POVERTY: Microfinance - possibilities and limitations

LONDON, 13 March 2012 (IRIN)

 Photo: Guy Oliver/IRIN
Benefits in the balance? Small-scale gold trader, Ankavandra, Madagascar

The scope of microfinance to lift poor people out of poverty and provide mechanisms of empowerment is being challenged as questions are raised about the supporting evidence.
In a discussion hosted by the UK's Overseas Development Institute (ODI), the academic evidence was concluded to be unclear, unreliable and inconclusive.
"[There is] no clear evidence that microfinance has any positive or negative impacts," said Maren Duvendack, ODI fellow and author of a recent systematic review of microfinance, while David Roodman, of the Centre for Global Development, added: "I [wouldn't] say microfinance doesn't work, I would say it does not systematically reduce poverty. We do not have credible academic evidence that microcredit on average lifts people out of poverty... We [also] do not have evidence that microfinance is systematically making people worse off."

Range of services
"I think a lot of people think that microfinance equals microcredit [providing small loans]," Duvendack told IRIN. "[Microfinance is] not just credit and savings, [but also] insurance, business skills, training, financial literacy."
Most studies consider the impact of microcredit, but Roodman suggested another of the microfinance portfolio products - microsavings - could have positive impacts on poverty reduction.
Duvendack, however, who is completing a study on the impact of microsavings, said it showed no significant benefits over microcredit.

Microfinance risks
The predominance of microcredit as a microfinance tool could be a significant hindrance to poverty reduction, as the risk of indebtedness is high.
According to former ODI fellow, Milford Bateman, micro-enterprise failure after funding with microcredit can strip poor people of all their remaining assets.
"It is the overall lack of access to credit for small and medium enterprises that prevents micro-enterprises growing into anything more substantive," Bateman added in an ODI paper. Microfinance initiatives have provided a social legitimacy for poor people to become indebted, commented Bateman, and the commercial business model has meant high interest rates for microcredit.

"This year, I expect even a larger profit"
Just three years ago, Shila Rani Mazumder and her husband were struggling to make ends meet in Bangladesh. Her husband earned just US$3 per day as a carpenter and she worried she would never be able to send her two children to school.
"Each month, we were short of money. Quarrelling became a regular part of our daily life," the 31-year-old told IRIN.
In 2010, she learned about a microfinance initiative in her village to help poor people and decided to take a chance. With a loan of $63 payable over one year, she invested in growing vegetables in their fields. She was also provided agriculture, fisheries and livestock training by the microcredit organization.
"After one year, I paid back the loan and earned a good profit," she said.
In 2011, she borrowed another $360 and is working to pay that back now. "This year, I expect even a larger profit," she said. But the dividends are already being realized in other ways; both children now attend school.
Many people in the Adampur village in Comilla District, 60km east of the capital Dhaka, have changed their lives with the help of micro credit from the Centre for Community Development Assistance (CCDA), a local NGO, which has been operating providing microfinance for poor people in Bangladesh since 1992.
According to CCDA, close to 2,300 residents, mostly women, in Mazumder's village receive microcredit support, with almost 100 percent repayment rates. Across Bangladesh, the organization is supporting close to 60,000 people by providing microfinance support, offering one-year loans at 24.72 percent interest per year.
MA Samad, executive director of CCDA, said farmers in the area needed money at certain times of the year, particularly in September and October.
"The micro-finance support is helping the farmers in the area. Many poor people have changed their lives with the help of microcredit," he said, noting that it was not easy for them to get loans and microcredit was largely the only option available to them.
He denied that the interest rate was high. "Before the introduction of microfinance, people used to take loans from 'mohajan' [informal money lender] and they often charged even two or three times the amount microfinance organization charge," Samad said.
"Microfinance institutes [are] now required to generate high financial rewards for their managers (salaries, bonuses) and owners/shareholders (dividends and capital gains)," Bateman explained.
"The fear is that significant financial flows are flowing out of the poorest communities, rather than being retained and recycled within them to underpin productive investment as the precursor to an escape from poverty."
Consensus is growing that microcredit should not be offered to the poorest of the poor due to the risk of harm, said Ruth Stewart of the Social Science Research Unit at the Institute of Education, University of London, at a London International Development Centre event.

