS 33 7. WORKS CITED 42 8. FIGURES 43

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1. EXECUTIVE SUMMARY

This report examines the microcredit as a microfinancing instrument established in

the developing countries as a financial service innovation. The purpose of this report

is to provide the reader with the information necessary for comprehending the

microfinance concept, realising its importance for the world of finance and assessing

the opportunities and threats of micro credits.

This report has been prepared on the basis of academic research carried out in May

and June 2010. A newspaper article concerning the introduction of micro lending

within the European Union published in the Frankfurter Allgemeine Zeitung in March

2010 offered the incentive to write this report.

The microcredit has its origin in Bangladesh with the Garmeen Bank Project in 1976

and was invented by the economist Muhammad Yunus. It has successfully enabled

poor people to start their own business to generate an income and who often then

started to build up wealth and exit poverty. Due to its success, the microcredit is

regarded as a source of future growth since borrowers who lack access to formal

financial institutions require and desire a variety of financial products.

Whereas the microcredit is an instrument to reduce poverty in the developing

countries, it should facilitate the finance of microenterprises in the industrialised

nations.

The central question is: Are micro credits a panacea for poverty reduction and a

source of economic growth?

This report mainly focuses on the characterisation of the microcredit concept for the

developing countries by selected examples including its invention, objectives and

implementation.

Various microfinance models are presented and urgent needs of microfinance using

the example of the rural women’s situation in Asia and the Pacific are defined.

Furthermore, the implementation of SHGs in India is reflected. It deals with the

impact of micro credits on rural women in Asia and the Pacific region and identifies

measuring methods of the social performance.

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Using the example of the indigenous Adivasi the implementation of micro credits as

well as their impact is analysed precisely and specifically. The report also considers

the role of microfinance in industrialised nations using the example of the European

Union, in particular Germany.

It was found that micro credits can be a panacea for poverty reduction and a source

of economic growth if they are managed properly.

Micro credits have ameliorated the living conditions of the rural poor as for example

the impact of Indian SHGs indicates. Communities were build, which advanced

women’s empowerment. By the means of micro credits they gained access to capital

which enabled them to open small businesses and generate proper income which

then benefited the livelihood of the whole family.

The rural women’s contribution to boost the local and national economy with the aid

of micro credits can be regarded as an immense progress.

The methods to measure the microcredit’s social performance also indicate a positive

impact. Especially considering the case studies conducted in Bangladesh and the

USA.

Regarding the example of the Adivasi, the microcredit - in particular its

implementation - is highly criticised and a review considering the recommendations

below is suggested.

The microcredit funds offered a new investment opportunity to the industrialised

nations, in this case Europe and in particular Germany. They have also begun to

utilise the tool of microfinance for the stimulation of lending to spur entrepreneurship

and by this means even pave a way out of the credit crunch of the financial crisis.

Trends in the Microfinance Sector

Diversification of MFIs Specialization of MFIs Turnkey Solutions New channels

Emerging Risks for MFIs

Consumer Protection

Transparency in Pricing

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Rising Delinquencies

To successfully and sustainably implement the microcredit strategy to reduce poverty

and generate local and national economic growth, the following principles have to be

respected:

1. The granting of credit should be conditioned on education (training specific to the

activities selected and general education) as it is essential for long term improvement

of the beneficiaries' lives.

2. The encouraged economic activities must be consistent with sustainable

development and preservation of the environment.

3. Local partners enable the success of the programs as they provide the interface

between the MFI and the beneficiaries. They also ensure that the loan recipients are

supported by the community and by functional clubs created to provide them with

dedicated aid.

4. The interest on loans should be reinvested in the local community in form of

assistance to local organizations, scholarships to students, grants in response to

natural calamities or other economic catastrophes.

Approaches to control unjust interest rates in microfinance to become a responsible

microfinance investor are:

Fairness Based on Interest Rates Margins Fairness Based on Asset Growth of Borrower and Microfinance Provider Capping Interest Rates for Microfinance Providers

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2. INTRODUCTION

This report examines the microcredit as a microfinancing instrument established in

the developing countries as a financial service innovation.

2.1 Background

The report has been prepared by Jenny Eisold on the basis of academic research

carried out in May and June 2010. A newspaper article published in the Frankfurter

Allgemeine Zeitung in March 2010 has aroused my interest which finally engaged me

write to this report. It addressed the introduction of micro lending within the European

Union out of a new microcredit fund starting in June 2010 and the associated

prospects.

2.2 Objectives

The purpose of this report is to provide the reader with the information necessary to

comprehend the microfinance concept, realising its importance for the world of

finance and assessing the opportunities and threats of micro credits.

Recommendations are given as consideration for microfinance institutions, borrowers

and economic and financial policy in general to handle micro credits in an appropriate

way for the benefit of all stakeholders, especially how to utilize chances and how to

minimize risks of microfinance.

2.3. Scope and Limitations This report covers mainly focuses the characterisation of the microcredit concept for the developing countries by selected examples including its invention,

objectives and implementation, and also considers the way of microfinance into

industrialised nations using the example of the European Union, in particular

Germany. Moreover, it analyses the impact of micro credits, i.e. it identifies chances

and risks for both creditors and debtors regarding present results. In addition, the

report recommends changes or improvements on the basis of the current

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implementation of micro lending and gives advice for new entrants on the

microfinance market.

The investigation does not cover all financial services of microfinance in full

description as micro credits are only a part of it. Furthermore, the recommendations

are confined to proposals for modification and enhancement of the current

effectuation considering social responsibility, especially sustainability, and future

prospects for microfinance, i.e. the academic research does not include an overall

revision of the microcredit system which is the responsibility of a financial or fiscal

expert.

2.4 Context, Complication and Question

The Context

The microcredit has its origin in Bangladesh with the Garmeen Bank Project in 1976

and was invented by the economist Muhammad Yunus. It is designed to offer

microloans to the unbankable, i.e. individuals who lack collateral, steady employment

and a verifiable credit history and therefore cannot meet the qualifications to gain

access to a traditional credit. The microcredit has successfully enabled poor people

to start their own business to generate an income and who often then started to build

up wealth and exit poverty. Due to its success, the microcredit is increasingly gaining

credibility in the mainstream finance industry and many traditional large finance

organizations are contemplating microcredit projects as a source of future growth

since borrowers who lack access to formal financial institutions actually require and

desire a variety of financial products.

Whereas the microcredit is an instrument to reduce poverty in the developing

countries, it should facilitate the finance of microenterprises in the industrialised

nations. This idea returned to Europe at the beginning of the 1990s when the

constantly increasing number of unemployed becoming entrepreneurs revealed a

growing gap in finance. Furthermore, it is considered as a contribution to cope with

the international economic crisis which has exacerbated the access to loans that are

necessary for self-employment.

