Foreword
In the first part of the work, a global introduction to microcredits is made, explaining its reason for being and the progress experienced in recent years from the perspective of the International Microcredit Summit.
revolution-and-evolution-of-microcredits1It also analyzes all the elements that must be considered when designing and executing a microcredit program: the classification of beneficiaries, the limiters and determining factors for the success of the programs, interest rates and, ultimately, the distinctive characteristics of microcredit. with respect to traditional credit. There is also a brief historical review of what microcredit programs have been from the 1960s to the present. Later on, a distinction is made between the different institutions that provide microcredit -from the informal sector to financial institutions, passing through NGOs-, to then focus on a key aspect of the work: the analysis of the methodology used in the different programs: individual loans, solidarity groups and communal banks.
Since then, the study focuses on analyzing the organization and financial services of 3 successful models that, as a common feature, are characterized by their good functioning and their positive impact on the communities where they operate. The first model is the one that appeared before from a chronological point of view: the Grameen Bank. A deserved recognition to the pioneer institution in microcredits based on a group methodology. This model has served as the basis for others later and represented a revolution in the microcredit landscape, since until then the poor were by definition excluded from access to a fundamental right such as credit.
En la tercera parte se analizan 2 modelos que suponen una interesante evolución de la metodología microcrediticia: FINCA Internacional y FINCA Costa Rica. A través de la metodología de Bancos Comunales creada por John Hatch, los clientes participan de la gestión de su propio banco, lo cual constituye una gran novedad. El modelo costarricense, además, experimenta nuevas posibilidades, adaptándolas a las necesidades de la población, y consigue resultados sorprendentes. El más notable, el desarrrollo de Empresas de Crédito Comunal con capital accionario a través del novedosos concepto de microinversión.
The last model analyzed, that of the Financial Self-Management Groups, starts at the beginning of the FINCA Costa Rica model, to later transform into an increasingly simple model that is committed to using only the community's own funds for form the credit fund. It is thus shown that with the resources of the community itself, a large number of activities well felt by the most marginalized population of society can be financed. The results obtained with the Communal Banks with equity capital (“Bancomunales”) are more than encouraging, above all because it requires very little financing for its proper functioning and because people are fully involved in their own development. And this is one of the main final conclusions.
PART ONE: OVERVIEW OF MICROCREDIT
1. Introduction
Like everyone else, the poor need constant access to financial services. Credit, specifically, is a fundamental right that the traditional financial system has, by definition, excluded those most in need. Not for this reason, the poor stop borrowing when they have a vital need -suffering basic consumption needs in moments of absence of liquidity- or micro-entrepreneurship -to undertake a new activity or improve an existing one-, but the cost of doing so is very high, enough to keep them out of the cycle of poverty. It is not the fault of the moneylenders or usurers who charge them very high interests, it is a structural and institutional problem and, although the progress made in recent years is satisfactory, it is still insufficient.
More than microcredits - a relatively new concept - what takes out of poverty is the old concept of saving. In the same way that in the Europe of the 19th century the industrial revolution was financed with the surpluses of agriculture - until there was no saving, there was no investment -, the same happens with microfinance -A broader concept that, in addition to credit, includes the provision of other financial services such as savings, insurance or transfers to low-income households. Contrary to what was believed for many years, it has been shown that the poor have the ability to save to repay a loan. The problem is one of access, since they have few means at their disposal to mobilize their small temporary surpluses. Countries' financial structures have not taken this into account for a long time. They have limited themselves to denying a fundamental right such as credit, arguing that the poor have no capacity to pay or assets with which to respond in the event of non-payment of their loans.
But when they have been given an opportunity, a large number of them have not missed it and have shown that they are very good payers. Their desire to get out of the unjust situation of poverty in which they find themselves and their self-esteem explain the high rates of return on loans, much higher than those registered by traditional banks. Consequently, the latter has seen a profitable business in microcredits and has entered the business of granting loans to the poor, creating Microfinance Institutions (MFIs) for this purpose. Obviously, this type of institution seeks a commercial perspective that is not at all incompatible with the desirable social impact - which is pursued by the other type of MFIs: the one formed by credit NGOs and generalists-. In fact,A good microcredit program must be profitable in order to achieve its sustainability and permanence over time. It seems clear that the objective of a microfinance program is to provide financial services permanently, and not just to do so for a limited period of time, since people's needs are permanent. In short, in the microcredit sector two types of priorities coexist: the social one -through profitability- and the one of profitability -through the social.the social -through profitability- and profitability -through the social.the social -through profitability- and profitability -through the social.
Although credit alone is not enough to drive economic and social development, it is a facilitator or non-hinder that enables the poor to acquire their initial assets and use their human and productive capital more profitably. In addition, it allows meeting basic consumer needs in times of lack of liquidity. It is not, on the other hand, the panacea that will make poverty disappear in the world by itself, it simply allows its beneficiaries to be in a situation of greater opportunity, which is to have access to credit in an environment of certain economic activity.Microcredit repayment is a form of capitalization based on small frequent payments that has been shown to be effective and can contribute to improving the living conditions of borrowers through an increase in their income-generating capacity. In addition, group methodologies - in contrast to traditional individual credit - cause very positive collateral effects, derived from associationism and the construction of social capital.
1.1. The three myths
In most cases, the official financial sector does not take into account the tendency of the very poor to help themselves by working on their own. Since it is commonly not recognized that the poorest people have creditworthiness or savings, and since a loan of $ 10,000 or $ 100,000 costs almost the same with standard banking methods as a $ 100 loan, the poor do not they considered a profitable market for credit. In fact, it is true that microcredit is more expensive in relative terms and that is why the official financial sector has built 3 myths about the poor, which have been disproved, and therefore have proven to be unfounded excuses for not providing services, alluding to a high risk and low cost-benefit.
As a result, the very poor are forced to turn to traditional moneylenders, who can charge interest of up to 10% per day (annual rate of 3,650%). By having to pay such exorbitant interest, the poor remain poor and pass this burden, and often the debt, on to future generations. The 3 myths have been disproved in practice by the numerous institutions that have provided microcredit since the 1970s - Grameen Bank being the first to break this perverse system, as will be seen later - and have been compiled by the Summit Campaign of the Microcredit. They are as follows:
- Institutions cannot reach the poorest because it is very costly to identify and motivate them. If an institution reaches the poorest, it cannot achieve financial self-sufficiency. An institution that in one way or another reaches the poorest and reaches financial self-sufficiency will only add to the burden of debt for very poor people.