Limitations and advances
The limitations in evidence of microfinance for poverty reduction result from poor study design and unreliable data, despite more than 30 years' experience. Hopes remain that robust and well-designed research, including randomized controlled trials and systematic reviews, will provide clearer conclusions in coming years.
Microfinance initiatives will not be successful in a vacuum, according to Duvendack. They will need to operate as part of a broader poverty reduction strategy with appropriate large- and small-scale economic frameworks to support advancement for poor people.
Another forthcoming systematic review co-authored by Duvendack will also show no firm conclusions of microfinance as a tool to empower poor women, although it does increase recognition of poor people as consumers of financial services, and can result in the development of regulatory frameworks around consumer rights. These factors were argued as possible forms of empowerment and new regulatory frameworks for India were cited.
"There are indigenous models and we need to investigate these models," said Will Derben, head of community relations at Barclays Africa.
Indigenous community models to provide finance for poor people, like the Susu men in Ghana, have been overlooked during implementation of microfinance tools.
Potential customers, as well as existing community models, need to be better understood so as to be better supported by microfinance initiatives.
Also overlooked, Duvendack told IRIN, may have been other potentially important development interventions, such as targeted welfare programmes, conditional cash transfer programmes, or small-scale agricultural growth programmes.
"I think we need more studies to be clearer about what is the actual impact of the various products," said Duvendack. "Do we have to have credit plus savings together or savings alone, or credit alone - or what is it now?"
Growth
By 2008, the microfinance industry had grown to include at least 2,420 microfinance institutes in 117 countries, according to microfinance institute exchange; the number continues to grow annually.
Microfinance institutions are able to be relatively self-sufficient, to innovate, to provide jobs and to compete in financial markets.
For Barclays Africa, Derban said, "Microfinance is a concept. It's about finding that balance between providing a financial service that will improve people's lives but yet be viable commercially.
"We need to provide financial services and we need to find ways of improving the system. Everybody wants to be banked."
To maintain a balance between doing social good and implementing successful financial products, Derban explained, Barclays Africa combines its commercial expertise with regulations bound to the philanthropic budget used to invest in community projects.
"I think it used to be the case where a lot of people that came into the microfinance sector came via the NGO route, where it's all about helping. [Now] we're seeing... more commercial people are coming in."

Regulation
"Certainly we shouldn't just let the market do its own thing," added Roodman. "Government does need to play a major role, setting the rules of the game and ensuring that it stays on an even keel."
Continuing to increase funds invested in microfinance, Roodman reflected, would not only be unnecessary, but could also potentially create harmful "microcredit bubbles".
"We cannot assume that more is always better. The amount of money going into microcredit these days poses the largest threat to the largest strength of microfinance."
Microfinance, argued Roodman, offers "a cautionary tale about putting a lot of money into things where the impacts are not rigorously dealt with".
http://www.irinnews.org/Report/95067/Development-Microfinance-possibilities-and-limitations

POVERTY: India: Microcredit banks applaud possible changes to regulation

July 08, 2011

From the Wall Street Journal's LiveMint, writers Remya Nair and Dinesh Unnikrishnan detail the pending bill.


