Declaration and Plan of Action
Poverty and the Struggle to Overcome It
Foreign Aid, Public Welfare Programs, and the Poorest
The Effort of the Poorest People to Help Themselves
Invisibility of the Poor in the Formal Financial Marketplace
Microcredit: Empowering Poor People to End their Own Poverty
Characteristics of Successful Microcredit Programs for the Poorest
Beyond Microcredit: Other Financial and Business Services
Meeting the Financial Needs of the Movement
Microcredit and the Commercial Financial Markets
Building Institutional Capacity in the Developing World
The Social Entrepreneur and CEO
A Dramatic Expansion of Leaders and Staff
Methodological Development and Innovation
Improved Performance and Development of Performance Measures
Organizational Capacity-Building
Mobilization of Additional Financial Resources
Fulfillment of the Summit's Goal
The Microcredit Summit Councils
The Role of the Secretariat and the Campaign Committee
Appendix: Calculation of Funds Needed to Achieve Summit's Goal
The Microcredit1 Summit is but one part of a much larger effort to end poverty. To be successful, the overall movement to end poverty will require the implementation of a broad range of strategies. Building institutions capable of providing microfinance services, specifically credit for self-employment and savings capabilities, to 100 million of the world's poorest families, especially the women of those families, is just one of these strategies.
We choose this focus because experience has shown that the poorest people, especially women, are most likely to be left out of any poverty eradication program. Women's access to financial services is often made even more difficult by gender discrimination, despite the fact that women have shown themselves to be very adept at saving, highly creative entrepreneurs, and consistent in ensuring that earnings go directly to meeting family needs.
The Microcredit Summit Organizing Committee has adopted the definitions of "poor" and "poorest" determined by the Policy Advisory Group (PAG) of the Consultative Group to Assist the Poorest (CGAP).2 The PAG defines the poor as those people living below the poverty line established by each country, and the poorest as those people in the bottom fifty percent of that group.
In order to reach the Summit's goal in the developing nations of the world, our focus is on reaching the poorest populations, as defined above. In industrialized countries, we must focus on those programs which are primarily serving families who were living below the poverty line established by that country when they took their first loan.
The Summit takes its inspiration from the global summits and conferences of this decade, at which governments and NGOs have come together to address the most pressing issues facing the human family. The Microcredit Summit embraces the vision of a just and sustainable world, as expressed in the documents of the Earth Summit, the World Summit for Children, the Cairo Conference on Population, the Social Summit in Copenhagen, and the Women's Conference in Beijing.
Using methodologies that promote responsibility, self-esteem, and financial self-sufficiency, and that demonstrate the capacity of communities to solve their own problems, microcredit is an important tool for sustainable social and economic progress, and a key strategy in achieving many of the goals agreed to at the major global gatherings of this decade.
The Microcredit Summit recognizes the entire movement working to eradicate poverty and create a sustainable future. We invite those committed to reaching 100 million of the world's poorest families, especially the women of those families, with credit for self-employment and other financial and business services, to unite behind this important step in the work to end poverty.
Stories of microcredit borrowers and their entrepreneurial efforts are stories of courage, human dignity and economic promise. They demonstrate the vast depth of the human spirit and the possibility of triumph over the cruelties of poverty-a victory that people who are very poor achieve for themselves when offered access to basic resources and services.
Nurjahan is a borrower of the Grameen Bank in Bangladesh. Her name means "the light of the world." Abandoned by her parents at three months of age and raised by a neighbor, Nurjahan was married at twelve-only to be abandoned by her husband a year later, while three months pregnant. She then returned to the family who had raised her, cooking for them while raising her son.
Before joining the bank, Nurjahan had never earned more than US$ 37.50 in a year and owned no land. By 1995, after five years as a borrower, her annual income was US$ 250 (just above the national average) and she owned two goats, one pregnant cow, ten hens, and two-thirds of an acre of land. The land cost US$ 1,000, more than four times the average annual income. Seasonally, she employs two farmhands to assist with her rice crop. In a country where only 46 percent of the children reach grade five, Nurjahan's son is now in eighth grade.
Nejira is a Bosnian refugee from a small village near Srebrenica. Like most women from this region she lost her husband and her home. She lived with her two children in a refugee center near Tuzla on humanitarian aid. She had nothing to do except to think about the past and cry. Under the Local Initiatives Pilot Project initiated by the World Bank, a Bosnian NGO proposed small loans for income-generating activities. Nejira hesitated for some time. She had never handled money; that had been the responsibility of her husband. Finally she decided to borrow DM 500 (US$ 330) to buy a goat. She knew how to raise the farm animals and she could sell the milk. Since then, she and her children feel some hope that life can begin anew.
Mary Akoth lives in Ahero Town in one of the poorest parts of rural western Kenya. She is 38 years old and is responsible for her five children, between 5 and 22 years of age, and her one grandchild. Mary became destitute in 1979 when her husband left her and her family refused to help her. She and her children were forced to move to Ahero Town and she was reduced to the most degrading means of earning money in order to pay the rent and buy food. Her life was a constant struggle.
In 1992, Mary attended AFRICA NOW training as part of Nyando Women's Group and a year later she received a loan of Ksh 200 (US$ 4) from AFRICA NOW. She started trading in chapatis and tea on the roadside. Soon she began to make a profit of Ksh 40 each day. After six months she added rice and beans to her product range and she increased her client base considerably. She was then able to request a plot of land from the local county council and constructed a temporary kiosk. She also hired a young man to help her with her growing business, and by 1995 Mary was able to hire two more people.
Today, Mary makes a profit of US$ 8 per day (twice the size of her original loan). She uses the money to pay rent, provide good food for her family, and pay school fees for her two school-age children. She employs three people and plans to expand her business further. She says she is no longer embarrassed and does not feel isolated and helpless as she did before. She says she now looks forward to a future for herself and her children that she never dreamt possible. She says she has regained her dignity.
Judy struggled for years to raise her children while living on public assistance in Chicago, Illinois. A woman of quiet dignity who has known great sorrow, including the death of a child, she was anxious to build a better life for herself and her children.
To supplement her meager benefits, she began selling shoes door to door. Yet despite her ambition and natural ability to sell, Judy remained dependent on welfare and the protection afforded her and her children by Medicaid health insurance. A minimum wage sales job with no health benefits was not the future she was looking for, yet she wanted to work.
Judy's caseworker referred her to the Women's Self-Employment Project (WSEP). Founded to increase the incomes and self-sufficiency of low- and moderate-income women in Chicago who are interested in self-employment, WSEP is one of many organizations helping women create their own jobs in some of the poorest communities in the United States. Judy's first loan was for US$ 600. After two-and-a-half years establishing a consistent customer base and using progressively larger loans, she has opened her own shoe store.
Today, Judy operates her own retail business. Her youngest son, who frequently accompanied his mother to her borrowers' meetings, is familiar with almost every aspect of his mother's retail operation and intends to become a businessman himself some day.
The
time has come
to recognize microcredit
as a powerful tool
in the struggle to end
poverty and economic dependence.
