Microfinance in Africa: Is it either the problem or the solution?

Poor people, especially poor women, commonly have limited access to financial services. So donors and governments have invested substantially in developing financial services for them. Most of these efforts have been large-scale, formal regulated programs that have emphasized providing subsidized credit to poor farmers. Experience has shown that they have largely failed. The main underlying premise of these programs was that market interest rates were too high and made credit inaccessible to the poor. This paper reviews experience with financial services programs for the poor, especially poor women -- who face more severe (and sometimes different) obstacles to such services than men. It provides background on the types of lending programs designed to reach poor people and it discusses poor people's use of and access to savings facilities and credit. The dismal experience with traditional, subsidized credit programs is analyzed and alternative approaches to expanding financial services to the poor are described. Finally, the report identifies the main characteristics of successful, informal and quasiformal credit and savings programs and presents conclusions.

http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2000/01/06/000178830_98101903544419/Rendered/PDF/multi_page.pdf

Developing financial institutions for the poor and reducing barriers to access for women

Five assumptions about microcredit are put forth in this chapter as seriously flawed. The author argues that credit is not the main financial service needed by the poor; credit does not translate into successful microenterprises; the poor do not all wish to be selfemployed; targeting those above the poverty line is not mis-targeting; and not all MFIs can be self-sustaining. If we are to consider economic growth, then microcredit by itself is insufficient. It must become part of livelihood finance. Livelihood finance is a framework that includes financial services (savings, short- and long-term credit, several types of insurance, infrastructure finance, human capital development), agriculture and business development services and institutional development. I was at the 1997 Microcredit Summit. The presence of many luminaries at the summit was an indication of the support it garnered. For example, from the speech of Hillary Clinton, it was obvious that she was sincerely involved in the field and had visited many microcredit institutions in developing countries. However, for many of the others, it was jumping on the bandwagon, and few raised any issues about the limitations of microcredit. After attending the Microcredit Summit in 1997, I had written a critical article titled Is Microcredit the Answer to Poverty Eradication?. My answer was a qualified no, but the article was largely ignored. Since then, microcredit has become a global fad, to the point where all kinds of claims are being made in its name, as if it is the latest magic potion to resolve the problems of poverty in the world. In response, a range of others, from the Wall Street Journal to academic researchers like Jonathan Morduch have taken it upon themselves to question these claims and show that the impact of microcredit on the target households is exaggerated. I want to explore the connection between microcredit and economic growth. I do this from the point of view of someone who has given 20 years of his life to this work, so I should not be seen as an outsider. But before I deal with microcredit and economic growth, let me repeat what I had said in my 1997 article on the limitations of microcredit even as a strategy for poverty eradication.

From microcredit to livelihood finance

This book provides a wide review of experience of donor agencies in designing and implementing business development services for small and medium enterprises (SME). The papers, from the International Conference on Business Development Services, presented in this book assess the performance of the development services operating within the various developing countries.They explore new and innovative approaches to achieving sustainable BDS services and ways of achieving greater cost-effectiveness in their delivery.

Business development services : a review of international experience

Microfinance programs were established in the Netherlands East Indies as a strategy
to alleviate poverty in pre-dominantly Moslem rural communities. When Indonesia
won its independence, these government-subsidized microfinance programs based
on the payment of interest were continued until 1983, when the Indonesian
government deregulated the banking system. Subsequently, microfinance programs
were developed on a commercial basis to become one of the largest microfinance
sectors in the world, but one that has not been focused on poverty alleviation.
This research has examined issues of sustainability of microfinance
institutions, poverty alleviation, sociocultural and religious values in three local
communities in West Java. It contends that sociocultural and religious factors
influence human behavior as well as the agency of borrowers and the microfinance
institutions. With respect to Sundanese cultural and Islamic values, the borrowers
and microfinance institutions, guided by their own interests, accommodate
complimentary and contradictory elements. In this accommodation, bank officials
play a critical role as arbiters and mediators. Local religious leaders, supporting the
economic interests of their community, have sanctioned the payment of interest on
microloans.

https://vuir.vu.edu.au/22309/1/Iwan%20R%20Prawiranata.pdf

Sustainable microfinance in Indonesia : a sociocultural approach

A number of retrospective reviews have derived important lessons from the experience of a wide range of enterprise development organizations. Most concentrated, however, on the experiences of the agency commissioning the particular study, rather than examining what kind of enterprise development strategies organizations should adopt in different situations. In this paper the authors assert that the strategy for enterprise development is contingent upon certain variables which they proceed to define. They then describe the critical tasks which must be addressed to match the requirements of each type of situation, and examine the capabilities an organization must have to address these tasks.

A contingency approach to small business and microenterprise development

When small enterprise practitioners 'help out' their client businesses by supplying their own labour and project resources free of charge, are they in reality compromising the self-help principle? In a thought-provoking article, the author points to ways in which small enterprise practitioners gloss over the hidden flaws in their projects, and delude themselves about the long-term impact of their work. He forecasts a bleak outlook for the small enterprise development field unless advisers can learn from real businesses. We would welcome comments and responses to the questions raised in this article.

Thomas W. Dichter

Papers

A contingency approach to small business and microenterprise development

Compromise and cheating in small enterprise development