The microcredit industry in India is applauding the draft of a bill that could give new oversight to the industry. The good news has even seen the stock price of microcredit giant SKS microfinance rise up in the last couple of days.
The draft calls for microcredit to be regulated under the central reserve bank instead of individual states. Currently the state of Andrea Pradesh has tight restrictions against microcredit with laws that treat responsible lenders no better that predatory moneylenders.
The Microfinance Institutions (Development and Regulation) Bill gives more powers to the Reserve Bank of India (RBI) to regulate microlenders. It will cover all MFIs, including the smaller ones. MFIs give tiny loans to poor borrowers at around 24% interest. The Bill has to be approved by the cabinet and Parliament before it becomes law.
The industry welcomed the draft, saying it offers more clarity to the future of India’s Rs.20,000 crore microlending sector. The Bill, which has been posted on the finance ministry website for public comment, says MFIs registered with the apex bank won’t be treated as moneylenders, thereby keeping them out of the purview of the Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Act, 2010.
“This (the new draft Bill) covers all types of MFIs, including the smaller companies, which gives confidence to the sector,” said Vijay Mahajan, president of lobby group Microfinance Institutions Network. “The regulations have been drafted in line with the recommendations of Malegam committee, but go well beyond that to provide comfort to the sector. It is a new generation Bill.”
More than a quarter of the industry is concentrated in Andhra Pradesh, which promulgated a law in October restricting operations of microlenders. This led to a drastic rise in bad loans as borrowers stopped repaying debt. Banks in turn stopped lending to MFIs. The state law, which had been preceded by an ordinance, followed reports of coercion in recovering loans that allegedly led to suicides.
Early this year, RBI issued regulations to govern MFIs operating as non-banking financial companies, based on the recommendations of an expert committee headed by noted chartered accountant Y.H. Malegam. The new rules capped the interest rate MFIs can charge at 26% and made a minimum two-year tenure mandatory for all loans above Rs.15,000.
http://povertynewsblog.blogspot.com/2011/07/microcredit-banks-applaud-possible.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FEOch+%28Poverty+News+Blog%29

MALNUTRITION: DRC: Urban farming takes root

KINSHASA, 28 June 2011 (IRIN)

 Photo: André Thiel/Flickr
Urban farming is ongoing in five main cities in the DRC (file photo)

 Urban farming in the Democratic Republic of Congo (DRC) is providing a livelihood for thousands of city dwellers, with vegetables bringing in good money for small growers and helping to alleviate high levels of malnutrition nationally, agricultural officials say.
The demand for vegetables and the high prices they command in DRC cities - up to US$4 per kilo - has pushed many jobless residents into becoming small-scale growers.
Most of the green spaces along the roadsides of the capital, Kinshasa, have been transformed into small farms. City farmers now grow 122 percent more produce than they did five years ago, according to the UN Food and Agriculture Organization (FAO). The FAO is supporting gardeners in five main DRC cities with a $10.4 million urban horticulture project to increase their productivity and improve their farming skills.
"The programme, started as a response to mass urban migration following a five-year conflict in the eastern DRC, now assists local urban growers to produce 330,000 tons of vegetables annually," FAO said in a statement. "In addition to food, the programme has also helped provide employment and income for 16,000 small-scale market gardeners."
Sebastien Mbuku, previously a school teacher in Kinshasa, said teaching only paid the bills for one week of the month. Unable to make ends meet, he turned to farming amaranth – a leaf vegetable - and spinach on 16 square metres of land.
Mbuku said he can now afford to put meat on the table to feed his wife and five children, and cover school fees. “Working as a small vegetable grower has become like any other respected job,” Mbuku said.

Reduced malnutrition?
The urban farmers sell 90 percent of what they produce in urban markets and supermarkets, according to FAO, helping to feed a swelling city population as Congolese leave the countryside in search of security.
"When production has doubled or tripled we can confidently says it’s had an impact on reducing malnutrition, as vegetables are available more cheaply on the market and people can eat them more frequently,” said Ndiaga Gueye, FAO's country director in the DRC.
Although the project has contributed to improving nutrition in urban areas, Gueye said there was still a lot of work to be done. “No one can sell the illusion that our project has eradicated malnutrition,” he said.
A 2009 survey by Programme National de Nutrition, the UN World Food Programme (WFP) and the UN Children's Fund (UNICEF) showed alarmingly high levels of wasting among urban and rural children.
According to a Multiple Indicator Survey published by agencies in September 2010, 24 percent of children in the DRC under five are underweight; 43 percent are stunted; and 9 percent are wasted.

