List of Abbreviations VI
List of Abbreviations
New concepts and approaches for cooperation in the area of financial aid in developing countries emerge regularly. Particularly the field of microfinance has gained significant attention in political discussions within the last few years. The importance of microcredits has been emphasized by the United Nations. Convinced of the concept’s success, they declared 2005 the “International Year of Microcredit”.
“Recognizing that microcredit programs have successfully contributed to lifting people out of poverty in many countries around the world […] and that microcredit programs, in addition to their role in the eradication of poverty, have also been a factor contributing to the social and human development process […].” 1
A main objective of microcredit concepts is to provide destitute populations with access to capital but also to stimulate the mobilization of savings. 2 In this context, the Grameen Bank model has served as a state of the art microcredit concept since its foundation in the early eighties. Its initiator Muhammad Yunus records various achievements with regard to the fight against poverty in rural areas of Bangladesh. 3 The Grameen Bank provides microcredits to disadvantaged population groups and in particular to women who currently represent almost 100% of the bank’s customers. 4
The Grameen Bank allocates microcredits to individuals of particular social groups. What has made this focused institution innovative is its close bond with the clients and its waiving of loan securities. Any bad debt risks are compensated through the utilization of group dynamics and mechanisms which serve as social loan securities. 5 Group pressure, threat of sanctions and incentive systems lower the risk caused by a lack of material collaterals. This is one significant reason for payback rates that consistently exceed 90%. However, the high involvement of women as customers was the main contribution to the bank’s achievements. Further success factors have been its broad diffusion, the ability to approach the target group of poor people and its sustainable banking operations.
1 See United Nations Department of Economic and Social Affairs (1998), UN Resolution A/RES/53/197 of the International Year of Microcredit.
2 See Khandker, S. (2005), p. 1.
3 Its contribution exceeds 1% of Bangladesh’s GDP; see Santiso, J. (2005), p. 503.
4 See Grameen Bank Online (2007).
5 See Devereux, J./Fisher, R. (1993), pp. 102-121.
Yunus’ success led to increasing awareness and interest from Non-Government-Organizations (NGOs), but also governmental departments in developed and third world countries recognized its economic and social impact. Many experts for development aid have agreed that replicating the Grameen Bank model has significant potential to enhance a country’s situation and to direct development funds into more efficient paths.
The Grameen model became a global “export hit” and was awarded with the Nobel Peace Prize in 2006 for its economic and social impact from the bottom up. 6 Since that time, replications of this microlending concept have been established everywhere in the world. Other developing countries that have adopted Yunus’ approach received financial support either through the Grameen Trust or through national and international grants. 7 Within the last few years, microfinance has also become popular in Western Europe. In order to close the financing gap of entrepreneurs and microenterprises in these countries, many microcredit programs have been established. However their approach of microlending differs from the current Grameen Bank model.
1.1 Relevance of the Topic
Microfinance is currently a very prominent
topic in the area of development aid and a variety of concepts and guidelines have been developed in the nineties. Its origin dates back several decades to when measures of development politics have been based mainly on modernization and industrialization in order to slow the North-South divide. However these policies did not really solve the conflict 8 but rather fueled it. The Worldwatch Institute argues that the divide between poor and rich countries has increased since 1950 because the rich have simply become richer. However since 1980 poor people in developing countries have been faced with increasing poverty. 9 Due to the failure of governmental development policies, people have been looking elsewhere for a change from the common practices. In search of a solution, experts moved away from huge governmental development ventures and rather focused on small projects that are carried out by the private business sector. They can be aggregated under a broad range of small productive business entities.
6 See Gangemi, J. (2006), p. 1.
7 See Yunus, M. (2003).
8 See Nuscheler, F. (1996), p. 100.
9 See Nohlen, D./Nuscheler, F. (1993), p. 158.
A clear definition does not exist so far however they can be classified into rural or urban, formal or informal and auxiliary or main employment enterprises. 10 A large number of microenterprises can be found within the informal sector of developing countries. This sector has typical characteristics. Production processes take place in small enterprises that lack capital and technology. Such enterprises have little or even no access to credits. They operate on a very low productivity level and mainly in local markets. Employees of the informal sector are independent entrepreneurs, (unpaid) family workers but also people in an insecure employment relationship. Many developing countries employ a large part of people in informal segments. 11 Examples are tailors, street vendors or animal breeders.
1.2 Defining Microcredits
First, informal microcredit programs have been offered in the eighties, primarily by selfhelp groups and (international) NGOs. They were partially financed by governmental aid or organizations for economic development and intended to fight existing poverty in Third World countries. The term microcredit refers to credits that do not often exceed 100 US$ and target the poorest of the poor. Depending on a country’s situation, the sector and the type of microenterprise, a microloan can add up to 3,000 US$. 12 But also the definition of poor people varies in literature. The UNO characterizes people as poor, if they have to manage their lives with not more than one US dollar per day.
The first institutional microcredits were offered by Mohammad Yunus in Bangladesh in the eighties. He founded the Grameen Bank which today offers its microfinance services to several million members and has been replicated in other developing countries. 13 Since than, various microlending organizations and institutions have been established and have enlarged their business through other services, e.g. microsavings or mentoring support. However, this diploma thesis will focus especially on microcredits uses the term of microfinance only in the case that additional service is provided. Microfinance institutions (MFI) can be regarded as cooperations, governmental organizations, projects, registered bank institutions and NGOs. 14
10 See Graf, C. (1989), p. 40.
11 See Thiebaut, B. (2003), p. 272.
12 See Fawzi El-Solh, C. (1999), p. 17.
13 See Grameen Bank Online (2007).
14 See Lapenu, C. /Zeller, M. (2001), p. 22.
1.3 Objectives and Structure of the Thesis
Category: Payday loans