The meaning of the term "myth" is "strongly held conventional wisdom." But no matter how strongly an idea is held, if it does not reflect reality, it is a myth.
1.2. Advancement of microcredits
Microcredits are an effective instrument and increasingly used in poverty alleviation programs. So much so that in February 1997 the Microcredit Summit was held in Washington, sponsored by the United Nations, where representatives of 137 countries launched a campaign with the aim of reaching 100 million euros in 2005 with this form of loan. poorest families in the world. The Microcredit Summit Campaign has remained committed to meeting the four central themes of the 1997 Summit:
- Serving the poorest, Serving and empowering women, Building financially self-sufficient institutions, and Ensuring a positive and measurable impact on the lives of clients and their families.
At the end of 1997, the number of clients counted was 13.4 million, of which 7.6 million were among the poorest, those who live on less than US $ 1 a day. At the end of 2002, the number recorded amounted to 67.6 million poor, of which 41.6 million were "of the poorest". Everything indicates, then, that the objective for 2005 is achievable. Unfortunately, the need to place funds regardless of how to do it can be a distorting factor in the communities where you want to apply a microcredit program, as will be seen during this work.
As regards the supply of microcredits, the number of programs dedicated to this activity has grown in parallel with the satisfied demand. According to the microcredit summit, from 618 institutions reported in 1997, it has risen to 2,572 in 2002 (See Table 1). It should be emphasized that the total number of institutions dedicated to microfinance is much higher, the figures reported here represent the institutions that meet the formal requirements requested by the Campaign Action Plan. In this methodology, one of the data requested is the poverty measurement tool used to determine the number of poorest clients. Hence, not all institutions and organizations can register for the Campaign, since not all, far from it, can measure the poverty level of their clients before receiving their first loan, to subsequently determine the percentage of poorest clients who have crossed the poverty line. In other words, few MFIs can measure the real impact of their programs, as this is expensive.
Table 1: The progress of microcredits in the last 5 years
| Year | No. of programs reported | Total number of clients served | Total number of “poorer” clients served | % Of customers
“Poorest” compared to the total |
| 1997 | 618 institutions | 13,478,797 | 7,600,000 | 56.38% |
| 1998 | 925 institutions | 20,938,899 | 12,221,918 | 58.36% |
| 1999 | 1,065 institutions | 23,555,689 | 13,779,872 | 58.49% |
| 2000 | 1,567 institutions | 30,681,107 | 19,327,451 | 62.99% |
| 2001 | 2,186 institutions | 54,932,235 | 26,878,332 | 48.92% |
| 2002 | 2,572 institutions | 67,606,080 | 41,594,778 | 61.52% |
Source: Microcredit Summit Campaign and own elaboration
The total number of clients served - according to this count - has grown significantly, from 13.4 M in 1997 to 67.6 M in 2002, representing an increase of 404.5% in 6 years (67.4% average increase for this period). Regarding the number of “poorer” clients served, the increase experienced in 6 years reached 447.2%, which represents a 74.5% average increase, a figure relatively higher than that reached by the total number poor clients. It can also be seen that the number of poorest clients served represents more than half of the clients served, except in 2001, when the number of total clients increased by 24 M and the number of poorest clients only increased by 7 M.
Table 2 shows the size of these institutions in terms of number of clients. The United Nations Conference for Trade and Development (UNCTAD) estimates that they exist throughout the world
7000 institutions that provide microcredits. The same institution makes another estimate that makes us see that, although the figure of 100 million for 2005 is very promising, there is still a long way to go: the number of potential users of this type of financial services is estimated at around 500 millions. The Consultative Group for Assistance to the Poor (CGAP) goes further and estimates the number of potential clients who do not have access to these services at 1,000 M.
Table 2: Size of the institutions
| Institution size (in terms of poorer clients) | Number of
institutions |
Combined number of poorest clients | Percentage they represent with respect to the total |
| 1 million or more | 8 | 13,545,168 | 32.6% |
| 100,000 –999,999 | 25 | 6,414,155 | 15.4% |
| 10,000 -99,999 | 222 | 5,961,996 | 14.3% |
| 2,500 -9,999 | 410 | 1,958,777 | 4.7% |
| Less than 2,500 | 1,904 | 1,003,372 | 2.4% |
| Networks (NABARD, ACCU AND BRDB) | 3 | 12,711,310 | 30.6% |
Source: Microcredit Summit Campaign
International development agencies have often used inaccurate formulas to effectively combat poverty. The main flaw has been the paternalism with which the multi-million dollar programs have approached. Another collateral effect has been the dependency generated by these programs or the lack of empowerment of the beneficiary population, an aspect that is crucial for the development of communities and individuals. As is often the case in the often flawed International Cooperation, the gaze has been placed more on the co-financing organizations (and their often erroneous perceptions of the reality of poor communities) than on the beneficiaries themselves.
Fortunately, new initiatives have emerged at the local level by social entrepreneurs and NGOs, some of them surprisingly ingenious, inexpensive, self-sustaining and effective. This study aims to analyze the general evolution of the different methodologies used in microcredits and focus on those that are most interesting when it comes to improving people's living conditions and empowering them. The new models have managed to be effective from the local, from the daily reality of the countries of the South, and have used associations and the generation of social capital as a true engine of development. To these innovative people we owe our recognition and gratitude. Many poor people have already done it.
1.3. Microfinance in different regions of the world
To get a global idea of the operation of different MFIs in different regions of the world, table 3 shows different indicators compiled in 2001. Even though it is a small sample of analyzed MFIs, it can be used to make some observations that are not surprising. taking into account the characteristics of the analyzed regions. Asia is the most populated continent on the planet and the average number of clients of each of the 22 MFIs analyzed in this region is much higher than that of other regions: 301,190 clients, compared to 12,408 in Latin America and 11,378 in Africa. This last continent reflects being the poorest of all with average loans of US $ 166, compared to US $ 299 in Asia and US $ 695 in Latin America; also,the average credit ratio between the GDP of each region confirms the poverty of the African continent, which reaches 51.7% with only 166 US $ of average credit. Regarding the feminization of poverty and microcredits, on the 3 continents women represent more than half of the clients served: 76% in Africa, 75% in Asia and 61% in Latin America.