 Photo: David Hecht/IRIN
Kinshasa. Many city-dwellers are turning to urban farming to make a living (file photo)

Micro-finance
The burgeoning incomes of small vegetable growers, who sometimes earn 200 or 300 percent profits, have made them more attractive to micro-finance institutions like the DRC-based FINCA, which supports small-scale credit loans.
FINCA said 99.9 percent of the credit they have given to vegetable growers has been paid back in full and on time.
"At first I doubted the ability of vegetable growers to pay back credit,” said Dick Mabiala, a credit agent at FINCA. "But I changed my mind when a lady growing fruit and vegetables took a $300 credit and came back to deposit $1,000 worth of profits into her account. The woman was only using two hectares of land for her enterprise."
Farmers have seen their incomes increase dramatically. In Kinshasa and in the town of Lubumbashi, the average annual income of each farmer increased from around $500 in 2004 to $2,000 in 2010. In Likasi town, it rose from $700 to $3,500. There have been similar increases in other cities, according to the FAO statement.
Mabiala knew of vegetable growers who put themselves through college with the income they got farming. But after their studies, it was back to the land.
"After ending university studies they tell you they cannot look for an office job just for the prestige of wearing a clean shirt and tie, when they could be making $600-800," he said.
http://www.irinnews.org/report.aspx?reportID=93089

POVERTY: MYANMAR: Government open to microcredit expansion

YANGON, 29 June 2011 (IRIN)

 Photo: UNDP Myanmar :
A microfinance loan dispursement in Myanmar

Myanmar President Thein Sein’s statement in May that a sustainable microfinance system should be established has sparked interest among aid workers and those already involved in the country’s embryonic microfinance system.
The president made the announcement at a rural development and poverty alleviation workshop where he acknowledged the country’s poor are concentrated outside the cities and in need of assistance.
“We expect [from the president’s statement] that we would be able to work more broadly in the future,” said Maung Maung, general manager of international NGO Pact which recently hosted Myanmar’s largest microfinance project. As of March, Pact had 478,404 clients in 22 townships from three zones - Delta, Dry and Shan.
More than 85 percent of rural households in Myanmar rely on loans from multiple sources to meet basic needs, according to the UN Development Programme (UNDP), which brought microcredit lending to the country in 1997.
“The need for credit in the rural economy is substantial,” Akbar Usmani, acting UNDP resident representative, told IRIN. He estimated the present demand for loans in rural Myanmar at around US$340-471 million per year.
Current microfinance activities in Myanmar are conducted on the basis of specific authorizations provided to microfinance actors. These take the form of a set of Memoranda of Understanding (MoUs) signed by the various microfinance actors with their line-ministry.
Microfinance is, therefore, not yet mainstreamed into a regulated financial sector, but is rather authorized on a case-by-case basis by the government. There is no specific microfinance regulation in Myanmar, according to a 2010 microfinance industry report published by France-based NGO ACTED and the Banking with the Poor Network in collaboration with the Foundation for Development Cooperation.
Both Maung Maung and the UNDP’s Usmani agreed that a strengthened legal framework could fortify and sustain microfinance lending in this agriculture-based country, where 70 percent of the population live in rural areas and about 26 percent below the poverty line, according to UNDP’s country-wide survey conducted in 2009 to 2010.

Guessing game
Still, no one knows what form the rules and regulations will take, and agencies are wondering how the government will amend current restrictions on lending from financial institutions. A law passed in 1990 forbade both state and privately-owned banks from providing uncollateralized credit.
This means all bank credit has to be backed by either real estate or by a fixed deposit account, which always worries agencies that rely on donor funds to run their projects.
“How can we borrow money from the [local] banks, when we have nothing to collateralize?” said Nyunt Hlaing, executive committee member of Myanmar Business Executives Association, which is one of the local groups engaging in the microfinance sector. “This is a big challenge in expanding and sustaining the projects for the long-run.”
In the absence of access to institutional credit from the private and public banks, the rural poor rely on relatives, friends, moneylenders and pawn shops for small loans which charge interest rates as high as 60-200 percent a year.
UNDP introduced microfinance to Myanmar in 1997 using the Grameen model of group-based lending in which typically a small group takes on the responsibility of repaying the debt. The initiative was originally implemented through several sub-organizations, but in 2006, Pact took over all of UNDP's microfinance programmes.
Several other government-sponsored groups, semi-governmental organizations and local and international NGOs have microfinance projects thanks to individual MoUs with the government.
There are institutional microfinancing lenders in 46 of the country's 330 townships, and according to UNDP, only 10 percent of Myanmar’s demand has been met.
Experts and economists believe that poverty could be effectively reduced if modern rules and regulations are implemented for the microfinancing sector.
http://www.irinnews.org/report.aspx?reportid=93093