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The Complication

Critics argue that micro credits are no more a tool for socioeconomic development

and no longer answer its original intention. On the contrary, microfinance institutions

are said to be transformed into profit-orientated organizations. Particularly the level of

interest rates is highly debated among experts. Additionally, it is criticised that

borrowers lack the possibility to generate new sources of income as the focus on

short-term lending rather than long-term investments often results in a debt trap

which carries the risk of a repayment crisis.

The Question

Could micro credits be a panacea for poverty reduction and a source of economic

growth?

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3. A FINANCIAL INNOVATION FOR DEVELOPING COUNTRIES 3.1 History and Purpose

The microcredit is a financial innovation that is considered to have originated with the

Garmeen Bank in Bangladesh which was founded in 1983. It can be traced back to

1976 when Professor Muhammad Yunus, Head of the Rural Economics Program at

the University of Chittagong, launched an action research project to examine the

possibility of designing a credit delivery system to provide banking services targeted

at the rural poor.

Micro credits as an instrument for socioeconomic development are designed to

reduce poverty in the developing countries by banking the individuals who lack

access to traditional financial services because of insufficient collateral. By this

means the poor are enabled to establish their livelihood and to generate household

income which leads to attendant benefits such as increased food security, the

building of assets, and an increased likelihood of educating one’s children.

The idea of self-empowerment especially focuses on women. Observations and

experience show that women are a small credit risk, repaying their loans and tend

more often to benefit the whole family. In another aspect it is regarded as a method

giving women more status and changing the current conservative relationship

between gender and class when women are able to provide income to the

household. A recent World Bank report confirms that societies that discriminate on

the basis of gender pay the cost of greater poverty, slower economic growth, weaker

governance, and a lower living standard for all people. At a macro level, it is

considered that 70 percent of the world’s poor are women. Additionally, women have

a higher unemployment rate than men in virtually every country and make up the

majority of the informal sector in most economies; therefore they constitute the bulk

of those who need microfinance services.

Microcredit has been widely directed by the non-profit sector while commercial

lenders require more conventional forms of collateral before making loans to

microfinance institutions (MFIs). Due to its success, the microcredit is increasingly

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gaining credibility in the mainstream finance industry and many traditional large

finance organisations are contemplating microcredit projects as a source of future

growth. Borrowers who lack access to formal financial institutions actually require and

desire a variety of financial products and therefore should be more correctly

categorised as “pre-bankable” which launches a new market.

Micro credits constituted an important tool for the “Decade for the Eradication of

Poverty“ (1997-2006) (Kofi Annan, 1997). The United Nations declared 2005 the

International Year of Microcredit as they classify it as the most important tool to

achieve the Millennium Development Goals to reduce poverty. It served to establish

strategic partnerships between governments, the UN, the private and public sector as

well as NGOs.

In 2006, Yunus and the Garmeen Bank were jointly awarded the Nobel Peace Prize,

"for their efforts to create economic and social development from below."

Microfinance as a tool for eradicating poverty has widely been adopted in European,

American, African, and Asian countries with a considerable degree of success.

Figure 1. “Progress of Microcredit from 1997-2006”

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Figure 2. “Progress of Microcredit 1997-2006”

These statistics reveal that microfinance is and therefore a huge market is growing:

In 2006, 69.8% of the total clients reached were considered ‘poorest clients’ –

that is a significant increase from the 56.3% reached in 1997.

Many more programs are reporting in 2006 than in the 1990’s (average

increase: 21.7%).

The number of ‘poorest clients’ reached has risen steadily over the span of

those nine years and indicates an upward trend (average increase: 33%).

3.2 Concept

Microfinance comprises a range of financial services provided to poor people

(unemployed, entrepreneurs or farmers who are not bankable) including not just

micro credits but also micro savings, micro insurance, and fund transfers. In the case

of microcredit, microfinance institutions offer microloans to individuals who lack

collateral, steady employment and a verifiable credit history and therefore cannot

meet the qualifications to gain access to a traditional credit in the formal banking

industry. The microcredit emphasizes building capacity of a micro-entrepreneur,

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employment generation, trust building, and assistance to the micro-entrepreneur on

initiation and during difficult times.

Yunus principle

Figure 3. “The Yunus Principle” 3.2.1 Characteristics of the Microcredit System

Group foundation Discipline of individual activities and the organisation’s

performance are taken into account along with the capacity for investment

Loan provision

Loans are:

- short term, less than 12 months in most cases

- generally for working capital

- disbursed quickly after approval

- immediate regular weekly or monthly repayments

Traditional requirements for collateral (e.g. property or mortgage) are:

- replaced by a system of joint liability

- borrowers are collectively responsible for the repayment of their individual

loans

Loan application and disbursement procedures are designed for low income

borrowers:

- simple to understand

- locally provided

- quickly accessible

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The borrower’s social status or confidence is taken into consideration

Borrowers hold obligatory meetings

Regular saving is mandatory

Training is provided to the borrowers

Recommendation from the society is required to get a credit

One staff can invest little money in comparison to the general banking system

Operational cost is comparatively high

The scheme below illustrates the microcredit’s character of group liability.

Figure 4. “The process of group lending”

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The diagram below shows the standard micro-credit loan process followed by most

organizations along the Garmeen Bank philosophy. The developmental process is

initiated by an investor and produces financial and personal growth for the borrower

as well as profits for the investor.

Investor

Borrower’s

financial growth

Figure 5. “The standard micro-credit loan process”

3.2.2 Summary of Various Operative Microfinance Models

There are different models of micro credits concerning the mode of funding,

repayment and government.

1) Garmeen Bank Model Bangladesh This model basically provides finance for entrepreneurial women already doing small

jobs. It involves careful targeting of the poor through means tests comprising mostly

of women groups. Intensive fieldwork is required to motivate and supervise the

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borrower groups. These groups normally consist of five members, who guarantee

each other’s loans.

Its key feature is group-based and graduated financing which substitutes collateral as

a tool to diminish default and delinquency risk. There exist numerous variants of this

model.

2) Village Bank Model By establishing individual village banks with about 30 to 50 members an

implementing agency provides “external” capital for onward financing to individual

members. Individual loans are repaid at weekly instalments over four months. At that

time, the village bank returns the principal with interest to the implementing agency.

If the bank repays in full, it is eligible for subsequent loans. Theses loan sizes are

linked to the performance of the village bank members in accumulating savings. Peer

pressure operates to maintain full repayment, thus assuring further injections of

capital, and also encourages savings. Savings accumulated in a village bank are also

used for financing.

A village bank has the possibility to graduate to become an autonomous and self-

sustaining institution by accumulating sufficient capital internally (typically over a

three-year time period).