Table 3: Microfinance in different regions of the world
| Indicator | Latin America | Africa | Asia | Eastern Europe | ||
| MFIs analyzed | 52 | 24 | 22 | 12 | ||
| %IM F
self-sustaining |
67% | 17% | 55% | 25% | ||
| Average number of clients | 12,408 | 11,378 | 301,190 | 1,958 | ||
| Average credit | 695 | 166 | 299 | 1,975 | ||
| Average credit / GDP | 44.4% | 51.7% | 40.7% | 146.5% | ||
| % female clients | 61% | 76% | 75% | 41% | ||
| Default 90 days | 1.9% | 0.8% | 1.8% | 0.3% | ||
| % Cial financing. | 58% | 53% | 44% | 9% |
Source: MicroBanking Bulletin. April 2001.
With 2004 dataFrom the same source (Graph 1), the financial self-sufficiency of a larger sample of MFIs analyzed highlights that Asia is the continent with the highest percentage of self-sustaining MFIs, which should not be surprising given that the first microcredit programs were developed there, and therefore they are the ones that have acquired the greatest maturity. Latin America follows next with a high percentage of self-sufficiency, with Africa being last and where the most needs to be done to achieve the sustainability of the MFIs that operate there.
Graph 1: Financial Self-sufficiency by region
Source: The MicroBanking Bulletin.
2. Elements to consider in a microcredit program
2.1. Classification of beneficiaries
When referring to the poor as users of financial services, it is necessary to distinguish between several categories within what is called the informal sector of the economy, made up of unpaid family workers, domestic workers, own-account workers and salaried workers linked to activities. small-scale economic. Financial services clients are often moderately poor or microentrepreneurs. There are large institutions that also serve the extremely poor, such as the Grameen Bank and other initiatives in Bangladesh and extremely poor countries. However, the success of these programs may be more than doubtful in other cultural contexts.
There are several methods to classify poverty, the best known and most widespread being the one used by the United Nations based on the daily per capita income of families. Thus, three levels of poverty are obtained:
- Extreme Poverty = Less than US $ 1.00 a day Average Poverty = Between US $ 1.00 and US $ 1.99 a day Above the Poverty Line = Greater than US $ 2.00 a day Sticking to the microcredit and micro-business area that concerns us, I find the classification made by Fundación CODESPA interesting, obtaining 4 poverty levelsIndigent: It was not part of the microcredit field although some interesting exceptions have arisen, which in any case require a mixed component of social assistance. Two initiatives stand out in Bangladesh: the Grameen Bank program for the indigentand the IGVGD (Income Generation for Vulnerable Group Development) program of the Bangladesh Rural Advancement Committee's (BRAC), which was developed between the microfinance NGO BRAC and the World Food Program (WFP) 10Extremely poor: Those who survive in very poor conditions, although they can have a roof and living with other family members allows them to survive. They obtain some small sporadic income, so they are potential clients of some - not many - microcredit programs, such as the World Bank for Women (World Women's Banking) and Grameen Bank itself. These first 2 categories would correspond to a daily per capita income of less than US $ 1.00.Moderately poor: People with the capacity to generate income, although these are not stable or regular over time. A clear example is constituted by the inhabitants of rural areas, who live and work in agricultural activities. Although poverty in these areas is usually very extreme, it is also true that there is limited income-generating capacity,enough to be able to obtain microcredits. Therefore, these and the following group constitute the main clients of microcredit. This group earns an average per capita income of between US $ 1.00 and US $ 1.99.Microentrepreneurs: People who are engaged in very simple commercial activities, work on their own and alone, or with the help of other family members. They are those people who own a small business in the informal sector: a street vendor, a simple repair shop, a small garment shop installed in their own home, to name a few examples. Those who consolidate and grow their business will be able to access the formal financial system, although the majority will not have sufficient real guarantees to do so.The daily per capita income of this group exceeds 2.00 US $.
2.2. Microcredit application
For each of these categories, different methodologies and operating structures have been developed to meet the financial needs of these groups of clients in a sustainable way. The needs that motivate people to apply for microcredit are of two types:
- Applicable in microenterprises: For its operation -as purchase of raw materials- and as an investment -for the purchase of fixed assets-. The first need usually represents a small amount and is financed in the short term, while a fixed asset requires a larger amount and a longer term to reimburse.Application in the domestic economy or for consumption: home improvement, obligations family or unforeseen events.
Currently, many organizations and institutions offer microcredit, but very few grant it for consumption. Most programs use external resources provided by cofinancing agencies, which condition their use to finance exclusively income-generating activities. The reality is that when the funds are external, the repayment rate is very low, since there is no sense of ownership of the borrowed money: it belongs to a wealthy program in the North and the motivation to return it is low. When the granting of credit is conditioned to a new activity designed from the North, the result is usually worse. In both cases, when there is an activity to be financed or when a new activity is proposed,the actual use of resources by the beneficiary population is based on their immediate needs, entering here the good picaresque logic of the clients, who argue that they use the resources for the purpose stipulated in the formulation of the project, but in practice They use the funds to meet basic needs, probably for consumption.
In fact, the cause of failure of large cooperation programs with a microcredit component is not taking these types of everyday aspects into account. Even so, the multi-million dollar programs continue to grant them “productive” credits, which seems logical from a theoretical point of view, from a logical framework. On the other hand, from the point of view of the client in need of a consumer good as important as a medicine, food, or a home improvement, their financing possibilities - apart from the aforementioned and necessary picaresque - do not even go through resort to formal banking - given their absence of real guarantees - nor to most microcredit programs - since consumption is not stipulated in the project formulation -,with which he will have to borrow excessively from lenders and therefore will become even poorer.
For all these reasons, I especially value those models that do contemplate consumer credit, highlighting the models that manage funds from the community itself (such as Communal Banks with equity capital) where there is no limitation whatsoever to their use, in addition to models that are very mature, such as the Grameen Bank with its multiple types of loans. All of them object of analysis in the present study.
2.3. Limiters of success in microcredit programs
For microcredit to be effective, obviously, there must be a previous minimum level of economic activity in the community where the program is promoted. The Consultative Group to Help the Poorest of the World Bank (CGAP), which has a microfinance program, maintains that microcredit is really effective if, in addition, there is entrepreneurial capacity and managerial talent. Otherwise, the beneficiaries will simply go into debt. Although true, this second aspect is not as important as the first, since capacity arises from necessity and practice itself, as millions of people without resources demonstrate daily.
