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.
Freedom savings group in Accra/Fjona Hill
It is a very simple, flexible and transparent system that is particularly attractive to poor women because it emphasizes small, regular savings, social insurance, participatory management, lack of pressure to borrow frequently or in large amounts and access to lump sums to meet household obligations and emergencies.
The scheme was initiated in 1991 in Niger by Care International, and since then was further developed by various NGOs. It is now attracting a lot of attention and rapidly spreading across the developing world, changing lives in the process. Savings groups now have 4.6 million members in 54 countries.
I have written a story for the Economist about it. Here it is:
Helping the poor to save
Small Wonder
A new model of microfinance for the very poor is spreading
Dec 10th 2011 | ACCRA | from the print edition
“MY GROUP has rescued me and my children from poverty,” says Faustina Kwei, rearranging baskets piled high with cassavas and plantains around her market stall in a poor suburb of Accra, Ghana’s capital. She used a combination of savings, dividends and loans from a savings group to rent her stall and buy stock. For the first time, she can feed her two children well and send them to school.
Ms Kwei (pictured) is one of millions of poor people to have benefited from the hottest trend in microfinance: village savings and loans associations. Millions of people like her survive on meagre and erratic earnings. Access to the simplest financial services can help stabilise their incomes, which in turn makes them less vulnerable to diseases and natural disasters. An unexpected flood or fever can push a poor family into utter destitution, or the muscular arms of loan sharks.
To read the full story, click here.
Dec 10th 2011 | ACCRA | from the print edition
“MY GROUP has rescued me and my children from poverty,” says Faustina Kwei, rearranging baskets piled high with cassavas and plantains around her market stall in a poor suburb of Accra, Ghana’s capital. She used a combination of savings, dividends and loans from a savings group to rent her stall and buy stock. For the first time, she can feed her two children well and send them to school.
Ms Kwei (pictured) is one of millions of poor people to have benefited from the hottest trend in microfinance: village savings and loans associations. Millions of people like her survive on meagre and erratic earnings. Access to the simplest financial services can help stabilise their incomes, which in turn makes them less vulnerable to diseases and natural disasters. An unexpected flood or fever can push a poor family into utter destitution, or the muscular arms of loan sharks.
To read the full story, click here.