3) Bank Guarantees A donor or government agency guarantees microloans made by a microfinance bank

to an individual or group of borrowers. Compulsory deposits by borrowers in such

banks are also included in this model.

Example: Bellwether Microfinance Fund (India)

4) Credit Union

This model is based on the concept of mutuality. It is a non-profit financial

cooperative owned and controlled by its members. The Credit Union mobilises

savings, offers loans at low interest rates for productive and provident purposes and

comprises memberships which are based on a common bond. The model promotes

primary credit unions and provides training while monitoring their financial

performance. Credit Unions are quite popular in Asia, notably in Sri Lanka.

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5) For-Profit Banks Commercial Banks offer various financial services to the poor with the main purpose

to secure a high return on investment. Unlike other models, they aim for social

development as well as financial progress, beyond institutional sustainability. An

example of a bank that exploited the poor under the guise of microfinance is the

Bank Compartamos in Mexico.

6) Non-Governmental Organisations (NGOs) Unlike community-based models, NGOs are external organisations and their

activities range from offering microfinance services to improving credit rating of the

poor, training, education and research. NGOs may also act as intermediaries

between the poor and donor agencies and operate locally, as well as globally.

Example: ACCION International (headquarters in USA)

7) Self-Help Groups (SHGs) Self-Help Groups have originated in India. A SHG is formed by the poor in the target

community with about 10-15 members with quite homogeneous incomes to offer

microfinance services to themselves. The members’ savings are pooled together and

used for lending. To supplement internal resources SHGs also seek external funding.

The terms and conditions of loans differ among the SHGs, depending on the

democratic decisions of members. The association can form on the basis of gender,

religion, or political and cultural orientation.

Typical SHGs are promoted and supported by NGOs with the objective to transform

them into self-sustaining institutions. Some NGOs act as financial intermediaries for

SHGs, while others act solely as ‘social’ intermediaries seeking to facilitate linkages

with licensed financial institutions or other funding agencies.

This model is a good platform for combining microfinance with developmental

activities.

In India, three types of SHG models have emerged:

1. Bank-SHG Members: The bank itself acts as a self-help group promoting

institution (SHPI).

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2. Bank-Facilitating Agency-SHG Members: Facilitating agencies like NGOs,

government agencies, or other community-based organisations form the

groups.

3. Bank-NGO-MFI-SHG Members: NGOs act both as facilitators and

microfinance intermediaries. First they promote groups, nurture and train

them, and then they approach banks for bulk loans for lending to the SHGs.

Further microfinance models than the ones mentioned above may exist.

3.2.3 Urgent Needs of Microfinance Using the Example of the Rural Women’s Situation in Asia and the Pacific

Figure 6. “Common determinants of the situation of rural women in Asia and the Pacific”

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This analysis identifies the persisting undervaluation of rural women’s work by the

community and the household. Social ignorance and economic indifference lead to

inequity in women’s access to resources that are necessary to improve their

contributions to a wide range of activities. Furthermore, gender biases affect

community interactions. The limited availability of data, coupled with a lack of

attention to and value for unpaid work in agriculture and the rural development

sector, perpetuates women’s inequitable situation. A consequence of underestimated

rural women’s contributions are sector policies and development strategies that fail to

reflect the true status of the human resources available for agriculture productivity

which undermines national efforts to promote agricultural development and

sustainable food security. The scheme above illustrates the common determinants of

the situation of rural women in Asia and the Pacific.

Women have difficulties in raising capital in general since they are not able to obtain

credit through commercial banks given their lack of collateral and the small size of

the loans. Banks are normally located in urban areas and women lack knowledge

about banking procedures which further impedes female access to capital. In this

context, many women’s groups have developed savings and loans schemes where

members make regular deposits and have the option to borrow at reasonable interest

rates.

In the past few years, savings-led microfinance has gained recognition as an

effective way to bring very poor families low-cost financial services. Especially the

government of India is giving a lot of importance to this scheme.

3.3 The Implementation of Micro credits in Indian SHGs

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 and contribute it to a group fund.

Then, members may borrow from the group fund e.g. for household emergencies or

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. Groups generally pay interest rates

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that range from 30% to 70% APR (annual percentage rate), or 12% to 24% a year,

based on the flat calculation method. Nearly 1.4 million SHGs representing

approximately 20 million women now borrow from banks, which make the Indian

SHG-Bank Linkage model the largest microfinance program in the world.

Micro financing helps in the development of an economy by giving everyday people

the chance to establish a sustainable means of income. The poor have skills which

remain unutilized or underutilized. By means of micro credits entrepreneurial

capability and possibility can be spurred. Eventual increases in disposable income

will lead to economic growth.

3.4. Impact

3.4.1 The Impact of Micro credits on Rural Women in Asia and the Pacific Region

The microcredit has provided an important source of capital for the rural poor in Asia

and the Pacific region. High rates of return have been attributed to the excellent

repayment performance of rural women. The group-based microcredit and

microfinance approaches have served the short term credit needs of rural

households, improving cash flows and offering local trading opportunities. (Zeller et

al., 2001)

The effects of microcredit include the benefits on women’s livelihood and social

solidarity as well as the potential for changing social relations (Kelkar, Nathan and

Rownok, 2004).

On the contrary, social conflicts in the community have increased, there exists a

tendency of men to control women’s access to economic assets and women are

used as the front person for control over the loans or financial decisions.

Often, microenterprises are based on the existing domestic production skills.

The repayment terms (weekly repayments plus a contribution to savings) and interest

rates have not been appropriate to meet the fund needs of agriculture households.

Consequently, the women-centred credit model has pressed rural women to pursue

additional income-generating strategies to keep up with repayment schedules. It is

questioned if the microcredit was an effective instrument for women’s empowerment

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by indicating that, in some cases, women serve as a front to access credit for men in

the household. In short, a preoccupation with performance has affected the

incentives of lenders. Whether women have meaningful control over their own

investment activities is neglected (Goetz and Gupta, 1996).

The loan sizes and the poor access to opportunities to improve skills or to cost

effective technology and knowledge of market complexity limit the expansion of

microenterprises.

Microfinance programmes display clear differences in terms of their approach –

especially the commitment to build rural women’s capacity to become self-reliant

producers and confident credit holders – and the results they achieve (UN DAW and

UNIFEM, 2001).

The collective effect of rural women’s small savings on the national economy is not

categorically established. Women’s efforts are inadequately acknowledged and their

status as partners contributing to local economic vitality and national capital is

denied. Women not only contribute to national production as unpaid workers, they

are also the key economic actors who contribute to the financial flow of the national

economy through their participation in microcredit and microfinance programmes.

The illustration below conceptualizes microcredit and women’s economic

contribution. Women’s small enterprises collectively result in cash flow within the

local economy, and their savings result in capital formation for commercial

investments and middle class loans to support consumption of consumer durables.