In addition to complying with this basic premise –the existence of a minimum level of economic activity-, in 30 years of varied experiences in the microfinance sector, certain circumstances have been detected that can slow down the success of an MF program. They are the following 11:
- Scattered populations, making it difficult to access clients on a regular basis; Dependence on a single economic activity for the entire client-borrower portfolio (for example a single harvest); Use of barter instead of cash transactions; Probability of crisis future (hyperinflation, civil violence); Legal uncertainty or a legal framework that creates barriers for microenterprise or microfinance activity; Lack of social cohesion, which reduces the possibilities of using credit methodologies without real guarantees.
The case of hyperinflation, typical of Latin American countries, is an exogenous variable that cannot be controlled, but it can be protected. With the relatively recent introduction of the concept of financial micro-investment in shares and participations of the Communal Banks, the poor are protected from inflation by obtaining a high return on the money they contribute to later be lent - which is not the case with savings deposits., very poor performance-. An interesting idea with which one of the traditional limiters of success in microcredit programs disappears.
2.4. Distinctive characteristics of microcredit with respect to conventional credit
The different institutions dedicated to microfinance share some distinctive features with respect to conventional financial institutions (commercial banks and financial companies): in both there is an ownership structure, a type of clients, a loan offered and a methodology. These distinctive characteristics can generate a very particular risk profile for institutions dedicated to microcredits, different from that of traditional financial institutions. Even though there are substantial differences in the type of MFIs, it is worth mentioning here 4 characteristics common to all of them 12:
- The ownership structure of specialized microcredit institutions is different from that of conventional financial institutions; They have commercially minded individual institutional shareholders with “big pockets” that allow them to offer additional capital in a time of crisis and that pressure the institution to perform as well as possible. On the contrary, the majority owners of institutions specialized in microcredit are the NGOs from which they were created. NGOs generally cannot be counted on for financial support in times of crisis.
- The clients of MFIs are different from those of conventional financial institutions. They are generally low-income entrepreneurs with rudimentary family businesses and limited formal documentation. Therefore, they are typically considered high-risk borrowers. The credit offered by MFIs is different from that offered by conventional financial institutions. The loans are smaller, their terms are shorter, and the interest rates are higher. As a result, the loan portfolio of MFIs shows a particular risk profile: it is more fragmented, which reduces risk, but turnover is higher, which increases it. The portfolio is also usually more geographically concentrated, otherwise client monitoring would be very expensive (in microcredits, the MFI goes to the client and not the other way around,as it happens in traditional banking).The microcredit loan methodology differs from the procedures of conventional financial institutions. Analysis of reputation and cash flow is more important than guarantees and formal documentation. In many cases the fees are paid weekly or biweekly, not monthly. This methodology is based on the nature of the clients of microcredit institutions and is appropriate for them, but it also involves high administrative costs. Operating costs (relative to assets) are much higher than in traditional banking. This fact should be highlighted since the high transaction costs are a fundamental difference with respect to traditional banking.The microcredit loan methodology differs from the procedures of conventional financial institutions. Analysis of reputation and cash flow is more important than guarantees and formal documentation. In many cases the fees are paid weekly or biweekly, not monthly. This methodology is based on the nature of the clients of microcredit institutions and is appropriate for them, but it also involves high administrative costs. Operating costs (relative to assets) are much higher than in traditional banking. This fact should be highlighted since the high transaction costs are a fundamental difference with respect to traditional banking.The microcredit loan methodology differs from the procedures of conventional financial institutions. Analysis of reputation and cash flow is more important than guarantees and formal documentation. In many cases the fees are paid weekly or biweekly, not monthly. This methodology is based on the nature of the clients of microcredit institutions and is appropriate for them, but it also involves high administrative costs. Operating costs (relative to assets) are much higher than in traditional banking. This fact should be highlighted since the high transaction costs are a fundamental difference with respect to traditional banking.Analysis of reputation and cash flow is more important than guarantees and formal documentation. In many cases the fees are paid weekly or biweekly, not monthly. This methodology is based on the nature of the clients of microcredit institutions and is appropriate for them, but it also involves high administrative costs. Operating costs (relative to assets) are much higher than in traditional banking. This fact should be highlighted since the high transaction costs are a fundamental difference with respect to traditional banking.Analysis of reputation and cash flow is more important than guarantees and formal documentation. In many cases the fees are paid weekly or biweekly, not monthly. This methodology is based on the nature of the clients of microcredit institutions and is appropriate for them, but it also involves high administrative costs. Operating costs (relative to assets) are much higher than in traditional banking. This fact should be highlighted since the high transaction costs are a fundamental difference with respect to traditional banking.This methodology is based on the nature of the clients of microcredit institutions and is appropriate for them, but it also involves high administrative costs. Operating costs (relative to assets) are much higher than in traditional banking. This fact should be highlighted since the high transaction costs are a fundamental difference with respect to traditional banking.This methodology is based on the nature of the clients of microcredit institutions and is appropriate for them, but it also involves high administrative costs. Operating costs (relative to assets) are much higher than in traditional banking. This fact should be highlighted since the high transaction costs are a fundamental difference with respect to traditional banking.
Thus, microcredit institutions are entities with high administrative costs, covered by high interest rates generated by a portfolio made up of a large number of short-term loans, without guarantees and geographically concentrated.
2.5. Determinants of success in microcredit programs:
It is important to point out the 5 conditions that microfinance institutions must meet to achieve their objectives:
- Permanence, to provide long-term financial services; Scale, in order to reach a sufficient number of clients; Targeting, in order to reach the poor population; Financial sustainability, so as not to depend on external donations and to be able to survive over time. Immediate delivery.
The evils of the large microcredit programs with external revolving funds, which are limited to the fulfillment of a project of limited duration in time, have been mentioned previously. Therefore, they do not meet the permanence and, consequently, neither the scale. Financial sustainability is another aspect that is not taken into account when programs are fed by external funds and these are abundant.
The immediacy of delivery is one of the points where models and programs that draw on external funds can and often fail. A delay in the granting of funds for bureaucratic reasons is the daily bread in International Cooperation and in governments. Instead, those using funds from the community itself are available from the start. This is a crucial aspect, since when a need arises and there are no funds to cover it, it is important that financing is obtained immediately, otherwise it will be of little use to obtain a loan when the opportunity has passed: the acquisition of seeds for a planting, a business opportunity or the urgent acquisition of a consumer good such as the acquisition of medicines or the repair of a home.
