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

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 womens 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 womens 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 microcredits 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 2

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

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

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.

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?

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 ones 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 worlds 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 7

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

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 1990s (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, 9

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 organisations

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 10

The borrowers 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 microcredits 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

Borrowers 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 others 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 selfsustaining 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 Womens 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 womens work by the community and the household. Social ignorance and economic indifference lead to inequity in womens 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 womens inequitable situation. A consequence of underestimated rural womens 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 womens 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 16

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 womens 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 womens 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 womens empowerment 17

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 womens 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 womens small savings on the national economy is not categorically established. Womens 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 womens economic contribution. Womens 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 womens 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 microcredit, 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 yearend 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 Banks operations) Domestic Violence: Women who take out micro-loans around the world experience a decrease in domestic violence (Womens 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 womens 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 22

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 societys 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 husbands 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 meetings participation, the extent and evenness of savings rates, the average savings, and the repayment 23

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 Banks 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 Womens 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 womens 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 Adivasis 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 womens 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. 27

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 womens 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 tools objectives. Subsistence agriculture, which shaped the Adivasis 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 Adivasis 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. 28

This programme is considered a contribution to combat the international economic crisis that has complicated the access to many credits which are necessary for selfemployment (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) 29

The following scheme illustrates the microcredit system concerning the capital and interest flow. The investors 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 Banks 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 womens 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

Raise consumption, Increase savings

Increase employment

Lower discount rate

Decrease fertility

Increase collective action

Primary aims Secondary aims

Figure 9. Economic and Social effects of Micro credits

The rural womens 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).

33

The methods to measure the microcredits 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.

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 clients business can be offered.

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.

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.

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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.

Transparency in Pricing: As MFIs transform into for-profit organizations, their developmental objectives sometimes lose priority in favour of their revenuegeneration 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).

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 poors 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 High interest rates for microcredit 36 poor governance

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 societys 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: Germanys 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

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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 MFIs 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.

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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.

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WORKS CITED

Czycholl, Harald: Mikrokredite - Wie sich Privatanleger beteiligen knnen. 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 fr das Caf Knguru. 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-sempowerment-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

Stterlin, Sabine: Mein Wort zhlt Mikrokredite: Kleines Kapital groe Wirkung. 1. Auflage 2007.

Sharma, Dr Sudhirender: Micro-credit improves cash-flow but doesnt create wealth. <http://infochangeindia.org/200510026116/Micro-credit/Backgrounder/-Micro-creditimproves-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

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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 womens 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-AlleviatingPoverty/2009-03-08/Cover-Story/Story-Detail/MICROFINANCEA-Tool-for-Alleviating-Poverty.html > 25/05/10

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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