The microcredit principle involves mobilising women or investment in social capital

which in turn contributes to the national economy.

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Figure 7. “Microcredit and rural women’s economic contribution”

3.4.2 Measuring Social Performance and Impact

Microfinance is said to pull millions out of poverty and improve the level of personal income, health, education and female empowerment, besides providing handsome returns to investors. The multi-dimensional nature of microfinance makes it harder to measure its impact directly. There are only a few tools that determine whether microfinance is changing lives and societies.

Progress out of Poverty Index (PPI)

According to Garmeen Foundation, the PPI is a simple and accurate tool that measures poverty levels of groups and individuals after assessing the economic and social conditions of each country. The tool can be used by MFIs to determine their clients’ needs, which programs are most effective, and how quickly clients move out of poverty.

The PPI helps capture the nuances of small businesses in different geographies and cultures being served by microcredit in order to make comparisons across countries.

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Scientific Research

The real impact of microfinance, due to its multi-dimensional nature, takes years to demonstrate.

Requirements for research:

• A span of several years • Covering various geographical areas to consider individual social and

economic circumstances • A strictly monitored control group which has no access to the microcredit

Simple Surveys and Case Studies

In Bangladesh; conducted by Garmeen Bank:

• Poverty-alleviation: 5% of micro entrepreneurs pulled themselves out of poverty each year during the 1990s

• Houses Built: In 1984, just over 300 houses were financed through micro-credit, but the figure rose to a staggering total of 67,841 five years later (Historical Data)

In the USA; conducted by Accion USA:

• Job creation: on average, micro entrepreneurs either created or retained an average of 2.4 jobs during 2007 and 2009

• Wealth Increase: the median hourly wage offered by micro entrepreneurs was 24% higher than the federal minimum wage, which is $7.25

• Business survival: 98% of existing businesses were still in business by year-end 2008, which is very high compared to a national average of 70%

Out of a total of 2.1 million borrowers, one-third have crossed the poverty line, one-third are just about to cross the poverty line. The last third is expected to follow soon (The World Bank, on Garmeen Bank’s operations)

Domestic Violence: Women who take out micro-loans around the world experience a decrease in domestic violence (Women’s World Banking)

Microfinance delivers its promises in a slow, but sure manner. Therefore proponents and opponents both need to lower their expectations and accept any changes will take years to materialize. As microfinance continues to emerge as a lucrative business and social opportunity, new tools and techniques will be developed to optimize the performance of MFIs.

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3.5 General Criticism

Critics maintain that micro credits only improve cash-flow but do not create wealth. It

is argued that borrowers lack the possibility to generate income as the focus on

merely lending without a supplementary form of saving often results in a debt trap

which carries the risk of a repayment crisis.

Some proponents have asserted, without offering credible evidence, that

microfinance has the power to defeat poverty. This assertion has been the source of

considerable criticism since research on the actual effectiveness of microfinance as a

tool for economic and social development remains little, partly due to the difficulty in

monitoring and measuring this impact.

Opponents claim that the success of the microcredit model has been judged

disproportionately from a lender's perspective (repayment rates, financial viability)

and not from that of the borrowers.

For example, the Garmeen Bank's high repayment rate does not reflect the number

of women who are repeat borrowers that have become dependent on loans for

household expenditures rather than capital investments. As a result, borrowers are

kept out of waged work and pushed into the informal economy. Many studies in

recent years have shown that risks like illness, natural catastrophe and

overindebtedness are a critical dimension of poverty and that very poor people rely

heavily on informal savings to manage these threats.

Especially the impact on women who represent the majority of micro borrowers is

highly debated among economists. Micro credits are supposed to set the stage for

women’s economic empowerment but studies of microcredit programs have found

that women often act merely as collection agents for their husbands and sons, i.e. the

men spend the money themselves while women are saddled with the credit risk.

4. The Indigenous Adivasi In the following, the implementation of micro credits as well as their influence on the

socio-economic development of the indigenous Adivasi of the Gudalur valley in the

Indian state of Tamil Nadu is observed. The findings were acquired by qualitative

research methods on the basis of interviews and field survey.

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4.1 The basics Literature mainly comprehends micro credits as a tool which serves poverty

reduction. The “Bottom-up“ approach and the focus on women are often

commended.

The present criticism on micro credits pursues the following main approaches:

1. The financial or economic sustainability is challenged. This criticism rather

addresses the question if it is necessary to subsidise micro credits than the

consequences for the affected people.

2. Investigations do not question the tool itself but criticise local, contextual

weaknesses concerning the implementation.

3. Only a few generally question the approach. Some critics argue that the additional

liquidity often leaves the community immediately or is controlled by men.

Developmental objectives can be characterised by the core terms:

Community-building

Emancipation / Gender ratio

Earnings growth

Micro approaches focus on local living conditions in developing countries. They

consider the empirical reality: the informal sector, women, culture, NGOs and the

rural development. Moreover, they monitor interaction processes among the

participants in development projects and reveal that appropriate implementation is as

important as the strategy.

4.2 Microfinance Actors in India Syndicate Bank

Micro credits are provided:

1. to the implementing NGO

2. directly to the borrower

3. to the SHGs

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State Bank of India (SBI)

Non-Governmental Organisations (NGOs) NGOs make the greatest contributions to the implementation of micro credits,

because of their good field knowledge. They usually hire local employees who

have the first contact to the indigenous population in the villages.

Capacity-building and the support of voluntary commitment are important for the

civil society’s development. NGOs can unlike banks also reach remote borrowers.

They represent a major pillar for the creation of SHGs.

In this case: Nilgiris Adivasi Welfare Association (NAWA).

Women – the SHG Members Women spend most of the time in the villages. They look after their children and

husbands, the household and small fields. In India, women move to their

husband’s village after marriage. Therefore, women have to establish contacts

with strangers. As a result, women are less consolidated in the community as

men.

4.3 Implementation The Indian microcredit programmes started in the 90s. In the following, the Syndicate Bank programme is explained.

SHGs

The founded SHGs comprise 12 to 19 members. Each SHG has a president and a

secretary, who are allowed to pay in and - out money at the bank for the SHG.

Credit Guidelines

After 6 months a „Rating Committee“ - consisting of a government- , bank- and NGO-

(NAWA) representative - evaluates the performance of SHGs, which were

established as saving clubs. Indicators are the regularity of meeting’s participation,

the extent and evenness of savings rates, the average savings, and the repayment

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rate of credits the SHG grants its members as well as the bookkeeping

comprehensibility. If everything is managed properly, the SHG can receive a

Revolving Fund. After 2 years second rating loans for economical purposes are

provided, de facto most often for “shops”.