We have assembled
to launch a global movement
to reach 100 million
of the world's poorest families,
especially the women of those families,
with credit for self-employment
and other financial and business services,
by the year 2005.
"Despite all our technological breakthroughs, we still live in a world where a fifth of the developing world's population goes hungry every night, a quarter lack access to even a basic necessity like safe drinking water, and a third lives in a state of abject despair -- at such a margin of human existence that words simply fail to describe it."
UNDP Human Development Report, 1994
The global economy today can be encapsulated in one stark contrast: the increasing disparity between the rich and the poor. On the one hand, the affluent in both developed and developing countries enjoy lifestyles characterized by a host of energy- and resource-consuming comforts and privileges. On the other hand, the world's poorest people live in severe deprivation, characterized by malnutrition, vulnerability to infectious disease, lack of education to enhance upward mobility, lack of shelter, and lack of access to resources that would allow them to work their way out of poverty.
In spite of steady increases in the global standard of living since World War II, the World Health Organization reports that in 1995 more than one billion people, or one-fifth of the world's population, lived in extreme poverty, and that this poverty is now the leading cause of death.
Extreme poverty is an economic condition in which household income is not sufficient to supply the minimum nutrition needed for growth and long-term survival. The poor are chronically malnourished, especially the children. They easily fall victim to illnesses that, for most people, are not usually fatal. Every day, 35,000 children die before their fifth birthday as a result of chronic malnutrition and hunger-related diseases. The lives of nearly thirteen million children would be spared every year if poverty were eradicated.
The majority of the poor live in developing countries. India and China together account for nearly one-third of the world's poorest twenty percent. At the same time, poverty and hunger are found within the borders of the wealthiest nations as well. While income maintenance programs have helped alleviate some forms of poverty in wealthy nations, they have done little to alter the social and psychological consequences of powerlessness and dependency that make poverty nearly as debilitating in London or rural Alabama as it is in Khartoum or Manila.
Courage and Redemption in the Face of Poverty
(El Salvador, 1992)
Francisca Rojas was orphaned at the age of nine and lived by herself in a ditch beside the road until a woman found her, took her home, and put her to work washing and ironing. Francisca ran away when she was seventeen and had her first child when she was eighteen.
"I went to my first [bank] meeting and was afraid I could not [take and repay a loan]," said Francisca, a borrower of a FINCA village banking program in El Salvador. "But the field worker who was there believed I could do it, and I was so desperate that I tried it."
With her first loan [in 1991], Francisca bought spices, noodles, and little ceramic pieces that she sold at the market on a tray. After three loans of US$ 50 each, she had saved US$ 45. "I never saved before," Francisca continued. "I used to earn US$ 17.50 a week. Now I earn from US$ 35 to US$ 53 each week. I can spend almost twice as much for food, live in a much nicer home, buy medicines, and save money. I feel safer now. I sleep calmly at night because I am not so worried about how to pay back a money-lender. I don't have to prostrate myself to anyone. I have confidence. When you have been as poor as I have been, there is a lot of shame. Even when I was a child, people wouldn't look at me. I guess they were afraid I would ask them for something. I never had any friends. Now each week I come to our bank meeting. They are glad to see me. Now I have friends. This is the most important thing," she concluded.
In both developing and industrialized countries, poverty has a predominantly female face. The United Nations Development Fund for Women (UNIFEM) finds that women earn only 10 percent of the world's income, and own less than 10 percent of the world's property. Of the more than one billion adults who have no access to basic education, more than 60 percent are women. Of the 1.3 billion absolute poor today -- people living on less than US$ 1 a day -- over 900 million are women. Further, the poverty of women generally results in higher birth rates, and the physical and social underdevelopment of their children. Thus malnutrition, infectious disease, and lack of education rob hundreds of millions of the opportunity to fulfill their human potential -- and the world is denied the vast social and economic contributions of their lives.
In recent years, serious rethinking of aid policy and practice has taken place within donor agencies. Among the most important changes in perspective has been the assessment that aid programs have often failed to reach the poorest twenty percent of the people of the world.
"[L]ess than 10% of all international aid for development is devoted to directly meeting these most obvious of human needs. . . . And as total bilateral aid from the Western industrialized nations is approximately US$ 40 billion a year, this means the amount given for nutrition, primary health care, water and sanitation, primary education, and family planning comes to about US$ 4 billion a year. This is less than half as much as the aid-giving nations spend each year on sports shoes."
UNICEF, The State of the World's Children, 1993
Conscientious attempts are now being made to target assistance to the poorest, and to channel resources through non-governmental organizations. Within wealthier nations, public assistance programs for poor people have failed in many cases because they provide few pathways out of dependency. Rather than focusing on creating the conditions for employment, the programs provide for minimal physical survival and penalize initiative. Self-employment options are often blocked by regulatory barriers and the unavailability of capital and loans for start-up investments. In recent years, often at the behest of non-governmental organizations, public welfare agencies have begun to allow experiments and demonstration projects, waiving asset and income limitations for some low-income entrepreneurs and allowing them to participate in microcredit programs.
There is growing awareness that very poor people are ready and willing to pull themselves out of poverty if given access to basic economic inputs in an enabling environment. This insight has led to growing support for microcredit programs that serve the poorest people in urban neighborhoods and in rural areas.
"The microenterprise initiative will maintain a particular concern for very poor entrepreneurs, especially women, who may be more difficult to reach, but who depend for survival on microenterprises."
Charter of the USAID Microenterprise Initiative, June 22, 1994
"While poverty eradication is the integrating theme for everything we do, we believe that rural credit is the most important single weapon to overcome poverty."
Fawzi Al-Sultan, President, IFAD, on the occasion of the launch of CGAP, 1995
"I share with you a deep enthusiasm for what this remarkable tool [microcredit] can be in the future of poverty eradication."
James Gustave Speth, Administrator, United Nations Development Program, October 2, 1995
"[M]icrocredit programs have brought the vibrancy of the market economy to the poorest villages and people of the world. This business approach to the alleviation of poverty has allowed millions of individuals to work their way out of poverty with dignity."
James D. Wolfensohn, President, World Bank, July 11, 1996
What must be recognized as the cornerstone of any global anti-poverty strategy is the irrepressible desire and innate capacity of people to improve their situation and to succeed, for themselves and especially for their children. The majority of the poor who cannot find wage work combat poverty by eking out a living using whatever means they have. A woman selling oranges on the streets of La Paz or a man hammering out pots from used metal in Bombay are examples of how millions and millions survive, creating work and income for themselves and their families where there are no jobs. The self-employed comprise between 50 and 60 percent of the labor force in many developing countries.
For the most part, the drive of very poor people to help themselves through self-employment is ignored by the formal financial sector. Because the very poor have not traditionally been recognized as creditworthy or able to save, and because, using traditional commercial banking methods, the cost of making a larger loan of US$ 10,000 or US$ 100,000 is virtually the same as the cost of making a loan of US$ 100, poor people are not perceived as a profitable market for credit. As a result, very poor people are forced to turn to traditional moneylenders -- who may charge rates as high as 10 percent a day. Paying these exorbitant rates, the poor remain poor -- passing this burden, and often the debt, on to future generations.
