Friday, 9 December 2011

Savings revolution - a new form of microfinance for the very poor is spreading like wildfire

Microcredit - providing credit to the poor (who can usually offer little or no collateral in return) -   was introduced and popularised by Nobel Laureate Muhammad Yunus in the 1970s as a way to lift poor people in the developing world out of poverty and help them start small businesses.  It has been very successful in Bangladesh, for example. 

But recently the practice has attracted mounting criticism. Behind success stories are disturbing reports of debts dependency and microcredit institutions hounding their debtors.

When I was in Ghana recently, Plan International took me to see a very exciting new model of microfinance in action in a poor suburb of Accra.  The system, called Village Savings and Loans Associations (VSLA), is based on savings rather than debts and is managed in the community by the people themselves rather than by professionals. 

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