Savings

Savings shape the basis for the entire SHG system constitution. The Syndicate

Bank’s microcredit system defines them as cumulated deposits of members. The

loan shall amount to four or five times as much. The possibility to get that much

outside capital, while no experiences with larger amounts of money have been

gained, is a first reason for the failure of SHGs.

Revolving Funds

Revolving Funds shall increase the money supply (present savings) which circulates

among the women. The aim is to serve the need for capital, which have also the

poorest. Revolving Funds are fixed-rate loans for 3 years which are government

subsidised. The credit pursues no fixed purpose, but is freely available for women.

Members borrow the money e.g. for enrolment, medicaments, field tilling, marriage,

fertilisers, repairs. If the loan is not repaid after 3 years, it can be extended. The

Syndicate Bank advises women to rather borrow than save as they should earn

money through investments.

Loans for Economical Purposes

After two-year existence or often earlier the SHG can receive further credits. By this

means the members are able to open food, household supply or jewellery shops.

These loans are government subsidised in order that only 50% have to be repaid.

The subsidy bears no interest.

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4.4 The SHGs’ Impact on the Indigenous Population

Effects within the Families and the Village Community “Community-Building“

Women who are members of informal SHGs take the advantage of weekly meetings.

They come to know each other better which raises the community spirit. The

establishment of a saving- or solidarity group has generated a tool related to

development policy. Collective decisions strengthen the community. Additionally,

men increasingly respect their wives, who save and manage money.

Effects on Women’s Behaviour outside the Community Owing to micro credits and Revolving Funds the dependence on money lenders

decreases. They leave the village to deposit their money out of savings of the

Sunday meetings at the bank.

Skills Which Emerged from the SHG Membership Due to the SHG foundation the NGO associates explained bookkeeping issues to

women. Some members attended workshops as well. Moreover, many women were

in own funds for the first time.

Effects of the Revolving Funds Members use the additional money out of Revolving Funds mainly for emergencies

e.g. medicaments, others bought seeds or fertilisers. Furthermore, they replaced the

stocks of their shops, which were founded with another credit, financed house

building or opened shops. But no one could increase its income or improve its quality

of life. The remaining expenses served either the subsistence agriculture or the

survival. The women reported that every micro credits were discussed within the

group before money was lent and that they controlled each other. Nevertheless, only

a few were able to repay.

25

Effects of the “Shops” Entrepreneurs have difficulties in repaying credits and paying wages.

According to the bank manager the bank does not influence women’s investment

decisions, but women reported that they were urged to set up shops.

Reasons

In the saving clubs – how the “self-help groups“ started – indigenous women shifted

for themselves, within their life world. Hereby, their value inside the community

increased as they supported each other. The assistance of the NGO entailed

explaining self-management to the women. The banks’ contribution was to enable

women to open accounts. The government provided funds and arranged the spreads

of the model.

Revolving Funds supplied women, who are not accustomed to handle large amounts

of money, too fast with too much liquidity. Therefore, they could not use the money to

establish new sources of income.

If the groups were observed longer and only smaller subsidies flowed, the

indebtedness could have been prevented. The model of microcredit is attractive since

it is in keeping with the market and India will be one of the biggest markets for micro

credits.

Regarding the lending the following facts, which play a serious role in the Adivasi’s

everyday life, were neglected:

1. The rural inhabitants have extremely low revenues. They cannot manage great

fortune. It is also debatable whether micro credits are still the matter in light of these

volumes.

2. The indigenous communities earn their living through the work on plantations and

subsistence agriculture. How should they learn to keep shops, which are not part of

their culture yet?

3. The money transferred by credits promptly ran off the village cycle due to the

purchase of shop fittings and stocks. For instance, the acquisition of a mill would

have generated jobs during the construction and would have been utilised by all

26

villagers. Other more labour-intensive activities would have kept credits in the village

for longer as well.

4. A further reason is the incapacity of the implementing actors. A verification of the

shops’ economic results conducted by the local NGO NAWA and the bank would

have been necessary previous to the granting of a new credit (Revolving Fund).

4.5 Conclusion No Development through Micro credits in Gudalur The consequences of Revolving Funds and shops counteract the positive effects of

SHGs.

1. Community-building took place: the institutionalised meetings formed a better

community.

2. Thanks to the foundation of SHGs the balance of power within the family has

shifted in favour of the female. The leaving of the village and the acquired skills, the

property of money and a new self-confidence contributed to emancipation.

3. New sustainable sources of income were neither created by means of improved

subsistence agriculture nor through the opened shops.

4. The problematic indebtedness menaces the women’s community. The re-occurring

insecurity and financial dependence threaten the emancipatory progress.

To conclude, micro credits - as implemented in Gudalur under the given conditions -

do not achieve developmental goals. The implementing actors focused their efforts

on micro lending and the organisation of SHGs. The objective of poverty reduction,

community-building and amelioration of the gender ratio faded from the spotlight.

Reason Approaches for the Failure of Sustainable Poverty Reduction

The Adivasi are too poor to absorb and utilise large amounts of money to augment

income. The desired development into successful shop owners failed, because they

possessed insufficient skills to administrate them. Exogenous factors were the

decision to transfer large amounts of money to the Adivasi, without reflecting the

necessary requirements and the absent demand for so many new shops.

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Before lending, the financial needs of the women or Adivasi had to be analysed. One

had to consider how the Adivasi could profitably invest the received micro credits

according to the “bottom-up“ principle which stands for women’s investment

autonomy. However, the NGO, banks as well as government officials have solely

tried to implement the mainstream product “microcredit”.

Theoretical Classification of the Microcredit Concept

The introduction of monetary economy or the overall capitalisation of the poor is the

tool’s objectives. Subsistence agriculture, which shaped the Adivasi’s culture and

society, plays no role in the microcredit programme. Micro credits favours social

change and the adaptation to social structures of industrialised countries or Indian

big cities. The microcredit concept serves the creation of new markets among the

poor for investors out of the centres. Despite pursuing micro approaches and also the

GAD (Gender and Development) approach the microcredit concept is too universally

defined. The specific situation in rural India and the Adivasi’s cultural background are

discounted.

(Thorsten Nilges, 2005)

5. THE ROLE OF MICROFINANCE IN INDUSTRIALISED COUNTIRES

5.1 European Microfinance Funds

Learning from developing countries: Since June 2010 entrepreneurs and small firms

can apply for micro credits from the European Union amounting up to 25.000 Euro.

Until now such models were rather common practice in India, Bangladesh or Africa.

A prerequisite is that the recipient engages not more than ten employees and

realises less than 2 Mio. Euro turnover or has not worked before. This is applicable to

99 % of all new establishments in Europe (European Commission).