POVERTY: Can small loans reduce poverty?

June 10, 2011 Small loans, somewhere in the neighborhood of $100 to $500 dollars, are an increasingly popular weapon in the fight to reduce poverty. Called microcredit, institutions dole out these monetary advances to help extremely poor people engage in successful entrepreneurship and improve their quality of life.
While proponents extol its virtues, researchers look for evidence; they want to know if it works. Does it really increase financial development and help individuals make solid monetary decisions as its supporters claim?
"Microfinance works," said Dean Karlan, economics professor at Yale University. "But it isn't the Hollywood ending that we've been sold."

 Vendors like these in this market in the Philippines can apply for and receive small loans of $100 to $500 dollars. This microcredit is designed to help extremely poor people engage in successful entrepreneurship and improve their quality of life. But new research says microcredit works in ways proponents don't expect. (Photo Credit: Innovations for Poverty Action)

Karlan, coauthor of a recent book More Than Good Intentions that also discusses research on this topic, and Jonathan Zinman, an economics professor at Dartmouth College in Hanover, N.H., recently published the results of a 22 month study that examined how individuals make economic decisions over time and whether micro-lending policies aid economic development.
"Proponents argue microcredit mitigates market failures, spurs microenterprise growth and boosts borrowers' well-being," the researchers write in a report, which appears in the June 10 issue of Science. The National Science Foundation's Division of Social and Economic Sciences funds the work.
The researchers found "microloans increase ability to cope with risk, strengthen community ties and increase access to informal credit." But they also found the subjective well-being of loan awardees slightly declined. In addition, they found awardees reduced their overall number of business activities and those in the study did not increase investment in their businesses.
"Enterprise growth is the canonical story that the microcredit industry promotes," said Karlan about the amount of financial investment. "This isn't to say that microcredit never produces such an impact. But it should not be seen as the singular story. We need to know more about how people actually use their loans, and we should not be judgmental if the answer is not always for investment in enterprise."

 Traditional microlenders target women who operate small-scale businesses and use group lending mechanisms. But the expansion of microlending means it often ends up looking more like traditional retail or small business lending that has the same impact on women and men. (Photo Credit: Innovations for Poverty Action)

