Inspiring Ideas in Microfinance
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Draft proposal for comments/suggestions
Prepared by: Hari Srinivas
Dept. of Social Engineering, Tokyo Institute of Technology
Fax: +(81-3) 5734-3199
Version 3.0 dated Friday, April 25, 1997 Current Status: Not implemented yet; funding sources being explored.
Walking along the street of any low-income settlement, one is frequently struck by the apparent contrast of dwelling and habitat. On one side of the road is a dilapidated, single story, windowless house of tin sheets and open drains; across the street is a fine two-storied brick and concrete house with glass windows, paneled doors, and painted walls. While there are many reasons for such contrasts even among the poor, one variable that repeatedly surfaces as a sort of common denominator is the accessibility to different sources and types of credit.Commercial banks and other formal financial institutions have systematically kept low-income households outside their credit delivery networks, forcing them to resort to informal and non-conventional systems of mobilizing credit. The unique features of such loans are only now being understood:
- Loans used by the low-income households are small in size since money is acquired only for a part of a larger activity. These small amounts starkly contrast loans from banks, which tends to be large and for lump sum investments.
- Loans are usually made for very short periods. That is, the borrowers prefer to repay the loans quickly to avoid long-term commitments in repayments. This situation also reflects the insecurity of the borrowers jobs/income and the need for smaller interest payments.
- Loans are unsecured, and usually no collateral or guarantee is used. Lenders rely on borrower's personal information and close proximate links to "keep on eye" on their expenditures and ensure repayment. Since services are localized, and only well- known borrowers identified, the rate of repayment is also very high.
With information collation and dissemination being critical aspects of any campaign that attempts to focus attention on microfinance, an initiative to identify, nominate and document INSPIRING IDEAS in microfinance schemes as a means of learning from past and ongoing successes is being proposed here. Such an initiative would enable individuals, groups and organizations to participate in a continuous exchange of know-how, experience and expertise in microfinance management. Inspiring Ideas defer from 'Best Practices' in that it documents individual components of a microfinance policy, programme or project. The other advantage of inspiring ideas is that traditional and historical methods of financial transaction (for example, savings and credit clubs) can also be included.
Inspiring Ideas are examples of actions that could be recommended for further application, whether in a similar or adapted form. They are actions, initiatives or projects which have resulted in clear improvements in the quality of life and the living environments of people in a sustainable way by provision of micro loans and savings opportunities.
It would therefore include new services, organizational/operational structures, laws, constitutions, procedures, ways to relate to and solve problems etc. It would also enable a continuous process of measuring, analyzing and comparing an organization/programme/project's products, services and practices for development and refinement. It includes successful components of a policy,programme or project which
may have been, on the whole, a failure. By taking such a desegregated view of a microfinance scheme, it is possible to generate several 'Ideas' per scheme, allowing for a broader mix-and-match in designing microfinance programmes.
Through the years, similarities and differences in initiation, development, success/failure etc. of microfinance programmes and projects has become increasingly apparent. Lessons have been learnt and recorded in documents and other media, including the internet. Despite these efforts, our knowledge at the global level of actions which offer vital insights is incomplete and out of date.
The initiative will provide a unique opportunity to set up a neutral, balanced and broadly representative process for identifying Inspiring Ideas in the field of microfinance. A standardized approach for selecting and describing each idea will facilitate comparisons between communities, and provinces within each country, as well as regionally and globally.
Inspiring Ideas will play an important role in building a world-wide picture of microfinance and in identifying ways in which common needs and problems can be met through the application of documented successful solutions and approaches. They represent the latest and pragmatic solutions to common problems facing many savings-and-credit programmes and communities. They are a learning process and constitute a knowledge base for effective action now and in the future.
There are no limits set on the size and nature of an Inspiring Idea, nor are there any limitations on the range of organizations or groups responsible for it. These can be NGOs, user groups, neighbourhood/ward committees, private sector, the media, municipalities, provincial/state governments, regional authorities or central government ministries and departments.
Regardless of the location or scale of activity, what should be important is that the activities contribute - directly or indirectly - to improving the living environments of people in a sustainable manner, and overcoming poverty by providing adequate opportunity and resources in the form of microfinance. Generically, this would include best skills, processes, solutions, and resources.
Particular emphasis can be paid to INSPIRING IDEAS that have been developed without outside help and which can therefore provide important examples of independent and self-reliant initiatives.
Gender-sensitive initiatives also need to be highlighted - those Ideas that take into account gender specific roles, responsibilities and access to resources, ensuring that the needs of both men and women are met.
To increase its utility value and readability, all Ideas will be presented in one single sheet of paper. This, however, need not be a restriction - contributors can send additional material, brochures, evaluations articles etc. to substantiate an Idea.
Many of the financial problems facing the world's low-income households are common to all countries: poverty and lack of job opportunities, lack of access to formal financial institutions, poor marketable assets, insufficient and inappropriate use of resources etc. Many of the solutions which have proven successful are based on similar strategies: improving the efficiency of management and support systems for the delivery of microfinance, forging new partnerships between public and private sectors for more effective investments, broadening the decision-making process to harness and focus resources and energies of all key actors and communities, creating increased awareness of problems and opportunities for action.
An effective means of know-how and information exchange is through the sharing of first-hand experience and learning from each other's successes and failures.
Tentatively, the following aspects are intended to be covered, but will be expanded later.
Category: Payday loans