In total 100 Mio. Euro should be transferred into a new microfinance fund. In

cooperation with international financial institutions as the European Investment Bank

(EIB) the EU could mobilise a credit volume of 500 Mio. Euro with this budget.

Thereby 45,000 micro credits could be granted in an up to eight-year period.

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This programme is considered a contribution to combat the international economic

crisis that has complicated the access to many credits which are necessary for self-

employment (Social commissioner Laszlo Andor).

The idea to provide micro credits also within the EU has already arisen before the

economic crisis. The commission orientated itself to the successful microcredit

programmes which successfully assist entrepreneurs in developing countries for

years.

Not only large-scale investors can contribute to micro credits. There exist also funds

for private investors, who pass the money on to people in Third World Countries. This

operates on an indirect way: Multiple funds have specialised in the investment in

fixed-interest bonds of institutions, which locally grant the micro credits.

The return rates are around little percentage, close by fixed deposit accounts.

However, a “social return” is added. Those who invest in micro credits donate a part

of the yield for a good purpose (Natalia Wolfstetter, Fund rating agency Morningstar).

Furthermore, the risk is said to be low as micro credits also have a small correlation

to other investment categories. The credit recipients in the Third World are regarded

as independent of the regional and global economic development. Therefore, the risk

is manageable particularly since the repayment rates – 95 % - are very high. Most of

the funds invest in different countries which additionally spreads the risk.

A lot of local microcredit banks do not prioritise profits, but the development aid.

Therefore they are unwilling to pay high yield to the investors. The investors loose

further money because of partly high management charges due to intransparency

and high transaction costs, e.g. employees have to be sent to the concerned country

to assess the credit risk.

Those who want to engage in microcredit funds are required to self-actively ask their

bank. The funds are registered in Luxemburg without exception and not officially

approved in Germany. Therefore, banks are not permitted to actively distribute and

promote them. Out of the commercial view, micro credits are an ordinary bank facility,

which yields low but fairly solid.

(Harald Czycholl, 2009)

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The following scheme illustrates the microcredit system concerning the capital and

interest flow. The investor’s money flows via fund to local microfinance institutions

(MFI), which grant micro credits. The majority of interest pours into the credit

assessment.

Figure 8. “Microcredit system: Interest for credit assessment”

5.2 Micro credits in Germany

One of the major actors in the German microfinance industry, the GLS Bank, was

founded in 1974 as an ethic orientated financial institute and granted the first loan in

Germany in 2006. It has profited from the increasing demand for replicable

investment in 2009. Their customer deposits rose by 37 % to 1.15 Billion Euro and

exceeded the billion mark for the first time (Thomas Jorberg, executive board). Per

2010 the bank, who defines its objective not as return, but as a senseful investment

and publishes all its borrowers, expects an even increased growth, owing to more

micro lending.

Micro credits should facilitate the finance of micro enterprises. According to the KfW

the market for micro credits in Germany comprised about 6 Billion Euro in 2008.

In 2004, the KfW, the GLS Bank and the government established the microfinance

fund Germany, which explicitly addresses the founders and micro entrepreneurs. In

February 2010 the government and the „European Social Fund“ decided to hedge

the GLS Bank’s micro lending by the end of 2015 with 100 Mio. Euro against default

30

risks. Small and micro enterprises or young businesses can apply for state help when

lending.

(Jan Grossarth, 2010)

Ursula von der Leyen, federal minister of Labour and Social Affairs, in light of the

funds’ introduction:

„In the current crisis banks are reluctant to grant small loans for micro small

businesses and self-employed persons. Often lack particularly young, innovative

enterprises required collateral.“

In a difficult time the microcredit fund shall open new financing models whereby small

enterprises could maintain personnel and know-how despite of the crisis which could

also save jobs. The background: Banks usually do not grant small loans till 10,000

Euro because this implies relatively huge administrative effort measured against their

gained profit. The deal would not be rentable.

The character of the new microcredit fund:

• Ensures credits up to 20,000 Euro with terms up to 3 years

• No credit bottom line and no collateral, usually required by banks

• Considers especially enterprises with willingness of education

• Provides loans on an interest rate of initially 7.5% p.a.

• Established with terms of 5 years at first

In addition to that, the fund should support the medium- and long-term development

of an extensive microcredit supply in Germany. The structures of micro lending

should be professionalised to attract more micro investors, because micro

entrepreneurs often have liquidity problems with pre-financing their projects or

advancing their business model.

Micro financiers supervise and consult the borrowers in personal contact and

recommend the lending to the GLS Bank. They operate as mediators between

borrowers and lenders.

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Micro financiers pursue the following common principles:

• Personal consultancy for the borrower to prepare the credit application

• Consultant keeps in touch with the borrower, even after the business-start up

• Borrower is committed to participate in a monthly monitoring concerning the

basic data of turnover, receivables, liabilities and customers

• Deviations from the obligation on behalf of the borrower can lead to the

cancellation of the contract

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6. CONCLUSIONS AND RECOMMENDATIONS

To conclude, the question at the beginning has to be answered. Are micro credits a

panacea for poverty reduction and a source of economic growth? They can be, if they

are managed properly.

Micro credits have made huge contributions to ameliorate the living conditions of the

rural poor as for example the impact of Indian SHGs indicates. Communities were

build, which advanced women’s empowerment. Through micro credits they gain

access to capital which enabled them to open small businesses to generate proper

income which then benefited the livelihood of the whole family. It is clear that they

caused positive economic and social effects, as listed in the following scheme:

MICROCREDIT

Economic effects

Social effects

Raise and diversify income

Raise production

Decrease vulnerability

Increase empowerment

Create social collateral

Increase employment

Raise consumption,

Lower discount rate

Decrease fertility Increase collective action

Increase savings

Primary aims

Secondary aims

Figure 9. “Economic and Social effects of Micro credits”

The rural women’s contribution to boost the local and national economy with the aid

of micro credits can be regarded as an immense and spanning progress (see also

figure 7).

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The methods to measure the microcredit’s social performance also reveal a positive

impact. Especially considering the case studies conducted in Bangladesh and the

USA.

The effectiveness of micro credits as a tool for poverty reduction is also proved in the

statistics below which indicate the global and Asian outreach, growth, deposits,

profitability and efficiency:

Figure 10. “Progress and Efficiency of Micro credits”

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The microcredit funds offered a new investment opportunity to the industrialised

countries, in this case Europe and in particular Germany. They have also begun to

utilise the tool of microfinance for the stimulation of lending to spur entrepreneurship

and by this means even pave a way out of the credit crunch of the financial crisis.

Trends and Emerging Risks in Microfinance

Microfinance has been around for about three decades and it has evolved

considerably as new lending models were invented. Many microfinance providers,

who started as not-for-profit setups, grew to scales of large non-banking financial

institutions (MicroBanking Bulletin, Issue 18, 2009).

