Acclaimed as a magical solution to poverty in the 1990s, the success of micro-credit programmes like that of the Grameen Bank has spawned numerous imitators. But do the poor really need more credit? Are NGOs non-governmental organisations) best placed to offer such services? And does credit always have the desired and expected positive impact on poverty and women's lives? This book says that those considering getting involved need to carry out detailed background research into the needs of poor people for financial services to support their livelihoods and to consider their own organisations capacities before starting work.

Success indicators like high repayment rates, evidence of financial sustainability, signs of reduced poverty and improvements in poor women's lives arising from the work of microfinance institutions, have led grassroots development agencies around the world to embark on providing financial services. But ACTIONAID and OXFAM researchers use case studies to show that there are many ways to provide savings and credit facilities and that successful work requires not only the financial services on offer but the related work undertaken by the agency must be carefully tailored to local needs.

While considerable emphasis has been put on the provision of credit, the authors point out the need for savings facilities through which poor people can gain control over fluctuating cash flows. Moreover, acting as a safe home for other people's money is a responsibility that must be taken seriously by an NGO. In fact NGOs should be wary when setting up as microfinance institutions, and before they do so they should investigate:

• whether there are already savings and loans systems which poor people use and which are not exploitative. It may be possible to support or develop these in ways which will not undermine the existing services which poor people find useful
• Consider whether other services (such as advocacy to link poor people better with banks or government agencies) may be more effective than providing credit directly
• If a decision to embark on financial service provision is made then it is necessary to assess whether the organisations skills and staff are adequate to deliver a successful and sustainable scheme?

Mixed successes have given rise to a number of debates about the effectiveness of credit in reducing poverty. Questions that often arise are:

• Can credit alone have a positive impact on social relations such as gender and caste inequalities, particularly in light of evidence that loans to women can often end up under the control of men?
• Is giving loans for small businesses the best way of improving the lives of the very poor, who may understandably be averse to risk, or who may not have the business skills to make apt use of loans?
• Do credit-based NGOs exclude the poorest and most vulnerable by their very nature?

Despite these concerns and questions, more and more NGOs are providing credit as a idea, particularly where credit is already available to the poor on fair terms, or in places so disaster-prone or likely to experience convulsive economic crises, that more direct forms of aid than credit are what is needed.

Once established, a scheme requires a constant process of monitoring and feedback from participants in order to continually assess whether and how the scheme is meeting poor people's needs.

Source(s):
Microfinance and Poverty Reduction. Oxfam Development Guidelines, Oxfam UK/I and Actionaid: Oxford and London, S. Johnson and B. Rogaly (1997). >

Funded by: Actionaid, Oxfam

id21 Research Highlight: 1998-May-07

Further Information:
S. Johnson
Centre for Development Studies
University of Bath
BATH
BA2 7AY
UK

Tel: +44 (0) 1225 826826
Fax: +44 (0) 1225 323423
Contact the contributor: suzanjohnson@compuserve.com

Centre for Development Studies, University of Bath, UK

B. Rogaly
School of Development Studies
University of East Anglia
Norwich
NR4 7TJ
UK

Tel: +44 (0) 1603 457880
Fax: +44 (0) 1603 505262
Contact the contributor: odg.gen@uea.ac.uk

School of Development Studies, UEA, UK

Oxfam Publishing Department
274 Banbury Road
Oxford
OX2 7DZ
UK

Contact the contributor: publish@oxfam.org.uk

Oxfam GB

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