Focusing on the one billion people that comprise the poorest 20 percent of the population, the United Nations Development Program finds that they account for only 1.4 percent of the world's Gross National Product and only 0.2 percent of commercial lending (see figure).
Despite the fact that women's labor makes a critical contribution to developing countries' economies, women's access to key resources is particularly limited. In African countries, for example, women account for more than 60 percent of the agricultural labor force, and contribute up to 80 percent of the total food production, yet they receive less than 10 percent of the credit provided to small farmers.3
In industrialized countries, credit and other support services for self-employment activities remain scarce, and funds that could sustain institutions that lend to very poor people are even scarcer. Yet microbusinesses comprise a vibrant and viable economy that is largely unnoticed by policy makers and the private sector. For example, microbusinesses in the U.S. are plentiful, comprising an "invisible economy" that goes largely unnoticed in economic development debates. Recent research, however, reveals that microbusinesses with one to four employees generated 43 percent of the net new jobs created from 1990 to 1994.4 While not all microentrepreneurs in the U.S. are poor, many are. In France, 92 percent of the 2.3 million existing enterprises have less than ten employees, and 50 percent of these employ only the owner-operator. In 1994, approximately 40 percent of the enterprises created in France were created by unemployed people.
According to the Organization for Economic Cooperation and Development (OECD), the long-term trend of declining self-employment in industrialized countries was reversed in the 1980s. Currently, self-employment is increasing at a faster rate than total employment.
In formerly socialist and communist countries undergoing privatization (often referred to as transitional economies), the situation for the poor, especially poor women, is rapidly deteriorating. Women face discrimination, and are increasingly shut out -- both from politics and from formal channels to business ownership. In transitional economies, banks do not lend to private individuals, much less to the poor. This presents a tremendous hurdle for individuals for whom self-employment is the only work option open to them.
Self-employment is particularly important in the post-socialist countries as a way of privatizing the economy. Massive unemployment, underemployment, and dwindling state budgets mean that huge numbers of citizens are idle, unpaid by their former state employers, and unable to access credit to start a business. While it is critical that the poor and unemployed are given a chance to participate in these newly opened economies through starting microenterprises, the barriers are great: regulatory constraints, exorbitant interest rates, prohibitive taxation and lending policies, and the slow velocity of currency are all factors that must be addressed by new microcredit programs.
Microcredit programs extend small loans to poor people for self-employment projects that generate income, allowing them to care for themselves and their families. In most cases, microcredit programs offer a combination of services and resources to their clients in addition to credit for self-employment. These often include savings facilities, training, networking, and peer support. Microcredit is a powerful anti-poverty tool that has demonstrated relevance to people on six continents and in nearly every country. It is estimated that microcredit programs now reach something on the order of eight million very poor people in developing countries.
"In 1975 when the bank was not taking many risks, a vegetable vendor came who was under such economic pressure that she was absolutely desperate. Her husband was an unemployed textile worker, and he would somehow roam about and fill his belly each day, but it was a very difficult situation for her and her children. The bank decided to extend her a loan of Rs. 50 (US$ 1.50), and someone went with her to buy green masalas like coriander, mint, ginger, garlic, and chilies. That day SEWA [the Self-Employed Women's Association] cared for her children, who were sick and hungry. She earned Rs. 6 profit selling the masalas that day, and she took home food that night. She continued building her business day by day, and the next week she repaid Rs. 51. It was hardly any risk for the bank and it literally meant life or death for that woman. After that, we started extending those Rs. 50 loans to many women."
Ela Bhatt, General Secretary, SEWA, India
In industrialized countries, the microenterprise movement is younger but has grown remarkably over the last decade. For example, ten years ago in the U.S. there were less than ten programs; today there are approximately 300 programs that have empowered tens of thousands of people to start and operate their businesses. In Europe, France is the only country that has started a large-scale microcredit program; the Association pour le Droit a l'Initiative Economique was created in 1989. In Belgium, Germany, and the United Kingdom similar programs are being designed. In the Post-Socialist countries of Eastern Europe a few programs have been created, among them the Village Credit Funds project in Albania and the Mikrofund in Poland. Programs throughout the industrialized world have provided a combination of targeted loans, training and technical assistance that enable microentrepreneurs to run a business in these highly regulated and complex economies.
There now exist both a substantial track record of accomplishments and a significant body of scholarly studies that together paint a picture of microcredit as a compelling antipoverty and development strategy. Taken together, these accomplishments communicate the possibility of moving toward a world freed from the blight of poverty within a length of time measured in years, rather than decades or centuries. The value of microcredit and its potential to help most of the world's billion poorest people is reflected in the seven findings that follow, each based on practical experience and evaluative studies.
Microcredit programs representing different models and operating in different cultures have discovered that very poor people achieve strong repayment records. In developing countries, late payment and bad loan ratios are comparable to or below those of conventional banking houses. For example, Amy Glosser's study of Banco Sol revealed that only .04 percent of the loan portfolio was in arrears beyond thirty days, compared with a 4.42 percent figure at other banks.5 In industrialized nations, repayment rates of microcredit programs are often lower than those of conventional banks, but they are consistent with the level of risk embodied in the loans. Risk levels for microentrepreneurs in industrialized nations are often higher because poor people are often engaged in start-up businesses and lack the assets that can provide an equity base for their venture.
The creditworthiness of the poor has been proven irrespective of gender. Although women have often been denied access to credit by legal and traditional barriers, experience has shown that women as a group are consistently better in promptness and reliability of repayment. Focusing on women as clients of microcredit programs has also been a very effective method of ensuring that the benefits of increased income accrue to the general welfare of the family, and particularly the children. At the same time, women themselves benefit from the higher status they achieve when they are able to provide new income.
In the 1994 paper, "Maximizing the Outreach of Microenterprise Finance: The Emerging Lessons of Successful Programs," Christen, Rhyne and Vogel studied eleven leading microenterprise finance institutions. The researchers found that some of the eleven continued to be dependent on grants and subsidized loans, while a few had achieved a state in which they could continue operations on an unsubsidized basis. The overall picture was one of a growing trend toward sustainability that holds great promise for the rapid growth of microcredit programs in developing countries. This study, combined with the well-known record of achievement and expansion of individual programs, proves that microcredit institutions in developing countries have the potential to become profitable institutions, capable of competing for investment funds in the financial marketplace.
"The confirmation that microenterprise credit can be managed to achieve economic viability is an accomplishment of revolutionary proportions. This permits an activity motivated by social impact to break free of the structural paradox of most humanitarian efforts, in which the cost of reaching every additional person brings the program closer to its economic limits. Successful microfinance, on the contrary, becomes more self-sufficient with scale."
Michael Chu, President, ACCION International
Industrialized nations are developing models for organizational sustainability that will further accelerate the rapid growth achieved in the field in the last decade. It must be recognized, however, that the economic context in which microentrepreneurs and microenterprise programs operate in industrialized countries is radically different from most developing nations' economies. In the developing world, where wage employment is scarce, self-employed individuals generally constitute some 40-60 percent of the adult workforce. In industrialized countries, only 8-30 percent of the labor force is self-employed. Usury laws, lower volumes of lending, and greater demands for training and technical assistance from the microentrepreneurs themselves pose unique challenges to program operators, and accordingly preclude the microenterprise field in industrialized countries from reaching the scale of operations found in developing nations. However, programs in industrialized countries are committed to exploring ways of becoming self-sustaining so that, to the greatest extent possible, their operating costs will be covered through direct revenue from program services.