The bottom of the pyramid, because of its sheer volume, presents great opportunities

for charitable and business minded entities. However, emerging risks have to be

addressed as this sector will soon grow into a complex and thriving industry (see also

figures 1 and 2).

Trends in the Microfinance Sector

1 Diversification of MFIs: microfinance providers broaden their range of

services which started with microcredit, but now include micro-insurance,

micro savings and money transfer facilities as well.

2 Specialization of MFIs: microfinance providers focus on certain livelihoods

such as crop insurance or handicraft financing. By studying business models,

services that are aligned with the unique cash flow cycles or the varying

demand patters of the client’s business can be offered.

3 Turnkey Solutions: some MFIs provide non-financial services to support their

clients’ businesses, e.g. assisting them with their supply chain or sharing

marketing infrastructure.

4 New Channels: clients no longer have to visit physical offices in order to avail

certain services. Franchise-based business models and branchless banking

are becoming effective ways of reaching potential clients who live in

disparate rural areas.

35

Since businesses and governments realize the importance of the development

sector, certain trends have arisen. The initiatives above were adopted by MFIs as

they look for ways to further penetrate markets and make their ventures sustainable.

Emerging Risks for MFIs

1 Consumer Protection: Mobile banking, while being an extremely effective

and low-cost microfinance solution, is vulnerable to electronic crime and fraud.

2 Transparency in Pricing: As MFIs transform into for-profit organizations, their

developmental objectives sometimes lose priority in favour of their revenue-

generation objectives. This may encourage MFIs to market unnecessary and

misleadingly priced products to their clients, which may fail to help clients or

further indebt them (Mendes and Arvind, 2009).

3 Rising Delinquencies: Some economies with high levels of growth in

microfinance are threatened by a repayment crisis, marked by high default

rates and loan write-offs. Consequently, microfinance credit rating agencies

are established to caution aggressive lending practices.

Some market players are keen to exploit loopholes for immediate advantage which

transforms the entire microfinance model into a zero-sum game. Since microfinance

plays an important role in economic development, risks are certainly worth taking up

and eventually, market mechanisms need to find feasible solutions.

Problems Faced by Microfinance

Despite good intentions, microfinance still faces several problems:

• High risk of lending to the poor risk of non-repayment

• Technology-related hurdles, such as the high costs involved in small

transactions for microfinance providers

• Lack of awareness about sources of funds for microfinance providers to pass

on to the poor

• The poor’s inability to offer marketable collateral for loans to MFIs

• Difficulty in measuring the social performance of MFIs

• Mixing of charity with business by microfinance providers poor governance

• High interest rates for microcredit

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• Lack of customized microfinance models for the poor

• Inappropriate targeting of poor households by microfinance programs

• Lack of microfinance training for MFIs

• Poor distribution system of MFIs rural areas

• Lack of information about microfinance investment opportunities

• Poor institutional viability of microfinance ventures

• Dual mission of MFIs to be financially sustainable as well as development

oriented

• Pressure on women as they take the full debt risk and are sometimes used as

front person by their husbands

In many economic development programmes, the poor shall benefit from (global)

market dynamics. They should be conditioned to the competition and not directly left

to the free play of market forces. Micro credits rather deal with growth in the financial

industry and the identification of new clients than with poverty reduction.

For instance, Sudhirendar Sharma criticises the microcredit programme in a similar

way:

„The oft-repeated stories that micro-credit helps a rural woman buy a buffalo, a poor

woman now owns a Telephone kiosk cannot be replicated in meaningful numbers.

Conversely, at the cost of the poor a large number of NGOs have benefited; banks

have found a convenient route to increase landings; and corporations have got a

growing consumer market to target.”

Micro credits integrate the informal sector into the financial market. Sharma criticises

that micro credits are not utilised for investments in own productive activities, e.g.

agriculture. As long as micro credits lure the poor out of the primary sector into the

alleged more lucrative trading sector there are negative consequences for them, e.g.

the dependence on outside influences increases. The basis of livelihood and the

entire culture are altered.

The example of the Adivasi illustrates that marginalised groups are integrated in the

global market. The centre profits from the increasing global demand. Micro credits,

which rip the poor out of their life circumstances and push them for example out of

the subsistence agriculture into commerce are compared with a developmental aid

37

tying. The aids are - against conceptual wishes and programmes - provided precisely

conditioned and determine the investments of borrowers and SHGs.

It is often discussed if microfinance institutions should make profits. Certainly, the

NGOs would become independent hereby, but NGOs have human objectives and are

not profit-orientated. A transformation of NGOs into for-profit organisations is

comprehended as an attack of the civil society’s commitment on traditions and

culture.

The question is: Who profits from this concept? The government subsidises a

developmental tool which does not serve poverty reduction. Mirco credits feign aid for

the poor, although the dependencies have not changed. Merely the person who has

invested in micro credits benefits. The demand for capital prospers due to the

microcredit campaign. A new customer base for the finance industry emerges. Funds

are placed profitably. In fact, it earns high interest (11.5% Syndicate Bank) and will

be repaid with safety as the government will eventually be liable.

According to the World Development Report (WDR) the poor gain political power

through direct say concerning services (energy providers, water suppliers, schools,

health care). The microcredit is considered to pave the way for neoliberalism.

Liberalisation, deregulation and privatisation should serve the development. Due to

the connection of banks and poor, the state transfers a huge responsibility to the

poor. Critics regard this as a governmental withdrawal from the responsibility for

underdevelopment and the creation of new demand for global markets. The

innovation is that now even the financial market is served by the poorest.

It is much to be hoped that elsewhere projects will be reviewed. Especially in terms of

the following aspects:

Germany’s development aid – as well as that of other industrialised countries - also

increasingly integrates microcredit systems. The shrinking development assistance

should sustainably fight poverty. Everyone has the right to development cooperation,

which assists in the self-determined progress and not only creates new markets.

(Thorsten Nilges, 2005)

38

To successfully and sustainably implement the microcredit strategy to reduce poverty

and generate local and national economic growth, the following principles have to be

respected:

1. The granting of credit should be conditioned on education (training specific to the

activities selected and general education) as it is essential for long term improvement

of the beneficiaries' lives.

2. The encouraged economic activities must be consistent with sustainable

development and preservation of the environment.

3. Local partners enable the success of the programs as they provide the interface

between the MFI and the beneficiaries. They also ensure that the loan recipients are

supported by the community and by functional clubs created to provide them with

dedicated aid.

4. The interest on loans should be reinvested in the local community in form of

assistance to local organizations, scholarships to students, grants in response to

natural calamities or other economic catastrophes.

