Credit and the poor

“financial services for poor people in developing countries—a business known as “microfinance”—have mostly been awful or absent. With no safe place to store whatever money they have, the poor bury it, or buy livestock that may die, or invest in jewellery that may be stolen and can be hard to sell. Basic life and property insurance is rarely available. Home loans are costly, if indeed they can be found at all. For many people, the only source of credit is a pawnshop or a moneylender who may charge staggeringly high interest and beat up clients who fail to pay on time. In the Philippines, lenders who zip from town to town on motorcycles expect six pesos back for every five they lend. That translates into an annual interest rate of over 1,000% on a loan for a month.”

Microfinance is the supply of loans, savings, and other basic financial services to the poor. People living in poverty, like everyone else, need a diverse range of financial instruments to run their businesses, build assets, stabilize consumption, and shield themselves against risks. Financial services needed by the poor include working capital loans, consumer credit, savings, pensions, insurance, and money transfer services.

The poor rarely access services through the formal financial sector. They address their need for financial services through a variety of financial relationships, mostly informal. Credit is available from informal commercial and non-commerical money-lenders but usually at a very high cost to borrowers. Savings services are available through a variety of informal relationships like savings clubs, rotating savings and credit associations, and mutual insurance societies that have a tendency to be erratic and insecure.

Providers of financial services to the poor include donor-supported, non-profit non-government organizations (NGOs), cooperatives; community-based development institutions like self-help groups and credit unions; commercial and state banks; insurance and credit card companies; wire services; post offices; and other points of sale. NGOs and other non-bank financial institutions have led the way in developing workable credit methodologies for the poor and reaching out to large numbers of the poor.

Financial services for the poor have proved to be a powerful instrument for poverty reduction that enables the poor to build assets, increase incomes, and reduce their vulnerability to economic stress. However, with nearly one billion people still lacking access to basic financial services, especially the very poor, the challenge of providing financial services to them remains.(source: CGAP)

United Nations Special Unit for Microfinance This division of the United Nations aims to build the capacity of microfinance institutions. The program works with three types of microfinance service providers: 1) new entrants to the field; 2) organizations that work in rural areas in the poorest countries, particularly in Africa, and; 3) established institutions that seek to expand their markets with new microfinance products and services.

World Bank -- CGAP The Consultative Group to Assist the Poorest is a multi-donor effort to reduce poverty by increasing access to financial services for very poor households through financially sustainable institutions. Donors include the UN, the World Bank, regional development banks, and over a dozen countries.

A World Bank Case Study of Bangladesh: Growth, Achievements, and Lessons in Microfinance. According to the study Bangladesh has made remarkable progress in its micro-finance industry, providing credit access to some 13 million poor households. The economic impact of microfinance growth has been immense. Easier access to credit has translated into poverty reduction as well as female empowerment and social mobility.

A World Bank Case Study of India: Scaling-up Access to Finance for the Rural Poor. Despite the large size and depth of the Indian financial system, the majority of the rural poor do not have access to formal finance and financial services. For this reason, innovative microfinance initiatives pioneered by nongovernmental organizations strove to create links between commercial banks, NGOs, and informal local groups.

Reaching Out: Access to and use of banking services across countries A World Bank Study reports on the correlation between lack of financial access and low income.

ELDIS Microfinance Gateway is a forum for MFI practitioners, NGOs, Donors, and others to learn about microfinance topics and to share their knowledge. The Microfinance Gateway is a collaboration between CGAP (the Consultative Group to Assist the Poorest) and ELDIS, a leading organization in on-line information gateway (based at the Institute of Development Studies, U.K.).

ENTERWeb -- The Enterprise Development Website This page lists and rates electronic resources related to microfinance in general and microcredit in particular.

Grameen Foundation Non-profit that works to spread the success of Grameen Bank by supporting and raising awareness about microcredit programs modeled on Grameen Bank worldwide.

Microcredit Summit Campaign The Microcredit Summit took place in Washington in 1997. This organization works to maintain the momentum created by the Summit to help strengthen and expand microcredit operations worldwide.

Freedom From Hunger Established in 1946, Freedom from Hunger is recognized for fighting hunger with innovative self-help programmes. Today, their ‘Credit with Education’ programme is serving over 176,000 families in some of the poorest countries on earth.

Growing Businesses Network The purpose of Growing Businesses Network is to show how village women can self-organize their own microloan program using traditional methods that Nigerian tribes have developed over the centuries.

K-Rep Bank is a development bank that specializes in micro finance to small businesses, micro enterprises and ordinary households. It also offers a wide range of banking services.

Opportunity International is a microcredit pioneer with 30 years of experience and programmes in 26 countries in Africa, Asia, Latin America, Eastern Europe, and Russia.

Women's World Banking The mission of Women's World Banking is to expand low income women’s economic participation and power by opening access to finance, information and markets.