In spite of ethnic and cultural differences, microcredit programs, using different methodologies, have spread rapidly around the world, in many cases implementing innovations and adaptions that are necessary in different contexts. Grameen Trust has funded project start-ups in nineteen countries in Asia, Africa, and Latin America. Opportunity International has developed 52 microlending partners in 26 countries. The village banking movement has now grown to more than 68 programs in 32 countries.6 The ACCION Network now reaches 277,000 clients in thirteen Latin American countries and in the United States. The Women's World Banking Network has forty-five affiliates in thirty-seven countries around the world. The credit union movement in Burkina Faso has created 325 women's associations which in three years have made 26,000 loans averaging US$ 41.48 apiece for a total of US$ 1.11 million. One of Canada's savings and credit cooperative movements, Developpement International Desjardins, has microcredit partners in fourteen developing countries with a total loan portfolio of US$ 161 million.
Microcredit models from developing nations have been replicated in industrialized settings, although adaptions are required to fit the circumstances of developed economies. Replications of program models are also taking place between industrialized and newly democratized states.
Microcredit programs have reached a significant scale. The Grameen Bank of Bangladesh now serves 2.1 million borrowers and the Bangladesh Rural Advancement Committee (BRAC) now serves one million families with credit. FINCA currently has affiliate programs in fourteen countries, reaching 70,000 borrowers.
There is growing evidence to support the intuitive understanding of most practitioners and participants that access to credit is helping poor people end their own poverty. A Catholic Relief Service evaluation reports that 97 percent of the members of two established village banks in Thailand found their income had increased by between US$ 40 and US$ 200 per year. Similarly, interviews with 380 FINCA village bank borrowers in El Salvador revealed that weekly income increases averaged 145 percent.7
An Aspen Institute study of seven U.S. microfinance programs found that 62 percent of poor participants increased their household incomes over a three-year period.8 Of these, 68 percent increased their household income by more than 25 percent. Forty-two percent increased their incomes by more than 75 percent.
In 1995, the World Bank published an extensive study of Grameen Bank by Khandker, Khalily and Khan. The researchers compared wage levels in villages served by the Bank with a control group of villages that lacked a Grameen center. They found a significantly higher wage level in the Bank villages, indicating that economic activity fueled by Grameen credit had tightened the labor market and thereby increased community income. They also noted that Grameen borrowers in 1994 were saving substantially more than they did in 1987.9
One of the important services that many microcredit programs offer their clients -- both borrowers and non-borrowers -- is a safe place to put their savings. Empirical and anecdotal evaluations of many microcredit programs report conclusively that, from the client's perspective, learning to save, and having a safe place to keep those savings, are principal benefits of the program.
There are many advantages to saving, both for the borrower and the microcredit institution. Borrowers correctly see savings as a way to enhance family security. Savings also give borrowers a yardstick for measuring their economic progress, and are often a source of great pride to women who have never had their own working capital. By providing borrowers with a growing stake in their peer lending group, savings accumulation provides an incentive for borrower insistence on efficient and transparent management of funds. In some microcredit systems, savings generated by the members of a peer lending group are re-lent among the group's members, creating a second loan portfolio whose interest income becomes an additional source of income to the borrower. For the microcredit lending institution, savings can provide an important source of additional collateral for meeting the risk of non-repayment, and for increasing the supply of available loan capital. Savings as a percentage of total loan portfolio also provides a convenient measurement of the program's rates of internal capitalization and financial self-sufficiency. However, in order to protect the savings of their clients, programs that accept savings may require more oversight and regulation than those programs that do not.
Microcredit can play an important role in increasing access to basic social services and thereby enhancing the well-being of very poor people. A poor woman who is able to access microcredit can also gain increased access to primary health care, safe water and sanitation for her family, and family planning information and services. She is also more likely to enroll her children, particularly girls, in school. In a UNICEF-supported microcredit program in Vietnam, for example, it was found that 97 percent of the daughters of the borrowers attended school, compared with only 73 percent of non-borrowers. In a program in Egypt, women with working children were given access to credit once their children were enrolled in school.
"Increased income earned by a low-income mother translates into a chain of positive improvements for her family. This chain starts with her capacity to purchase more food. A better diet and improved nutrition stimulate better family health. Improved health results in greater resistance to disease, higher energy, greater capacity for work and learning, and thus enhanced productivity. As family nutrition and health are stabilized, incremental investments in the education of children are almost certain to follow. Close behind education expenditures come investments in home improvements. Finally, these outcomes are paralleled by a near-total transformation of the borrower's self-respect."
John Hatch, founder, FINCA
One common characteristic of many successful microcredit programs for very poor people is the regular meeting of solidarity groups -- on a weekly, biweekly, or monthly basis. These regular meetings not only facilitate regular payment on the loans, but also play a crucial role in forging the solidarity of the borrower group. From a program design standpoint, these regular meetings provide an excellent forum for learning and discussion about issues such as health care and sanitation, family planning, ending marriage dowries, and running a business, among other things.10 According to SEWA founder Ela Bhatt, the SEWA microcredit program "organizes borrowers to bring them together to think through their common problems, agree on common issues, decide common action, and forge common ideologies." Daycare services, schools, playgrounds, clinics, reforestation, potable water, fuel-efficient stoves, electrification, literacy classes, social security systems, and insurance schemes are examples of the many community development projects that have grown out of the leadership skills and solidarity spawned by mature peer-lending groups.
In this way, microcredit programs make significant contributions toward building civil society institutions. There is an important synergy between improving the economic well-being of poor people and fostering institutions that give them a greater opportunity to participate in their society. This is especially true for women, who traditionally have been excluded from participatory roles yet are particularly vital to the functioning of democratic societies.
In countries making the transition to free-market and democratic principles, microcredit can play an important role in ensuring that the shift to privatization and decentralization benefits people other than those in the already powerful or connected elite. In these economies, it is not only the tangible financial and technical assistance that transforms the lives and communities of microentrepreneurs. Microcredit clients learn the importance of adhering to and using legal contracts, methods to hold banks and community institutions accountable to the law, and they become familiar with their own rights as business owners. Local organizations, in order to be eligible to manage credit funds, learn that democratic forms of leadership and transparency of financial and management systems must be demonstrated.
Though approaches to microcredit vary from program to program, many of the programs that have been most successful in achieving the kinds of results discussed above share certain characteristics. These programs, whether village banks or credit unions, demonstrate the participatory qualities characteristic of "people's organizations" as defined by Ela Bhatt, founder of SEWA. In Bhatt's words, "People's organizations exist for the benefit of their poor worker, producer and entrepreneur members and are also managed by them, are democratically operated, and aim toward self-reliance." These microcredit programs provide people with tools to achieve higher levels of economic independence, and they encourage widespread participation in organizational decision-making. In most of the successful cases, traditional forms of security such as collateral are replaced by a system of collective responsibility within a group of peers. Ownership of the financial institutions by the borrowers themselves is another achievable goal in the context of many of the models of microcredit that are currently in operation.
