%img src="http://www.gdrc.org/icm/images/micro-camel.gif%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3EMicroCAMEL%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E" /%How to Make Microcredit Organizations Financially Independent
"Pay back your loans." - The response of Grameen Bank borrower Shahina when asked if she has a massage she would like to share with the world.
Repaying loans give people dignity and confidence. Accepting donations makes people feel dependent. These simple truths are what attracted many of us to microcredit. We have seen it in the eyes of the borrowers. Taking a loan, running a small business, repaying the lean and taking another loan. It is a cycle that gives borrowers a strength they could never get from a handout. The same could be said for microcredit organizations. Most are dependent on donations which fluctuate with the changing priorities of the donors. If microcredit organizations took out loans and paid them back, they would create a more stable, independent source of funding. They would gain dignity and confidence.
Loans to microcredit, organizations could take many forms. We are not far from the day when a mutual fund investor in the United States can have the satisfaction of knowing her money is financing the expansion of microcredit as well as paying a return. The International Financial Advisory Group to the Microcredit Industry -- which has 15 members with backgrounds in accounting, finance, business and microcredit -- is committed to making that possible.
We believe loans will make microcredit organizations more
independent and will open the door to a much larger pool of money. If we are going to make credit available to 100 million of the world's poorest families by 2005, we will heed to tap the financial markets.
Some microcredit organizations -- including the Grameen Bank and Banco del Sol -- have raised money in the financial markets. They have found it to be less cumbersome and restrictive than soliciting donations.
The key to tapping the financial markets is a track record. Most microcredit organizations will depend on donations when they start. But once an organization is five to ten years old and has documented its ability to recover loans, it can raise money in the financial markets.
To do that microcredit organizations should start keeping records in accordance with standard accounting practices. A common accounting framework is the CAMEL system, which documents the Capital, Asset Quality, Management, Earnings and Liquidity of an organization. Our group has adapted this framework (with the addition of a Social Impact section, making it CAMEL-S) for use by microcredit organizations.
A version of the CAMEL framework has been used by Accion International for several years. CAMEL was generally accepted by 25 people who attended a June meeting on microcredit accounting hosted by Maria Otero of Accion.
The following table gives an idea of the application of CAMEL, with explanatory notes below.
Category: Payday loans