2.6. The importance of the interest rate
One of the elements to consider in a microcredit program is the interest rate. When targeting the poor, one might consider that the rate should be low. And you would be wrong: interest is the only regular and safe income that an MFI has to cover the high costs of lending its money, be self-sustaining and guarantee its permanence over time. Otherwise, after the end of the program, the poor would continue to borrow from informal moneylenders, who would charge them a much higher rate. Therefore, a high rate is not an obstacle, since in relative terms it is not it for the clients. Programs with large amounts of funding from private or government donors should also try to be sustainable, as external funding is by nature insecure,and when they stop flowing, it would be desirable to continue providing a financial service to the communities, which constantly need it. Not for this reason, the rates should be abusive. What should be sought is that the rates are fair, that they compensate the costs without a doubt, but that there is an effort so that those costs are the result of efficient programs13.
There are 3 types of costs that an MFI must cover to grant microcredits 14. The first two, the cost of obtaining the money to be loaned and the cost of unpaid loans, are proportional to the amount borrowed. For example, if the cost borne by the MFI to obtain financing is 10% (a loan from a financial institution or a development agency) and it experiences 1% defaults on the amount borrowed, then these two costs will be 11 $ for a $ 100 loan, and $ 55 for a $ 500 loan. Therefore, an interest of 11% will cover the costs of both amounts borrowed.
The third type of cost is the transaction cost and it is not proportional to the amount borrowed. The transaction cost of a $ 500 loan is not much different from a $ 100 loan. Both loans require the same amount of time to formalize the loan with the client, make the disbursement, receive the repayments and follow up on the loan. Suppose the transaction cost is $ 25 per loan and the term is one year. To cover the costs of a $ 500 loan, the MFI would have to receive interest of $ 50 + $ 5 + $ 25 = $ 80, which represents 16% annual interest. For a $ 100 loan, the MFI has to charge interest of $ 10 + $ 1 + $ 25 = $ 36, which represents an annual interest of 36%. At first glance this rate may seem abusive, especially if the clients are poor.But in reality this rate reflects the fact that when the size of the loans is very small, their transaction costs are proportionally higher. Sustainability must be pursued with adequate interest rates and, above all, minimizing costs to the maximum. Those that best meet this requirement are local financial models, which will be discussed later.
3. Brief historical evolution
Up to the different trends that converge today in the microcredit field, a long road has been traveled that began in the 1950s. Although it must be clarified that many cultures have adopted different informal credit mechanisms since time immemorial; what is referred to here are formal institutionalized methodologies.
Development projects began to introduce subsidized credit programs to selected target communities. These programs mostly failed. The rural development banks that provided this financing suffered a massive erosion of their capital precisely due to the subsidized interest rates and poor payment discipline among beneficiaries. Furthermore, the funds did not always go to the poorest, but to the most favored among the rural community.
Pilot programs were started in the 1970s first in Bangladesh and then in Brazil. The creation of the Grameen Bank in Bangladesh meant the introduction of a new, revolutionary and effective methodology, the true origin of microcredits. These programs granted small loans to groups of very poor women to invest in small businesses. This type of credit to microenterprises was based on Solidarity Groups (GS) in which each person in the group guaranteed the payment of all members, thus replacing the traditional real guarantee with trust in the group and in people.
In the 1980s and 1990s, microcredit programs substantially improved their methodology and changed the conceptions that were held when it came to financing the poor. First, they taught that poor people, especially women, had excellent rates of return on credit, much higher than in the traditional financial sector in developed countries. Second, they showed that the poor were able and willing to pay high interest rates, which covered the high costs of the microfinance institutions that lent them credit. These 2 important characteristics - high rates of return and interest capable of covering costs - have made it possible to achieve self-sustainability of the institutions in the long term, in addition to reaching a large number of clients. Which, in turn,It has allowed the development of a true industry that sets itself ambitious goals, such as 100 million client families in 2005, the international year of the MC for the United Nations.
Table 4 shows the evolution of microfinance in recent decades, from the first agricultural loans to the most advanced form that some microfinance institutions have reached, those regulated by the banking superintendencies. These are part of the formal financial system, and therefore, can attract savings from third parties, among other characteristics. It should be noted that MFIs that have chosen to graduate are only a part of the large number of MFIs that provide microcredit services. Although their degree of financial intermediation is higher than unregulated MFIs, the latter play an important role in reaching certain social strata and intervening in more disadvantaged communities, more typical of NGOs than of formal financial institutions.
Table 4: Evolution of microcredits since the 1960s
| Stage | 60's - 70's Agricultural credits | 80´s - 90´s MFIs | 2000-
Regulated MFIs |
| Partners | Projects / NGOs | Institutions | Finance system |
| Services | Credit | Credit and savings | Financial services |
| Saving | No capacity | Yes there is capacity | External and internal savings |
| Gaps | Physical capital | Efficient institutions | Technology |
| Strategy | Micro-business subsidy | Institutional subsidy | Alternative profitability |
Source: CGAP, Finance of Microfinance, October 2002
4. Typology of institutions that provide microcredit
4.1. The informal sector
First, as already mentioned, the informal sector includes informal moneylenders who do not keep any record of loans, work on the streets, lend money in the very short term and charge interest rates well above those of market. They are commonly known as usurers and are part of the daily landscape of the countries of the South. Until the first microcredit initiatives emerged that aimed to help the poorest, they were the only alternative to access financing and they continue to be where the microfinance industry has not yet managed to penetrate 15. This situation of power means that those who have the capital apply very high interests, such as 20% per month or 10% daily. In this case, those who provide this financing do not help to get out of the cycle of poverty, on the contrary, they perpetuate this situation. This was observed by Professor Yunnus in the Bangladeshi village of Jobra, a true laboratory of microcredit. 16
In 1974, a citizen of this village - Sufia Begum, the first formal borrower of a microcredit - worked all day to make bamboo stools. The raw material cost him five taka (equivalent to 22 cents), which he had to borrow since he did not have even this small amount. The intermediaries or usurers lent her this amount on the condition that she had to sell them the fruit of her labor –the transformed product, that is, the stools– at the end of the day to repay the loan. The sale price was five taka and fifty paisas (taka cents), with which the artisan's profit was only 50 paisas (equivalent to two cents) for an entire working day.The problem of lack of initial capital trapped him in the vicious circle of borrowing from an intermediary in order to quickly sell him the product of his labor. The intermediary would always manage to pay Sufia a price that did not allow him to repay the materials and satisfy his basic needs, always forcing him to borrow. This practice, so common in developing countries, is considered normal, although it is still a semi-slavery relationship. His solution came with credit, which made it possible for him to resell his products without compromise on the market, obtaining a much better margin between the cost of materials and the sale price in the market, much higher than that obtained with the usurer. People like Sufia were not poor out of laziness or lack of skills.They were poor because the financial structures did not have the vocation to help them improve their lot. It was a structural problem and not a people problem.
