/ 18 December 2007

Microcredit helps half a billion, problems remain

Microcredit, tiny loans to the world’s poorest, is booming and now benefits more than half a billion people, a survey said on Tuesday, but Africa and Latin America lag behind Asia and unscrupulous lenders are cashing in.

The Microcredit Summit Campaign surveyed more than 3 000 microcredit bodies around the world from small banks to community groups and found they reported reaching 133-million people by the end of 2006, 92-million of them people earning less than a dollar a day.

That compared to just 13-million recipients nine years ago, when the poorest were simply dismissed as unbankable.

On the assumption that each recipient was probably supporting four other people — almost invariably family — that would mean more than half a billion worldwide — equivalent to the population of the European Union — were benefiting.

Last year, Bangladeshi microcredit pioneer Muhammad Yunus, credited with being behind some of the first micro-loans primarily to poor Bangladeshi women, won the Nobel peace prize.

In the latest available figures, the World Bank estimates 985-million people were living on less than a dollar a day in 2004, with 2,6-billion in total living on less than $2 a day.

”There is some great news — it is a massive increase in just nine years,” campaign director Sam Daley-Harris told Reuters. ”The bottom line is people are being reached in Asia but they are not being reached in Africa or Latin America.”

He said about 90% of those reached by microcredit were in Asia — whereas only 60% of the poorest who needed it most were Asian.

In Asia, microcredit had reached critical mass and was growing organically at a local level, he said, while in Africa and Latin America it was driven primarily by Western donors.

< b>High interest

”A tiny institution in the Philippines visit Bangladesh and they have their minds blown and go back and do the same thing back home,” he said. ”That doesn’t happen so much in Africa or Latin America.”

In part as a result, interest rates on microcredit loans in Asia were much lower at 10% to 20% compared to as high as 80% in Mexico, where private firms describing themselves as microlenders were therefore making fat profits.

There were some signs of change in Africa, he said, citing the example of a Kenyan microcredit group that had slashed the number of people defaulting on its loans by offering basic health insurance after discovering ill-health of a family member was the main reason for failure to repay.

Western banking firms such as Citigroup have also expressed an interest in the micro-finance sector, but Daley-Harris said they would inevitably target the slightly-richer — those on several dollars a day — risking leaving the poorest out.

”The field is moving towards the commercialisation of micro-finance which is fine unless it leaves out the very poor,” he said. ”It’s up to public institutions like the World Bank and African Development Bank to give enough for their development funds to those below a dollar a day.” – Reuters