Unity along with Credit
"What has been the greatest impact on your lives?" asked the interviewer of the rural villagers of Tinaias, Colombia. Each member of the group of sixteen women and one man told the same story: "Before, when neighbors passed one another along the road, they wouldn't even speak to each other. And when one person arose to do something for the community we all thought, `He is only doing this for himself.' But when we joined the solidarity groups to obtain credit, FUNDAEC gave us training courses in unity, solidarity, service, responsibility, and other values....Now there is a warm feeling in the village; people work together and take leadership to get things done. The solidarity board has replaced the village council that still can't get along, and we petitioned the government and got electricity. Unity along with the credit has made the greatest difference in our lives."
Most microcredit programs also accept as a fundamental premise that the borrowers are the best judges of their own situation and know best how to use credit when it is available. Each individual has the opportunity to choose the income-generating activity appropriate to her circumstances. If she is involved in group lending, she also has the benefit of constructive criticism from the members of her lending group. In this way, the programs stimulate both individual creativity and participatory planning by a group of peers. Most programs provide advice for aspiring entrepreneurs, but the initiative and the final responsibility rest with the individual and her circle of fellow borrowers. Other common characteristics of successful microcredit programs for the very poor include:
· targeting the very poor;
· tailoring program operations to reach women as recipients of microcredit;
· simple procedures for reviewing and approving loan applications;
· delivery of credit and related services to the village and neighborhood level in a convenient and user-friendly way;
· quick disbursement of small, short-term loans (three months to one year);
· clear loan recovery procedures and strategies;
· the incentive of access to larger loans following successful repayment of first loans;
· in developing countries, interest rates adequate to cover the cost of operations; in industrialized countries, interest rates at least equal to commercial rates;
· encouraging and accepting savings in concert with lending programs;
· commitment to, and training for, democratic participation in decision-making by all those involved as clients;
· a culture, structure, capacity and operating system that can support sustained delivery to a significant and growing number of poor clients;
· accurate and transparent management and information systems which are actively used to make decisions, motivate performance, and provide accountability of management performance and the use of funds, and clearly demonstrate program performance to commercial financial institutions; and
· access to business information, expertise, and advice to microentrepreneurs.
Most successful microcredit programs offer a menu of loans to meet their clients' needs. For example, a borrower who has successfully participated in a program for several years may be able to access leasing loans -- allowing her to finance the purchase of large and expensive inputs like a tractor or auto-rickshaw -- or larger loans for the improvement or purchase of a home.
Consumption or consumer loans can also contribute to the productivity of the very poor entrepreneur, as well as providing security by reducing vulnerability.11 Living at such a precarious level, very poor people are constantly vulnerable to a multiplicity of personal and financial disasters: illness generates medical expenses; death necessitates funeral expenses; crop failure requires additional expenditures on food as well as seeds for the next season. Very poor people also face foreseeable but unmanageable expenditures such as the need to pay school fees. Consumption loans can assist very poor people in managing these events without forcing families to sell what few assets they have to raise cash, or risk the traditional moneylender's crippling rates of interest.
Founded on the principle that the "borrower knows best," many of the more established microcredit programs working with very poor people offer other services in response to the needs of the self-employed people they serve. Many poor people who are self-employed in the informal sector are operating in markets that are increasingly complex and affected by the globalization of markets. Therefore, in order for very poor people to build income, assets and livelihoods in a sustainable way, an emphasis is needed on policy reform to achieve an enabling environment for their business. Very poor microentrepreneurs also benefit from access to:
· market information and commercial linkages;
· appropriate technology and methods to improve productivity, including the use of traditional knowledge;
· know-how, connections, and bargaining power for equipment and supplies;
· health and social security systems; and
· appropriate management expertise for individual and collective enterprises.
At the same time, it is important that when more mature microcredit institutions expand to offer the above services, they continue to do so as a fee-for-service business. Any business development services offered by microcredit institutions should provide clear and direct value to the low-income entrepreneur, in ways that make it attractive to the microentrepreneur to pay, at least in part, for these services. The criteria for evaluating the success of these non-financial services to the poor should include the following:
· Added Value: The service should have a direct impact on improving the productivity, welfare, and profits of the microentrepreneur and her enterprise.
· Scale: The institutions should have the potential capacity to provide the service to thousands or tens of thousands of clients in developing countries.
· Sustainability: The institution providing the service should have a clear plan for how these services will be sustained without outside subsidies. As with financial services, this will not happen immediately. A period may be required to test workable program models, and to build to the volume of services that will enable sustainable levels of operations. Sustainability may require strategies to build endowment or capital funds, cross-subsidize services, and build fee-for-service arrangements to cover a significant portion of the cost. In industrialized countries, governmental support and other revenue sources may be needed to support non-financial services.
These approaches have been successfully applied by several organizations around the world to provide services previously thought of as social expenditures to very poor entrepreneurs. SEWA Bank has built a capital fund that generates income to cover part of the cost of health and life insurance premiums for its members. Its members contribute, over a seven-year period, amounts sufficient to cover the costs of the premium, to repay the medium-term loan, and to build the temporary capital fund. Grameen Bank, Shakti Foundation, and other institutions have built self-sustaining emergency and disaster relief programs for their members -- important in countries where natural calamities can wipe out livelihoods. Appropriate Technology International has promoted and participated in a range of commercial ventures in which producer organizations develop and control state-of-the-art processing facilities and marketing arrangements. These ventures are geared at increasing incomes for tens of thousands of producers, and position them as major players within the economic subsector in which they operate.
After World War II, who would have guessed that a prostrate Europe and Japan would rebuild and soon be challenging the United States for economic supremacy? At the turn of the century, who would have imagined that the scourge of smallpox would be wiped off the face of the earth within a few decades? In 1945, who would have predicted that developing countries-within less than the span of a single human lifetime-would successfully lower their infant mortality rates by more than 60 percent, increase life expectancy at birth from less than 41 years to more than 62, and increase per capita food consumption nearly 35 percent? And in 1985, who would have predicted the fall of the Berlin wall within four years?
We offer these illustrations as evidence that collective human effort can produce extraordinary results. It is now time for the enormous dynamic energy of collective human will to focus on ending absolute poverty.
"Until one is committed, there is hesitancy, the chance to draw back....Concerning all acts of initiative (and creation), there is one elementary truth, the ignorance of which kills countless ideas and splendid plans: that the moment one commits oneself then Providence moves too....I have learned a deep respect for one of Goethe's couplets: `Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it.' "
W.H. Murray, The Scottish Himalayan Expedition
Given the successes of microcredit institutions, and recognizing the urgency of the task to unleash the potential of the one-fifth of humanity that still lives in extreme poverty, there is an immediate need for a global strategy to extend credit for self-employment and other financial and business services to very poor people, wherever they are found.