Thus, the credit market was monopolized by local moneylenders, who dragged their clients farther every day on the path of poverty. Today, loan sharks still exist, but fortunately there are various types of microfinance institutions that provide credit and other services to poor clients. In this sense, it is fair to acknowledge the merit of M. Yunnus in creating the first microcredit institution (the Grameen Bank) and the first methodology based on group credit, which has been the starting point of many other models and programs.
The informal sector also includes local associations that are small savings and loan groups in which members contribute a small amount that they deposit to create a fund that is loaned on a rotating basis to its members based on available capital. This type of entity is called ROSCAs (“Rotating Savings and Credit Associations”) and they are popular in many countries, for example in the Dominican Republic (with the name “San”) or in Venezuela ("Susu"). This system is very widespread in the informal sector of the economy and can be useful when there are no other financing options, but it is imperfect for several reasons: first, the order in which credits are granted is random since it is usually done by lottery;the first beneficiary sees his credit need satisfied at the moment, but the last beneficiary can wait several months to do so. We have seen that the immediacy in the availability of credit is one of the basic characteristics that any model must fulfill and the ROSCAs do not fulfill it. Second, it is an inefficient model, since when recovering the initial contribution - which can happen after several months, even years - the amount returned is the same as that contributed, which means that the money has been "sleeping ”And no return has been obtained from it, a particularly serious fact in countries with high inflation. And third and last, the model can be very unfair, given that if one of the members does not repay the loan, the community fund disappears, thus, in addition to losing the amount contributed,many of its members will not have had the opportunity to have used the fund. Therefore, although ROSCAS may represent the only financing option for some people, from the scope that concerns us, the absence of an adequate methodology and control mechanisms delegitimize this simple method.
These informal credit mechanisms are considered valuable by the population with limited resources, since in many cases they represent the only real possibility of obtaining credit, although they cannot be considered adequate mechanisms as they are neither efficient nor cheap. In addition, the informal financial sector cannot, obviously, meet needs such as the placement of deposits, some types of credit and money transfers. These more developed services can only be offered by specialized and regulated MFIs. And here we go on to analyze the different types of MFIs.
4.2. Typology of MFIs
MFIs can be classified according to their level of financial intermediation, which refers to the legal, operational and financial capacity to offer a wide range of financial instruments, both assets (loans and investments) and liabilities (checking accounts, savings, etc…). The greater the number of services available to customers, the greater the institution's financial intermediation capacity, and therefore income generation.
There are two ways to create an MFI depending on whether it has been promoted from an NGO or from a bank. In the first case, we will be talking about an “up-grading” of an NGO that specializes in finance and in the second of a “down-grading” of a formal financial institution that enters the microcredit market. The Inter-American Development Bank (IDB) distinguishes 4 groups of MFIs 17 that reflect the two situations described:
Conventional financial institutions: They are joint-stock companies such as Banks and Financial Cooperatives and Mutuals, which have decided to penetrate the microenterprise market without abandoning their traditional intervention niches. These institutions are characterized by addressing different market segments and by not being concentrated in the microcredit portfolio. Interest in the emerging microenterprise market is a relatively new and experimental situation, which is why the portfolio linked to this segment represents a low percentage of total assets.
Specialized financial institutions: These are regulated financial institutions, generally public limited companies, that were created with the specific objective of serving micro and small businesses. Its assets are concentrated in the microenterprise market segment and are empowered to capture savings from third parties. They operate as non-profit organizations, although more and more are “transformed” into authorized and supervised financial institutions. In this process, a new financial institution is usually created and the original foundation or non-profit association acquires a majority stake in it, ceasing to provide financial services on its own.
Credit NGOs: These are those institutions that, maintaining their legal basis as a non-profit association or foundation, are dedicated, solely or mainly, to financing micro-businesses. Eventually they carry out training activities and technical advice for microentrepreneurs, which are part of the client's credit education strategy and credit recovery.
General NGOs: Like credit NGOs, these institutions are non-profit associations or foundations, with the difference that, in addition to granting loans, they provide a wide range of business development and social support services. Therefore they are not specifically focused on financial activity.
4.3. Main features
If in a previous section the distinctive characteristics of microcredit were analyzed with respect to conventional credit (the ownership structure, the clientele, the type of credit they offer and the methodology ), now the main characteristics common to all types of MFIs will be analyzed. They are the following 18:
The institutional strategy indicates the main reasons that lead MFIs to intervene in the field of microenterprise. These strategies generally pursue two types of objectives: the achievement of significant profitability rates or the desire to impact the customer's standard of living. A combination of both logics, finance and solidarity, is also practiced by many institutions. Identifying the trend of the MFI in terms of its mission and strategy is a matter of utmost importance, since it generally defines the institution's management and operating mechanisms. In any case, the emergence of competition in the supply of microfinance services tends that MFIs, regardless of the intervention logic,seek to obtain excellent productivity and portfolio quality indexes to improve lending rates and diversify their financial services offering.
The legal formIt is the legal status adopted by MFIs to exercise credit activity. It should be noted that conventional and specialized financial institutions are generally regulated by the control entities of financial organizations in each country (regulated MFIs), while credit and general NGOs are not. The legal form that the MFI adopts has important repercussions on its operational and financial characteristics. Government instances are more conventional in regulated institutions, while NGOs have greater freedom to design their decision-making centers. In the financial sphere, regulated MFIs have the legal possibilities to practice different credit instruments and to attract resources,while NGOs have regulatory limitations to diversify their active instruments (credits and investments) and liabilities (savings deposits).
The third element indicates the type of customerto which MFIs are primarily directed. As mentioned above, it is the NGOs who, in many cases, would be directing their loan offer to the lowest income sectors, or to the smaller micro-enterprises. On the other hand, it is the regulated financial institutions that show a greater tendency to attend to companies with a higher degree of evolution, given the guarantees they provide and their credit history. It is not that there is a perfect correlation between the type of institution and the type of client, what happens is that there are legal, financial and operational limitations so that regulated financial institutions can reach very low-income clients. For example, in the legal field, the regulatory framework does not generally accept joint and several guarantees,as it is not a tangible hedge of a financial risk.
Credit instruments are the financing products that MFIs normally offer to microenterprises, which are configured according to the risk of the client and the type of guarantee. Group loans (Communal Banks and Solidarity Groups) are used to serve lower-income clients, while individual loans are aimed at micro-enterprises that have collateral guarantees and references of good credit performance.
