Enterprise Development & Microfinance
formerly Small Enterprise Development
Volume 21, Number 2, June 2010
'Producer collectives, cooperatives and other types of group are not usually sustainable and do not deliver long-term benefits to smallholders'
DAVID GRACE and MALCOLM HARPER
Ramanagaram financial diaries: Cash patterns and repayments of microfinance borrowers
RAJALAXMI KAMATH, ARNAB MUKHERJI and SMITA RAMANATHAN
Using three months of data from financial diaries tracking daily cash flows of a group of microfinance borrowers in two urban slums in Karnataka, India, we show that the burgeoning microfinance sector faces a number of constraints. These households are borrowing from multiple sources, specifically multiple MFIs. Secondly, a large fraction of each household's budget is spent servicing loans with the two largest components of budget being loan repayment and food expenditure. Finally, households are observed to recycle their debts with over 27 per cent of fresh borrowings being spent on existing debts. These households in the urban slums of Ramanagaram are organizing their lives around multiple MFI memberships, multiple group meetings in a week and numerous repayment schedules. Apart from the stress to MFI clients of managing debts of small amounts from various MFIs, the Indian MFI sector will have to learn to grapple with the fallout of multiple memberships.
Seven extremely simple poverty scorecards
How poor are participants in development programmes? And are they making progress toward the Millennium Development Goals? Using data from national household surveys, this paper presents easy-to-use, objective poverty scorecards for seven countries: Bangladesh, Bolivia, Haiti, India, Mexico, Pakistan and the Philippines. Each scorecard uses five indicators - closely related to the Millennium Development Goals - to estimate a person's poverty likelihood, that is, the probability that income or expenditure is below the national poverty line or below $1/day. Field workers can compute scores by hand on paper in 5-10 minutes. The poverty scorecards can help local propoor programmes target services, report on poverty rates, and track changes in poverty rates over time.
The People's Credit Funds of Vietnam: A prudentially regulated credit cooperative movement
HANS DIETER SEIBEL and NGUYEN THAC TAM
Emerging from the collapse of its command economy, Vietnam succeeded in creating a conducive policy environment and building a strong new credit cooperative system. The government benefited from the experience of other countries but replicated none. Instead it came up with an innovation: cooperative self-help under state control, seemingly a contradiction. The newly established People's Credit Funds (PCFs) are self-managed and self-financed; yet their success is due to the central bank designing the new system, preparing its regulatory framework, providing training and supervision and enforcing prudential standards, while abstaining from undue interference. Regulation and supervision have been the state's instruments for assuring good performance, avoiding the disaster of the previous credit cooperative sector. The network overall has proved resilient during the global crisis, but with some differences between the rural PCFs and their central fund, which in addition to liquidity exchange also provides retail services in urban areas.
Going downmarket: Ghana's rural banks adapt informal savings methodology
WILLIAM F. STEEL and B. BUBUNE TORNYIE
A savings-and-credit scheme adapted by Ghana's rural banks from traditional informal methodologies is found to be effective in reaching unbanked clients and mobilizing additional domestic financial resources. Participation in the scheme transformed clients' perception of the difficulties of saving and obtaining credit. Evidence indicated that accessing credit increased clients' ability to purchase assets and support their household in education and health expenditures and decreased their tendency to spend on community social ceremonies. Nevertheless, the success of the scheme depends on methodologies used to mitigate risks of fraud and default: use of employees rather than autonomous agents; retention of savings of at least 50 per cent of loan amount; effective screening of loan applications, monitoring of both clients and mobile bankers; and good data systems.
What Works for the Poorest? Poverty Reduction Programmes for the World's Extreme Pooredited by David Lawson, David Hulme, Imran Matin and Karen Moore