Private funding of microcredit schemes: Much ado about nothing?

Abstract

Microcredit, defined as small loans to people who have no regular access to credit, is an innovative strategy in the fight against poverty. Microcredit institutions can obtain funding from private institutional investors (PIIs) that channel funds from donors, private lenders, and socially responsible investors. Private financing of development aid is likely to become more important and microcredit presents an investment opportunity within this context. Microcredit institutions (MCIs) need to become more transparent, however, and require more incentive to seek commercial funding rather than relying on subsidies. With better information about MCIs, PIIs could achieve more impact with their investment.

Acknowledgements

This paper was written under the auspices of the Research Projects of the Government of Aragón, No. PO57/2000, and No. UZ00-SOC-03 of the University of Zaragoza. An anonymous referee made very valuable comments and substantially improved the original draft.

Notes

1. There is no clear consensus on the concept of microcredit, but according to the definition adopted at the 1997 Microcredit Summit, its role is to provide small loans to very poor people for self-employment and income-generating projects. An extensive bibliography on microfinance includes such well-known works as Adams and Von Pischke (1992), Goetz and Gupta (1996), Hashemi et al. (1996), Hulme and Mosley (1996), Johnson and Rogaly (1997), Ledgerwood (1999), Morduch (1999), and Yaron (1992), among others.

2. WWB is a global network that seeks to improve women's economic situation through access to credit.

3. Acción International is a US-based microlending organisation working in Latin America, where it supports a network of MCIs. Its first microcredit programme was in Recife (NE Brazil) in 1973. For more information, see www.accion.org/default.asp

4. These are institutions used mainly by donors to grant funding and technical assistance to countries or regions in which the MCIs are too small or too numerous to support directly.

5. Dexia has had an accumulated profitability of 13.9 per cent since 2003.

Additional information

Notes on contributors

Begoña Gutiérrez Nieto

Begoña Gutiérrez Nieto lectures at the College of Economic and Business Studies at the University of Zaragoza and teaches at the College of Business, Catalonia Open University, from which she holds a PhD on microcredit in Spain.