The fundraising instruments are determined by the legal status of the MFI and by the volume and quality of its assets.
Table 5 below shows a summary of the main operational characteristics that have just been mentioned, and in Appendix 1 the Strengths and Weaknesses of each type of MFI can be seen.
Table 5: Main operating characteristics of different types of MFIs
| INSTITUTIONS
FINANCIAL CONVENTIONAL |
INSTITUTIONS
FINANCIAL SPECIALIZED |
NGO
CREDITS |
NGO
GENERALISTS |
|
| STRATEGY | Penetration of new markets
Image and philanthropy |
Social impact Profitability | Social impact Generation of margins | Social impact Financial self-sufficiency |
| LEGAL FORM | Banks and financial cooperatives and mutuals | Banks
Financial |
Non-profit associations
Foundations |
Non-profit associations Foundations |
| CLIENTELE | Various segments Microenterprise is a minority | Micro and Small business | Microenterprise Poorest population segments | Microenterprise Poorest population segments |
| CREDIT INSTRUMENTS | Various for each market segment. General individual credit | Solidarity group
Individual credit Leasing and others |
Groups
Solidarity Individual credit Communal bank |
Solidarity Groups
Individual credit Communal bank |
| INSTRUMENTS
LIABILITIES AND OF HERITAGE |
Shares, Quasicapital, Bonds, Stock Market, Rediscount lines,
Certificates, Savings, Loans |
Shares, Quasicapital, Bonds, Stock Market, Rediscount lines,
Certificates, Savings, Loans |
Loans
Guarantee, Contribution Certificates Patrimonial, Actions |
Loans
Guarantee Contribution Certificates Patrimonial, Actions |
| EXAMPLES | Bco. from Pacific
(Ecuador) Bank of Commerce (Costa Rica) |
Solidarity Bank
(Bolivia) Multicredit Bank (Panama) |
FINCA Network
Red Bank World Woman |
Cesap Foundation
(Venezuela) CARE Network |
Source: Inter-American Development Bank (IDB)
5. Methodology used in the different programs
The main methodologies used by microfinance institutions are individual or group ones. Microcredits are frequently associated with the ingenious group methodology invented by M. Yunnus' Grameen Bank in 1976, when it replaced that of traditional banking with a new one that simply turned it around in almost everything. Community Banks are self-managed local organizations that provide financial services, in addition to being a credit methodology. The individual microcredit appeared from the hand of the ACCIÓN Internacional organization and is linked to micro-business activities, highlighting, in addition to credit, business advice. Today there are many microfinance institutions that work with both methodologies at the same time. That is, they have their credit portfolio separated into 2 blocks,each of which works differently. Let's see the 3 methodologies separately.
5.1. Individual loans
In this case, the loan is requested by a single person, who responds to the institution for the return of the principal and the interest on the loan. Normally, these types of loans tend to be larger amounts than in the case of Solidarity Groups or Community Banks, which reflects that they focus mainly on a moderately poor clientele. In this methodology there is not much difference between traditional banking and microfinance, in fact it is common for the MFI to ask borrowers for real guarantees. The destination of the credit can be both for working capital and for the acquisition of fixed assets; in the latter case, the terms can be up to 24 months.
A payment discipline typical of microentrepreneurs, who are still the “high caste” of poverty, is presupposed in clients. On the other hand, the much more frequent reimbursements that are made in the Solidarity Group make the poorest learn discipline in the payment, which has to be valued as an effective exercise of self-training without additional cost. It is not entirely correct to say that individual loans lift out of poverty, as most of these borrowers are already out of it.
The beginning of this credit methodology was born in Latin America thanks to the initiative of the Carvajal de Cali Foundation and the collaboration of ACCIÓN Internacional. One of the main characteristics of this program in Colombia was the preeminence of training over credit. The credit is considered as something complementary to an adequate training and business advisory program, which constitutes the fundamental piece that will allow an improvement of the micro-enterprise. This correct philosophy continues to form part of the Carvajal de Cali Foundation and many other NGOs in the region that it has advised. (ACTUAR, FUSAI, FUNDECAP, FUNDADES, etc.).
5.2. Solidarity Groups
This methodology consists in that the loan is requested and processed by a group of people, who are jointly liable for the credit. That is, if any member of the group fails to return their part, the rest have to return it for them. Groups are usually made up of members of the same community, with a notable degree of knowledge between them, where each group is responsible for the selection of its members. The Solidarity Groups methodology was created by the Grameen Bank in Bangladesh in 1976 and spread throughout Asia - due to the evidence of its effectiveness in one of the poorest and most densely populated countries in the world - and also throughout Latin America - from the hand of ACCIÓN Internacional, which replicated and adapted the Grameen model.
The Solidarity Groups methodology has three fundamental purposes:
- To be able to meet the demand for credit by people with limited resources, To achieve financial self-sufficiency of the institutions that develop the programs, and To be able to serve a large number of people.
Its main advantages are that it makes it easier for the delinquency rate to be low and that it lowers the costs of credit management, as well as other indirect costs, since it promotes the associative mentality, which is very positive for subsequent actions, such as carrying out activities in common. Associationism allows obtaining very positive results in other areas, such as the achievement of greater political pressure before the authorities or the common purchase of raw materials at a lower price. In the case of the Grameen Bank in Bangladesh, a real social revolution took place, as women - who represent 98% of clients - gained a high degree of empowerment that they absolutely lacked when treated as third-class citizens.The success of this methodology in the fight against poverty –especially in Bangladesh- also implies a social dimension and favors the political emancipation of the poor.19. In other countries, group tensions have been stronger and have impeded the success of other programs.
The granting of credits works in the following way: the group decides how much each of its members needs to borrow; then the institution approves the total amount requested by the group and makes the loan to the group, whose members are jointly and severally liable for it. Logically, if any of the group members have difficulty repaying the loan, the others pressure them to repay it. If in traditional banking real (pledge) guarantees are requested as a sign of distrust in the face of a loan application, here the guarantee is group pressure. Until the group returns all the credit, no more credits are granted, hence the pressure from the group. Once the loan is repaid, the group is in a position to request another.Procedures are usually very simple and the institution's mode of operation is usually highly decentralized, in order to ensure agility and speed in managing loans. The amounts borrowed in this type of loan are usually small and the repayment periods short. One drawback of this methodology is that it can generate tensions in the groups, since if one member does not pay, the remaining four will be harmed and will put pressure on the defaulter, sometimes more or less violently. Hence, the GB itself has made this methodology more flexible, as will be seen later.One drawback of this methodology is that it can generate tensions in the groups, since if one member does not pay, the remaining four will be harmed and will put pressure on the defaulter, sometimes more or less violently. Hence, the GB itself has made this methodology more flexible, as will be seen later.One drawback of this methodology is that it can generate tensions in the groups, since if one member does not pay, the remaining four will be harmed and will put pressure on the defaulter, sometimes more or less violently. Hence, the GB itself has made this methodology more flexible, as will be seen later.