We, the assembled delegates to the Microcredit Summit, herewith commit to this multifaceted global campaign. The Summit is the nexus at which practitioners, NGOs, saving and credit cooperatives, foundations, educational and religious institutions, governments and leaders in finance and business stand shoulder to shoulder to affirm our common goals and agree on this decade-long strategy to accomplish a pivotal next step in the unleashing of human potential.
The Microcredit Summit calls on all people of good will to join in the effort to expand the reach of credit for self-employment and other financial and business services to 100 million of the world's poorest families, especially the women of those families, by the year 2005. We believe this to be a critical next step in the effort to eradicate extreme poverty from the face of the earth. We believe that human poverty, inequity, and their consequences damage the life-supporting capacity of the planet, and cannot be sustained. We believe this campaign will become one of the great humanitarian movements of history, allowing people to free themselves from the bondage of poverty.
The objective of expanding credit for self-employment and other financial and business services to 100 million of the world's poorest families by 2005 is an ambitious one. It is estimated that up to US$ 21.6 billion in grants, low-interest loans and commercial loans could be needed to achieve this goal by 2005. This amount is small in relation to total development aid, total private sector donations and social investments, and total private capital flows. This estimated cost includes monies that are now being spent globally on microcredit programs serving very poor people. Of this amount, current experience suggests that a little more than half may need to be provided through grants and concessional loans. Thus about US$ 10 billion may come from commercial credit markets, institutional earnings, and the savings of the public, including the savings of the poor themselves.
It is critically important that microcredit institutions maintain their commitment to outstanding repayments, excellent client service, and sustainable institutional development. Whereas success can lead to expansion and new programs, the lack of success can be damaging, and not just to the immediate program. Perceptions held by prospective clients, investors, and donors are communicated well beyond the borders of a particular program, with the likelihood that the skeptics who react to a failed program will outnumber the optimists who find momentum in a successful program. The Summit's commitment to the expansion of credit and other financial and business services to 100 million of the world's poorest families can be derailed by an indiscriminate flow of resources to programs that are not ready for the next level of growth. If growth occurs too quickly, or if the goal of expansion is put ahead of sustainability, programs may have more clients than they can effectively serve.
Over the last ten years, strong microcredit institutions in developing countries have shown that after five to seven years of operation, they can achieve the size and efficiency levels that enable them to cover their operating and financial costs, without requiring additional subsidies. The savings of program clients are often used to further expand loan capital and credit operations, therefore reinforcing sustainability. However, many microcredit institutions in developing countries are still operating at small and intermediate scales, requiring a mix of grants, concessional lending, loan guarantees, commercial rate lending, and equity investments by commercial banks and financial institutions. In industrialized countries, grants, concessionary loans and other subsidies will be needed to help support the costs of non-financial services. In some countries, new microcredit institutions and programs will need to be encouraged with seed funding and institutional development support. Activities of practitioner networks will need grant support to build the exchange of experience and technical services required to help local organizations grow to serve significant numbers of very poor families.
For the thousands of existing microcredit institutions still operating at small and intermediate scales, and for new microcredit institutions, grants and donations are needed to support their early years.12 Grant funds are needed to finance salaries and training of staff, the establishment of basic service infrastructure, and the buildup of loan portfolios that enable these institutions to demonstrate strong repayment performance. Grants and donations will also be needed to fund program innovations as more mature microcredit institutions seek to provide an expanded range of services to their clients. The key sources for this type of assistance are multilateral and bilateral aid programs and national and local governments. Other sources are private donors, grant-making organizations, service clubs, religious organizations and corporations.
Even during the early stages of a program's development, care needs to be taken to ensure that these external funds support rather than substitute for local mobilization of funds. Many of the strongest microcredit institutions, particularly in Africa, have the savings of very poor clients as the main source of their loan funds. Where possible, external grants should be structured to support the build-up of the capital base of the microcredit institution. With a strong capital base, microcredit institutions can build their operations and loan portfolios, and leverage commercial funds without relying on permanent, external support.
Loans to microcredit programs at subsidized rates from international financial institutions (e.g., the World Bank and the regional development banks) and private socially-conscious investors are important for fueling rapid growth of loan portfolios in the early stages of a microcredit institution's development. These funds help underwrite a transitional period during which the young institution is moving toward sustainability, but is still in need of special support. The use of soft loans should be provided in an environment of business discipline. In order for concessionary funds to accomplish this, rather than becoming a cover for inefficiency or dependence, the granting of such monies should be subject to clearly articulated and measurable performance measures.
Guarantees are a way for donor agencies and institutions to make efficient use of their limited resources by stimulating a flow of credit from financial markets into microcredit programs. Guarantees are a good interim measure for microcredit institutions in the process of moving from the nonprofit sector into the commercial. These microcredit programs benefit from the assistance of donor-extended guarantees while they adjust to the discipline of financial market requirements. To ensure this process, guarantee funds must be extended after conducting an assessment of the financial performance of the microcredit institution. While the very nature of a guarantee fund means that risk is being assumed and a degree of loss accepted, no guarantee should be extended if, at the point of approval, an applicant program is not perceived on a professional basis to have the means of repaying the obligations it is undertaking.
Market-rate loans to microcredit programs from commercial sources will be essential for fueling the expansion of those programs that have achieved scale sufficient to reach economic viability.
The path to the Summit's goal will require that microfinance programs become independent of donors and other international organizations, and begin to tap much more plentiful private funding. However, particularly in the early years, these donor agencies have a critical role in supporting the creation and expansion of individual microfinance programs and in preparing them to become independent. The central challenge for multilateral and bilateral donor agencies is to craft their support in ways that foster independence while maintaining their commitment to the poorest segments of the population.
As the current chief sponsors of the microfinance movement, multilateral and bilateral donors must set high expectations for performance by microfinance institutions in order to maximize the effects generated by their funds. Joint donor committees have established selection and performance criteria for microfinance institutions in consultation with practitioners. These criteria should be applied whenever these institutions fund microfinance programs. A core purpose of such criteria is to prepare microfinance programs that serve very poor people to meet the requirements they will face if they are to attract private commercial funds, or to qualify to accept the deposits of their clients.
The Microcredit Summit recommends the use of "The Guiding Principles for Selecting and Supporting Intermediaries" adopted by the Committee of Donor Agencies for Small Enterprise Development and by the Donors' Working Group on Financial Sector Development. These guidelines recommend funding a range of microfinance institutions on the basis of incremental and absolute performance measures, with support provided for loan funds, capitalization, and practitioner-based institutional development. For the purpose of the Microcredit Summit, the guidelines' references to "low-income" clients and "the poor" should be changed to "very poor" people. The Consultative Group to Assist the Poorest (CGAP) has already begun applying revised donor standards to their investment program.
The multilateral international financial institutions (e.g., the World Bank) have access to amounts of funding quite large relative to most microfinance institutions. In the poorest countries, many of these resources are highly concessional, while in other countries, such as most of Latin America, resources in hard currency carry terms much closer to the commercial market. As a result of the instruments available to them, multilateral banks often have difficulty providing small amounts of funding, in local currency, to non-governmental organizations. Many of the multilateral banks are required by charter to work directly with and through governments (although all now have some capacity to work directly with the private sector). Multilaterals should develop more flexible instruments, allowing them to reach microfinance institutions in ways that better reflect the needs of the microfinance sector. An example of a new instrument of this type is the World Bank co-financing of the pilot CGAP investment fund, a grant facility that provides direct financing to promising microfinance institutions based on transparent performance criteria and targets. One objective of this fund is to set industry standards for improved working relations between donors and microfinance institutions.
