Dr. Stanley Kabala Duquesne University Click here to begin.

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This unit is divided into several sections. Start with the Learning Objectives, OR click on the link below to navigate to the component where you left off. Revisit as needed. Section 1: Learning Objectives Section 2: Microfinance Section 3: Activity Project Portfolio Information

LEARNING OBJECTIVES

At the conclusion of this unit, students will be able to: understand the social, economic, and institutional circumstances that make it difficult or impossible for poor people to use conventional banks and lending services recognize the extent to which this difficulty continues and exacerbates existing conditions of poverty and underemployment

At the conclusion of this unit, students will be able to: grasp the practical meaning of the response to this circumstance that is known as micro-credit, or microfinance, or micro-lending use microcredit to make available to poor people small amounts of capital that enable them to start or expand small businesses explore the services available from international NGOs engaged in micro- lending

MICROFINANCE

We have noted at several points in our course that the one resource available to poor people is their labor. That said, we must be cognizant of the fact that labor alone is not necessarily sufficient to make project for water supplyor any other endpossible. If the additional tools or special equipment even simple design and of low-costis required, money might be necessary to obtain them. Lack of money, of even a very small amount of money, very often is the obstacle to many clearly worthwhile projects in poor areas. And it is a sad fact of life in poor countries that even small sums of money are just not available. A response to this problem that has taken shape in recent decades is known as microcredit.

Access to credit is central to start-up enterprises of any size, but two structural obstacles make credit hard to get for very small enterprises. First, regular banks are not interested in loans that fall below a certain minimum value, because, simply put, small loans just dont make enough money for the time and effort involved, especially when the same amount of time and effort could go to large loans that yield larger returns. In a word, microfinance is relatively costly for the lender. It yields relatively little return on investment due to the time involved in providing very small amounts of money. Second, credit from informal non-bank commercial and non-commercial lenders carries with it very high interest rates. (About Microfinance There are exceptions, perhaps the most famous one being the Grameen Bank of Bangladesh, which was formed expressly to provide small business loans to village women.Grameen Bank of Bangladesh

To summarize, then, the sums of money are small for several reasons: 1.the extremely poor are simply unable to pay back to engage in enterprises that generate large profits; 2.nor are they able to effectively use large amounts of money, and; 3.because those being served are too poor or their projects are too small to be of interest to regular banks.

The non-conventional response to this deficiency is micro-credit. The international non-governmental organization Kiva explains that microcredit, or microfinance, is the supply of loans, savings, and other basic financial services to the poor. These financial activities typically involve quite small amounts of money, and the provider is not a formal bank, but rather a domestic in-country NGO or an international NGO operating in-country. For more information, refer to CGAP: Consultative Group to Assist the Poor

The microfinance program of Catholic Relief Services, initiated in 1988, aims to serve the very poor, especially women, specifically in remote rural communities. The program focuses on assisting the self-employed poor who have very limited or no formal credit or savings services available to them. Research shows that women in particular are more likely to use loan funds and profits to benefit their families. Profits are often re-invested in their small businesses, and profits used to buy more and better quality food, improving family housing, affording health care, and paying children's school fees. Learn more at Perhaps the most remarkable aspect of micro-credit is the amazingly small sums that constitute loansas little as USD30 – USD100. On this, see

Another form of microfinance is grants. The international NGO Trickle Up Foundation points out that while microcredit can be an excellent tool for those who have enough stability and skills to manage and pay back small loans, the ultra-poor cannot even take this risk because their incomes are too low and volatile due to irregular and infrequent wage labor, health emergencies, and other challenges that they often face. Additionally, most people living in extreme levels of poverty would not qualify for microloans. As a result, Trickle Up targets the extreme poor, those living on less than $1.25 a day, through by providing small seed capital grants of $100 - $250 instead of microloans. Understanding Poverty, Trickle Up Foundation

A key characteristic that especially sets microfinance programs apart from any form of conventional lending is that of mentoring. Micro-loans come with technical support from peers with experience: borrowers receive guidance from others who have engaged in projects or enterprises similar their own. This has two important functions. It greatly increases the chance of success of the new enterprise and, not at all coincidentally but very much as a direct result, it greatly improves the odds of loan repayment.

It should be noted that water supply is different from entrepreneurship for a number of reasons. In the first place, water supply projects are likely to be communal ventures, whereas small profit-making enterprises are individual endeavors. Second, they are very likely to not be profit-making ventures. Finally, water supply projects are likely to have some degree of municipal government involvement. For a comprehensive examination of how microfinance can serve the needs of the poor for water and sanitation, the details of microfinancing for water supply, what can be done by outside and international donors, refer to WaterCredit.

A global overview of how affordable water might be financed in poor countries is presented by the Global Water Partnership and World Water Council in Financing Water for All While the information it provides is of necessity general, offers the opportunity to assess the degree to which its general descriptions of financing options might be of use in the social and economic context of your region.

For a current consideration of the status and role of microcredit, with particular reference to the participation of women, see the article The Future Of Microfinance: Q&A With Women's World Banking CEO Mary Ellen Iskenderian, Forbes, June 16, with-womens-world-banking-ceo-mary-ellen-iskenderian/ with-womens-world-banking-ceo-mary-ellen-iskenderian/ Do bear in mind as you read it that it was published in what is essentially a conservative U.S. business magazine. To learn more about this impressive organization, see the website of Womens World Banking at

ACTIVITY

Survey the field of microfinance by visiting the websites of some of the organizations noted above. Compare their aims, which do vary; their services, which likewise vary; and their modes of relating to those to whom they make credit available. Match those characteristics with needs and resources in your community, with the aim of selecting the source of microcredit that best fits circumstances in your community. Build that into your project portfolio. project portfolio