5.3. Community Banks
The Community Banks methodology is made up of credit and savings associations managed by the community itself. Self-management is an important characteristic that differentiates it from Solidarity Groups, which are managed by the governing bodies of an organization such as
- This was demonstrated in the general elections in Bangladesh on June 12, 1996. The participation rate in those elections reached 73% and, in most regions, women voted more than men, a fact unprecedented in the history of that country.. In the past, women had been completely excluded from society and religious conservatives, paternalists, and fundamentalists threatened them with all kinds of punishments if they opposed the rules dictated by themselves. Escaping the power of the moneylenders, stopping begging on the streets and borrowing at Grameen requires a lot of will, discipline and courage. The same courage as to go to vote. This meant for them a new demand for freedom and justice. More than voting for a candidate or party, they voted for a decent income,a house with sanitary facilities and drinking water. Source: YUNNUS, M. Towards a world without poverty, cit. It could be the Grameen Bank. The main reasons why a village bank is created are:
- Improve their members' access to financial services, Encourage savings among their members, Form a self-help group in the community
Most of the institutions that have promoted the implementation of Community Banks have been based on the model designed by John Hatch, founder of FINCA Internacional, and which is included in his book “The village bank manual” (1989). This type of program was initially designed to be carried out in rural areas and mainly with women, who are the main clients of microcredits 20. However, the methodology of the Community Banks has been adapted by various organizations, seeking the best adaptation to the circumstances of each place, hence variants to the initial methodology have arisen.
It has been mentioned earlier that one of the reasons for creating a Village Bank is to create a self-help group. Self-Help Groups are the main microfinance model used in India, whose methodology and organization closely resemble that of Village Banks. They currently have more than six million clients, of which 90% are women. The number of GAAs in the South Asian country is estimated to be 400,000. This interesting model combines the strengths of ROSCAs together with the support of formal financial institutions.
SHGs are similar to ROSCAs in that they are based on member savings. Instead, they are different in several aspects: only the poor can be members, they are much smaller (10 to 20 members) and they receive loans from banks to supplement their resources. This link with other institutions is essential. In India, the success of this model is due to the support they have obtained the GAA by the program and the National Agricultural Bank for Rural Development (NABARD) 21. Finally, it should be mentioned that the SHGs have begun to federate among themselves, in order to achieve financial viability and self-sustainability. The results obtained demonstrate that SHG federations create economies of scale, reduce transaction costs, enable the provision of high value-added services, and increase the empowerment of the poor. The growth of the NABARD program has been spectacular in the last 7 years, as shown in attached Table 6 22.
Table 6: Evolution of SHGs in India. NABARD program
| Year | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 |
| No. of Clients | 146,166 | 243,389 | 560,915 | 1,608,965 | 3,992,331 | 7,837,000 | 10,760,400 |
| No. of clients very
poor |
58,613 | 97,599 | 224,927 | 645,195 | 1,600,925 | 3,130,000 | 8,608,300 |
Source: Microcredit Summit Campaign
The Community Banks methodology brings new light to microcredit and for this reason the first program that used it in Costa Rica will be analyzed –with the help of FINCA CR- and a very similar model in Venezuela.
Source: DALEY-HARRIS, SAM. State of the Microcredit Summit Campaign. Report 2003.
Thus, 2005 has been considered by the United Nations General Assembly as the International Year of Microcredit. July 23, 2003. Source: UNITED NATIONS CAPITAL DEVELOPMENT FUND (UNCDF).
The Campaign defines “the poorest” as those in the bottom half of the group of people living below the poverty line in their countries. The difficulty lies in the use of effective tools for measuring poverty currently in use. It is estimated that currently 1,200 million families live on less than US $ 1 per day (extreme poverty); of these, "the poorest" according to the definition of the top (lower half below the poverty line) are 240 million people. Source: DALEY-HARRIS, SAM. State of the Campaign… Op.cit.
The Action Plan asks for the following data: 1) total number of active clients (clients who currently have a loan); 2) total number of active clients who were among the poorest when they received their first loan; 3) the poverty measurement tool used, if any was used, to determine the number of poorest clients; 4) the percentage of poorer female clients; 5) average amount of the first loan; 6) total number of active savers; 7) average amount of savings per saver; 8) percentage of poorest clients who have crossed the poverty line; 9) the impact measurement tool used to determine the number of clients who were very poor when they took their first loan and who have already crossed the poverty line;10) the financial or business development services offered, if any; and 11) percentage of financial self-sufficiency that the institution has achieved. Source: DALEY-HARRIS, SAM. Campaign status… Op.cit
Source: The virtual MF Market (UNCTAD). Consulted 10/20/2003.
Source: THE CONSULTATIVE GROUP TO ASSIST THE POOR (CGAP). Accessed 06/12/2004.
Source: THE MICROFINANCE BULLETIN. Consulted 14/10/2004.
Source: CODESPA Studies, Financial and Business Services for Microenterprises, Madrid. 2002.
The Grameen Bank, in addition to serving the poorest (those who survive on less than $ 1 a day) –contrary to the current trend in the sector, which focuses on the least poor-, has recently promoted access to on credit by indigent members, who enjoy special conditions and the support of the bank, which offers “joint venture capital” to partner with these people in their small businesses. Source: DALEY-HARRIS. Campaign status… Op.cit.
The program identifies the most vulnerable families and subsidizes them with food linked to training courses (such as caring for chickens) and the commitment of a small monthly family savings. When families complete the program, they are qualified to access the services provided by the BRAC Rural Development Program (such as microcredit, health care, and legal advice). The first IGVGD program, lasting 2 years, started in 1985 and had 750 families. At the end of this first experience, 80% of them used microcredit and other related services. Due to the success of this initiative, the Government of Bangladesh, WFP and BRAC expanded the program, reaching in 2000 the figure of 1.2 million people who had it.
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