Another strategy for the mobilization and organization of funding may be a global system of regional or national microfinance structures. It is very important that these microfinance structures be operated by committed, well-managed microfinance banks or practitioner network organizations, rather than as donor projects or government programs. The recent World Bank investment in a microfinance fund for Bangladesh promises to be a good example of this type of funding arrangement.
These structures could be used for grant and equity financing, as well as loans to existing institutions that meet agreed standards, and to new institutions that have strong commitment and capacity. These funds can act as intermediaries for loans from commercial sources, and promote various instruments for capital markets in order to raise funds for microcredit programs. These facilities should support a wide range of sustainable institutions and credit methodologies, respecting both global realities and the existence of many successful indigenous microfinance structures and approaches. These facilities can serve as learning and know-how exchange networks, within and across countries and regions.
Whenever donor organizations work with microfinance, they should recognize the importance of local initiative and the available institutional base. They should follow and enhance local initiative whenever possible. Even if donors sponsor the creation of new organizations, they must ensure that those organizations have a solid local grounding.
Whether using newly developed or standard loan instruments, multilateral banks need to be particularly careful that the large amounts of funding involved do not overwhelm local institutional capacity, and that they do not remove incentives for local institutions to forge links with the private sector.
In industrialized countries, there is discussion among funders, policy makers, and practitioners that an organizing entity to manage microfinance funds would be greatly beneficial. For example, serious discussions in the U.S. have been initiated around the need for a "microenterprise intermediary" which would attempt to mobilize financing, set performance measures for the industry, and move the field to the next levels of maturity.
The access to conventional financial markets which will be needed to fuel the rapid growth of microcredit is a complex process that requires the best efforts of both experienced practitioners of microcredit and the leading managers in mainstream finance. The Summit seeks to provide a stage on which to educate both the natural stakeholders in microcredit and the key leaders of the financial sector about the substantial progress being made toward the marriage of microcredit and conventional financial markets. The following initiatives, already in existence, are promising indicators.
Some microcredit programs borrow funds from commercial banks to on-lend to their clients. Many microenterprise programs currently fund their portfolios by accessing the local banking markets as corporate customers -- subject to all the normal conditions. In many cases, their performance has matched or exceeded that of the formal financial sector. Thus, microcredit programs no longer rely exclusively on grants or external donations to finance their operations.
Some microcredit organizations have established fully-fledged financial institutions regulated by the Superintendency of Banks. These institutions are no different from other banks except for one thing: they are exclusively dedicated to microfinance. This has already happened in Asia (Bank Dagang Bali in Indonesia), and in Latin America (BancoSol in Bolivia), and is in process in Africa (K-Rep in Kenya). In some cases, conventional banks have established successful microlending operations (e.g., Multicredit Bank, Panama; Banco del Desarrollo, Chile).
When microcredit programs make the transition to become formal financial institutions, they can have a dramatic impact. For instance, the entire Bolivian banking system serves a total of 167,000 clients, of which 63,000 (or nearly 40 percent) are clients of BancoSol. Attractive economic performance has also been proven, as shown by BancoSol's return on assets of 2.2 percent in 1994 -- the highest in the entire Bolivian banking system.
The enormous potential of savings in this sector has been demonstrated by, among others, the experiences in Indonesia (Bank Dagang Bali), Bangladesh (Grameen Bank), Bolivia (BancoSol), Mali (Kafo Jiginew), and Senegal (Crédit Mutuel du Sénégal). Savings of microentrepreneurs in savings and credit cooperatives represent US$ 1.344 billion in the developing world. The viability and importance of savings among microentrepreneurs have been demonstrated in industrialized countries as well. For example, U.S. programs operated by East Side Community Investments, the Corporation for Enterprise Development, and the Women's Self-Employment Project have illustrated successfully the ability of microentrepreneurs to contribute to their economic and social development through savings.
Successful issue of paper into local capital markets by microenterprise specialists that are not formal financial institutions has been demonstrated in 1995 in Paraguay by the NGO Fundacion Paraguay de Cooperacion y Desarrollo, with an issue of US$ 150,000.
Certificates of Deposit of BancoSol have been placed in the U.S. and French markets to premier financial institutions on a strictly commercial basis. Thus, the world's most sophisticated capital markets have actually been linked with the promise to pay of a woman microentrepreneur selling her wares on a street corner in La Paz. Closing this loop is a true landmark in the development of microenterprise finance.
In Latin America, a model is being deployed by the ACCION Network to issue into local financial markets commercial paper backed by microenterprise loan portfolios. This is scheduled to be implemented by 1997. If successful, this may constitute an alternative model as powerful as that of formally chartered financial institutions.
Newly formed funds such as ProFund and ACCION's Gateway Fund have been created to provide investment capital for those microcredit lenders who are ready to make the transition to more conventional commercial funding sources. ProFund is a US$ 20 million equity fund headquartered in Costa Rica that began operations in 1995 with support from various sources, and ACCION's Gateway Fund is a projected US$ 9 million equity, quasi-equity and lead-debt investment fund.
The socially-responsible investment community, especially from industrialized countries, has contributed in a significant way to enabling microcredit organizations to access commercial sources of funds. Funds such as the Calvert Fund have invested in mechanisms (for example, ACCION's Bridge Fund) which serve to access and leverage commercial funds, or invest in financial institutions that specialize in microfinance.
To build on these promising beginnings, microcredit leaders, financial sector specialists, and key government regulators must create the necessary facilitating frameworks and eliminate all unwarranted obstacles to linking microcredit to capital markets. Working together, they must identify and resolve key issues. They must examine the issues of regulatory environment, market imperfections, financial reporting, financial best practices, marketing, risk-management, and credit rating.
In many ways, microcredit represents the triumph of pragmatic reality over ideology. It is a strategy for reaching the lowest income sectors, but rather than charity, it is an investment in people's self-reliance. It sets government's role at the beginning of the innovation cycle, where it can assist civil society in launching initiatives long before, and until, they are commercially viable -- not to replace the role of the private sector but precisely to promote its involvement.
The single biggest challenge to expanding microcredit to 100 million of the world's poorest families, even greater than the challenge of mobilizing the necessary funding, is the need to build local institutional capacity in communities around the world.
The emphasis in capacity-building should be to strengthen the thousands of existing microcredit NGOs, cooperatives, credit unions, grassroots groups, and poverty banks that at present comprise the microcredit movement. The most successful method for building institutional capacity in local institutions around the world has proven to be the structured exchange of experience among the practitioner organizations themselves, rather than the use of foreign consultants.
