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How are the micro-finance models helping?

More than 1.2 billion people live in extreme poverty, and microfinance aims to remedy this unfortunate problem. Microfinance models differ across regions and mirror the unique nature of economies and populations. South Asia has the largest Microfinance industry, followed by East Asia, Latin America, and Africa. The fewest number of MFIs are found in the middle east and North Africa, Eastern Europe, and Central Asia, By 2004, the microenterprise Summit Campaign reported 3, 164 MIFs, and of these, “1628 were in Asia, 994 in Africa, 388 in Latin America and Caribbean, 48 in North America, 34 in the Middle east, 72 in Europe and the newly Independent States” [1]. More than 92 million people have been assisted by MFIs: 81.5 million in Asia, 7 million in Africa, and 3.8 million in Latin America and the Caribbean.

Microbusiness lending may include direct loans to individual, or the loans may be administrated through circle, peer, or group lending. In the latter models people form groups and often guarantee each other’s loans to help each other’s business, thus boosting repayment through peer pressure. Group members must keep their loans current in order for other group members to receive a loan. Once repaid, a new loan may be made in higher amounts, which creates a repayment incentive and opportunities for repeat loans officers to closely monitor the loans and the repayment terms. Default rates are generally low. Grameen bank, for example, reports a near perfect repayment rate. In countries such as Bangladesh and India it is not uncommon for microbusinesses to borrow from more than one MFI at a time.

Grameen Bank, a model MFI that others have tried to emulate, demonstrates the importance of understanding local needs, conditions, and political realities. It has 1, 181 branches and 11, 777 staff members, and it works in 42, 127 villages. Since its inception it has disbursed loans totaling $3.9 billion. As of 2006, it had reached more than 6.4 million borrowers, 95 percent of whom were women. Grameen borrowers own 93 percent of the total banks equity, and the Bangladeshi government owns the remaining 7 percent. Boasting its self-reliance, Grameen no longer accepts donor funds. Initially, during the period that has come to be called Grameen Bank I, it focused on microloans. In its second phase of existence, known as Grameen II, the organization is focused on flexible loan products, or rescheduled basic loans, which has been described as “a Grameen micro-credit highway”. A good “loan driver” can pick up speed, shift gears, and upgrade her loan and a driver who experiences car trouble-sickness, family problems, business slowdown, and accidents—can take a detour and obtain a flexible loan. Other features of Grameen I include a pension saving account and a loan insurance program to facilitate asset accumulation and limit risk exposure[2]. Another example of Grameen’s innovative efforts is the struggling Members program, Which targets beggars in Bangladesh, resulting in financial services to 71, 295 people [3].

One of the aspects of social performance is that of integration gender concerns into microfinance operations. On account of the overwhelming of women clients in the microfinance sector, there is an assumption that gender is not an issue. But there is a different view that gender concerns have not really been bought into play in the main finance operations despite a large part of the client in the sector being women. Uma Ramaswamy and Anuradha Prasad observe… what stands out prodigality is that the persistent drive for saving and credit… has delivered attention away from the more pressing issues of women’s lives. The increasing emphasis on micro frame agencies has visibility spark the paces of NGOs-to work deeply on issue relating to women’s empowerment. They add further ‘In the name of provisions services, MFI’s have squarely transferred all transactions costs to the poor women. More important, the poorest are being changed the highest rate of interest more in fact than any other class of borrowers. This is patently adjusted especially considering that the poor are a low risk category with high loan recovery rates’[4].

There is greater awareness of the need for socially responsible behavior in the sector. The political interest in the sector has ensured that responsibility to the society is not lost sight of. The pace of growth in the sector at times, diverts attention from the social agenda. But with an intense interest of industry watchers and researches, social performance as a theme has come to stay[5]. Networks such as Imp Act consortium have taken the agenda forward and are referring assessment methods, strategies for internationalization and capacity-building of the strategies for international and capacity-building of the sector to manage and exceed social operations. If social performance is ensured then the poor will be the first.


  1. Latifee H I (2007), The future of microfinance: visioning the who, what, when, where, why and how of microfinance expansion over the next 10 years, Microcredit Summit Campaign, New Delhi.
  2. Yunus, Muhammad, 2003. Banker to the poor; Micro-Lending and the Battle agins world poverty. New York: Public Affairs.
  3. Latifee H I (2006), The future of microfinance: visioning the who, what, when, where, why and how of microfinance expansion over the next 10 years, Microcredit Summit Campaign, New Delhi.
  4. Johnson S (1997), Microfinance and poverty reduction, Oxford university press, London
  5. Clinton, William J. 2007. GIVING: How each of us can Change the world, 27-28. New York: Alfred A. Knopf

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