(The Vietnamese Heritage Institute (VHI))

Approaches to Control Unjust Interest Rates in Microfinance to Become a Responsible Microfinance Investor

High interest rates in microfinance which often vary from 30% to 70% (Fernando,

2006) draw plenty of criticism for being commercial and exploitative. Since these

rates can be justified by high transaction costs and risks associated with micro

lending, it is often difficult to differentiate between sustainability, profitability and

greed.

Here are some approaches to control this exploitation:

Fairness Based on Interest Rates Margins

39

The indicator suggested by Professor Yunus is interest rate margin, which is the

difference between interest rate charged to your borrowers and the interest rate

charged by your funding sources, i.e. an MFI’s direct profit:

1. Pure social orientation of microfinance provider - an interest rate margin of less

than or equal to 10% (Green Zone)

2. Social as well as financial orientation of microfinance provider - an interest rate

margin between 10-15% (Yellow Zone)

3. Pure financial objective - an interest rate margin above 15% (Red Zone)

Fairness Based on Asset Growth of Borrower and Microfinance Provider

1. Before participating in microfinance programmes, look at the assets of the MFI

and their clients.

2. After a reasonable period after introduction of the microfinance program, repeat

the exercise.

3a. If the assets of the MFI have grown more than that of its clients’, then it is

wrong and needs correction at MFI level.

3b. If the assets of the MFI and that of its clients have moved up in the same

proportion, then it is the most ideal situation and it should be allowed to continue.

3c. If the assets of MFI have gone lower than that of its clients, then, it needs

serious correction at MFI level either by increasing its interest rates or reducing its

cost of operations.

(Dr. S. Santhanam, 2010)

Capping Interest Rates for Microfinance Providers

Bangladesh and Ecuador already have caps on microcredit interest rates

of around 30%, and this may encourage microfinance providers to increase loan

sizes. These calculations are probably based on an industry-wide study of the

average costs and returns of microfinance providers and seek to prevent

excesses. While on the face of it, this seems to be a good way to protect

consumers, it may end up harming the sector.

40

41

These techniques may not fully ensure the social focus of microfinance providers but

if used as a starting point, may ensure social orientation as a permanent part of

microfinance practice.

WORKS CITED

Czycholl, Harald: “Mikrokredite - Wie sich Privatanleger beteiligen können.“

October 13, 2009.

<http://www.faz.net/s/RubC43EEA6BF57E4A09925C1D802785495A/Doc~EACC42E67ABF

14175AFA66F123484BC9A~ATpl~Ecommon~Scontent.html >. 01/06/10

Fehmeen: “8 Microfinance Lending Models (Types of MFIs).” April 3, 2010.

<http://microfinancehub.com/2010/04/03/8-microfinance-lending-models-types-of-mfis/>.

25/05/10

Grossarth, Jan: “Mikrofinanzierung - Ein Kredit für das Café Känguru.“ February 10, 2010

<http://www.faz.net/s/RubD16E1F55D21144C4AE3F9DDF52B6E1D9/Doc~EB987BC31EB1

C4A298A1E788B8C500EF6~ATpl~Ecommon~Scontent.html>. 01/06/10

Murthy, Laxmi: „Women's empowerment, or a debt trap?”

<http://infochangeindia.org/200510036115/Micro-credit/Backgrounder/Women-s-

empowerment-or-a-debt-trap.html>. 20/05/10

Nilges, Thorsten : Duisburg Working Papers On East Asian Studies No.63/2005

“Indeptedness through Microcredits. Interpretation of an experiment in South India.”

<http://www.uni-due.de/in-east/fileadmin/publications/gruen/paper63.pdf>. 26/05/10

Sütterlin, Sabine: “Mein Wort zählt“ Mikrokredite: Kleines Kapital – große Wirkung. 1. Auflage

2007.

Sharma, Dr Sudhirender: “Micro-credit improves cash-flow but doesn’t create wealth.”

<http://infochangeindia.org/200510026116/Micro-credit/Backgrounder/-Micro-credit-

improves-cash-flow-but-doesn-t-create-wealth.html>. 20/05/10

Terberger, Prof. Dr. Eva: „Mikrofinanzierung: Allheilmittel gegen Armut?“ 3/2002

<http://www.uni-heidelberg.de/presse/ruca/ruca3_2002/terberger.html>. 20/05/10

http://www.microfinanceinfo.com/the-definition-of-microfinance/

Rosenberg, Richard: “How to Tell Good MFIs from Bad MFIs.” March 16, 2010.

<http://microfinance.cgap.org/2010/03/16/how-to-tell-good-mfis-from-bad-mfis/>. 20/05/10

42

8. FIGURES

Figure 1. “Progress of Microcredit from 1997-2006”

Source: Data taken from the Microcredit Summit Campain 07’ Report

< http://www.mykro.org/wp-content/uploads/2008/10/progresslarge.jpg > 25/05/10

Figure 2. “Progress of Microcredit 1997-2006”

Source: Data taken from the Microcredit Summit Campain 07’ Report

< http://www.mykro.org/wp-content/uploads/2008/10/progresslarge.jpg > 25/05/10

Figure 3. “The Yunus Principle”

Figure 4. “The process of group lending”

Source: Deutsche Bank Microfinance

< http://microfinancehub.files.wordpress.com/2010/04/compartamos-group-lending-charts.jpg >

01/06/10

Figure 5. “The standard micro-credit loan process”

Source : Inspired by Artur Marques Kalil, University of Maryland, 2008

< http://kalilthesis.blogspot.com/2008/09/structuring-microcredits-of-development.html > 25/05/10

Figure 6. “Common determinants of the situation of rural women in Asia and the Pacific”

Source : R. Balakrishnan. < http://www.fao.org/docrep/008/af348e/af348e07.htm > 25/05/10

Figure 7. “Microcredit and rural women’s economic contribution”

Source : R. Balakrishnan < http://www.fao.org/docrep/008/af348e/af348e07.htm > 25/05/10

Figure 8. “Microcredit system: Interest for credit assessment”

Source : Invest in Visions; Responsibility Social Investments Services AG

< http://kalilthesis.blogspot.com/2008/09/structuring-microcredits-of-development.html > 01/06/10

Figure 9. “Economic and Social effects of Microcredits”

Source : < http://womenmicrocredit.wordpress.com/2007/04/ > 01/06/10

Figure 10. “Progress and Efficiency of Microcredits”

Source: < http://www.radianceweekly.com/149/3441/MICROFINANCE-A-Tool-for-Alleviating-

Poverty/2009-03-08/Cover-Story/Story-Detail/MICROFINANCEA-Tool-for-Alleviating-Poverty.html >

25/05/10

43

DECLARATION OF AUTHORSHIP

I hereby declare that I have written this report independently as a result of my own investigations and only applying the listed sources. Jenny Eisold July 2, 2010