Local, regional, and global networks of microcredit practitioners have major roles to play in building this institutional capacity. These networks can provide much more than practitioner-based services; at their best, they embody shared principles and mutual accountability for results. Global and regional practitioner networks, usually established as NGOs, can organize practitioner-based training and technical services, build self-regulating systems for adhering to standards, and help mobilize funds for institutions that meet the agreed upon standards. Success in these practitioner networks has been in recognizing that most of the know-how in microcredit exists in developing countries, and that any external assistance needs to support, not replace, local initiative and local institutions.
It is important to recognize that many NGOs will need to change their approaches, capabilities and systems dramatically if they are to be successful in microcredit. Microcredit needs to be approached as a socially-responsible business, not as charity or social welfare. It is difficult to incorporate a successful microcredit program into an institution that has a relief or social-service approach to helping the poor. Nevertheless, some NGOs have been successful in this transformation, and it is important to adopt shared measures of performance, reach, and business practices, rather than any preconceived notion of which organizations can or cannot be successful in microcredit.
Other kinds of institutions also need to be encouraged and assisted in delivering microcredit to the poorest. Both large and small banks need to be motivated to offer services to very poor microentrepreneurs, either through existing departments, through specialized lending departments, or through subsidiary institutions devoted to this specialized type of activity. Increasingly, as the success and profitability of microcredit become more obvious, banks will seek entry to the field. International and regional financial institutions must be prepared to provide guidance, and to refer local banks to sources of quality advice and training.
While the emphasis in capacity-building should be on strengthening existing institutions, the key factor in creating a new program is finding a committed individual who accepts the challenge of becoming a social entrepreneur. Such individuals are interested in creating private-sector solutions to social problems, and are committed to building a private-sector institution based both on sound business practice and social values. Future social entrepreneurs are everywhere, but they themselves are unaware of their potential. They are found in all segments of society: business, academics, arts and culture, bureaucracy, professional groups, international organizations, religious institutions, political activists, social workers and many other backgrounds.
The movement needs a systematic plan for publicity and recruitment through exposure and dialogue programs to find and develop the necessary talent as efficiently as possible. In addition, a training process needs to be established that will give each candidate an opportunity, within an enabling environment, to try out his or her talent.
Commercial and development banks, along with other financial institutions such as savings and loan associations, cooperatives, and credit unions, can create and expand microcredit programs of their own. Instead of social entrepreneurs, they may identify specially-trained CEOs for these programs. Recruitment and training of these private sector executives and their staffs are as important as the development of social entrepreneurs in the NGO sector.
As a starting point to estimate the implications of reaching 100 million of the world's poorest families with credit for self-employment and other financial and business services, a model has been developed to understand the scale and scope of the institutional capacity required. The following indicators of scope reflect institutional averages; the staffing and organizational models underpinning these numbers need not be interpreted literally. This model is offered as a basis for estimating the staffing required both to expand the current institutions and to create the new institutions needed to achieve the Summit's goal. Again, in the calculations that follow, the emphasis should be on strengthening or expanding the thousands of existing microcredit programs.
Social entrepreneurs/CEOs and existing programs will need to train managers and field staff to work at the village level. Field experience has shown that one field worker can serve 200 borrowers. Assuming this staff-client ratio, 500,000 field workers will be needed to serve 100 million clients. If one assumes a drop-out rate during training of 15 percent, the total number of intakes of trainee field workers should be 575,000.
Based again on experience, it is possible to assume that one manager or supervisor will oversee the activities of eight field workers. This in turn means that training must be provided to 71,875 managers/supervisors.
Over ten years this number can be trained in classes of steadily increasing size:
|
Year No. of Trainees |
||
|
Field Workers Managers |
||
|
1996 |
2,000 |
250 |
|
1997 |
5,000 |
625 |
|
1998 |
10,000 |
3,125 |
|
1999 |
25,000 |
6,000 |
|
2000 |
48,000 |
9,375 |
|
2001 |
75,000 |
9,375 |
|
2002 |
100,000 |
12,500 |
|
2003 |
150,000 |
18,750 |
|
2004 |
160,000 |
20,000 |
|
Total: |
575,000 |
71,875 |
Just as microcredit programs make special efforts to reach female borrowers, so should training and recruitment be designed to foster gender balance in program staff-at both the field and managerial levels.
Information about the training experience in one country may help give a picture of current training capacity. In Bangladesh, albeit an exceptional case, at least 150 NGOs are engaged in microfinance programs, serving nearly 2.5 million borrowers (in addition to Grameen's 2.1 million). One NGO, BRAC, serves more than a million borrowers. These NGOs have all created their own training facilities to carry out their programs. Grameen Bank reached its training peak in 1991 when it prepared 2,682 staff in one year. In 1995, Grameen Trust and Grameen Bank jointly trained 650 international staff.
The success of the microcredit movement to date has been the rapid and decentralized development of many different models. The field remains young and in a rapid state of evolution. What is considered the frontier of learning will be quickly absorbed and superseded by new knowledge. Innovations on which learning will be based are occurring in different places, at different rates of speed. What is needed are mechanisms to capture and transfer this learning rapidly and efficiently from place to place. This involves:
· ongoing practitioner exchange through affiliate networks;
· practitioner exchange across affiliate lines;
· short-term training opportunities for the quick diffusion of new techniques;
· documentation that analyzes and describes what is working and why;
· simple-to-read, practical technical materials that help practitioners understand how to implement methods, do financial analysis, structure and manage portfolios, deliver business development services, and reach the very poor in a cost-effective manner, etc.; and
· the use of electronic means of communication for on-line seminars, problem solving, and the rapid exchange of materials.
A range of microcredit organizations, regional and global practitioner networks, and others need to be encouraged to organize the training. Successful microfinance organizations and networks can be sponsored to build a process that could include helping leaders of new microfinance organizations and programs launch a start-up operation, learn to run microfinance operations successfully, and learn to grow operations to a sustainable scale. This training would need to be offered at induction, refresher, advanced and specialized levels. The training of social entrepreneurs and business executives would run on a different track than that of managers and field staff. Training should be structured to involve country or regional groups of organizations operating at similar stages of development, to encourage sharing of experience and to build a sense of mutual accountability for results. For example, the Grameen Bank and Trust could undertake to work with a set of 1,000 institutions in a continuous way over the nine-year period following the Summit.
In addition to training, technical services and exchange visits, practitioner networks and successful microfinance organizations would need to organize specialized workshops and conferences on specific issues, (e.g., repayment problems and rehabilitation strategies).
In order to undertake this training, various organizations and networks would need to be supported in building training programs within operating institutions as well as national, regional and global programs. Existing facilities could be used, as the ideal training situation involves groups of between twenty and fifty people.
It is expected that 90 percent of managers and field workers would be trained in their own country by grassroots microcredit institutions, and 10 percent would receive training outside of their country at regional facilities.
Training facilities must be strategically located to provide quality training to staff and management in the region. At least five centers of excellence must be created within local operating institutions to provide leadership in training and to devise and test innovative methodologies.
The lead microfinance institutions and networks organizing this training would need to translate their existing materials. To facilitate training by a range of institutions, they would also need to improve existing materials, and make them widely available. Videos, audio cassettes, films, software, manuals and publications will be needed, and their preparation and distribution will require financial support.