"Traditional" microlenders target women who operate small-scale businesses and use group lending mechanisms. But the expansion of microlending means it often ends up looking more like traditional retail or small business lending that has the same impact on women and men.
Optimism, calmness, worry and job satisfaction was about the same for both men and women in the study. "We do not find any evidence that treatment effects are more pronounced for female borrowers," the researchers write.
Treatment effects refer to the financial and psychological outcomes of the mircoloans.
Karlan and Zinman designed an innovative experiment that randomly assigned individual microloans of, on average, $225 through credit scoring to 1,601 individuals in the Philippines. The loans, assigned to microentrepreneurs, were short-term and were required to be repaid on fixed schedules with equal periodic repayments.
The research design employed credit scoring software to approve loans randomly for marginally creditworthy applicants and then used survey data to measure how the loans impacted the awardees' later access to credit.
By randomizing the marginal credit decisions, Karlan and Zinman were able to measure the impact of the loans, screening off other causal factors. Moreover, these standard, first-time-borrower loans were made through a lender that had no ties to the survey firm--important for eliminating potential bias.
Loans were to be paid back in 13 weeks, with weekly repayments and a monthly interest rate of 2.5 percent charged over the declining balance. But several upfront fees combined with the interest rate to produce an effective annual interest rate greater than 60 percent.
Karlan and Zinman say the high annual interest rate may have contributed to a marginal improvement in risk management. "We do find that microloans increase ability to cope with risk," they write, "strengthen community ties, and increase access to informal credit. Thus microcredit may work, but through different channels often hypothesized by its proponents."
Informal credit was loans provided by family members and friends. The researchers found awardees had greater access to these loans once they had been the recipient of a microcredit loan.
"Access to credit lowered the demand for risk mitigation tools elsewhere," said Karlan. "We also found a similar result in our earlier South Africa study, in which individuals with access to credit were more able to keep their jobs--more able to absorb some sort of shock, which if they did not absorb would have meant losing their job."
Karlan is the president and founder of Innovations for Poverty Action, a non-profit organization that seeks to bridge the gap between academia and economic development policy. Zinman is a research affiliate of the organization.
"The biggest lesson we see here is one of process, and of shedding ourselves of preconceived notions on what credit is for," said Karlan. "People use credit for many reasons, beyond business investment, and that is good."
"What we need now is more studies like this that help understand the patterns of how credit is used, and if credit is being used to alleviate poverty, then we need further studies to learn how and when that happens."
http://www.sciencecodex.com/can_small_loans_reduce_poverty

POVERTY: Luster Dims For a Public Microlender

May 10, 2011 : VIKAS BAJAJ


Adeel Halim/Bloomberg News : SKS Microfinance makes small loans to poor people, like this woman in Sadasivpet, India, who was able to buy a sewing machine.


 MUMBAI, India — After SKS Microfinance, India’s largest microlender, completed its initial public offering last August, its shares quickly shot up 50 percent. Financial analysts charted rosy forecasts about the firm’s future.
That seems a dim memory now. On Tuesday, SKS shares closed at 298.60 rupees ($6.67), down about 70 percent from the price at which it went public.
SKS was once seen as a model for how microcredit firms could do very well for themselves by making loans as small as $50 to basket weavers and other poor people. Now the company, which last week reported its first loss as a public company, seems to symbolize the problems of microfinance in India.
The loss for the quarter was a result of many borrowers’ stopping payment on their loans in the company’s home state, Andhra Pradesh, where government officials have branded SKS and other microlenders as greedy loan sharks ruining the lives of the impoverished. During the first three months of this year, only 10 percent of SKS’s borrowers in Andhra Pradesh, where the company has more than a third of its loans, made their payments.
SKS’s financial problems are the latest in a string of bad news for the once-celebrated microfinance sector. Early this month, in Bangladesh, the Supreme Court ruled against Muhammad Yunus, the Nobel laureate who is recognized as the father of microfinance but who has come under attack by the Bangladeshi government, which argues that microlending victimizes poor people. The court rejected an appeal by Mr. Yunus to remain managing director of the institution he founded, Grameen Bank.
In India’s Andhra Pradesh state, loan repayments started falling sharply late last year after lawmakers there enacted a tough law to restrict lending by microcredit firms, which they said had lent more money than many borrowers could afford to repay. Many politicians also encouraged borrowers not to repay existing loans.
SKS, whose investors include the Silicon Valley financiers Sequoia Capital and Vinod Khosla, reported that it had lost 697 million rupees ($15.6 million) in its fourth quarter, which ended in March. That compared with a profit of 629 million rupees a year earlier. Analysts say SKS will probably have to recognize losses on a big part of its $312 million loan portfolio in Andhra Pradesh.
Vikram Akula, the American who is chairman of SKS, said it was hard to say exactly how much money the company would lose in Andhra Pradesh. Loan repayments could go up significantly if the state stops restricting new lending there, he said, because it would give borrowers confidence in the company’s viability in the state. “If we are able to restart lending, we think there could be a dramatic improvement,” he said. “If we can’t restart lending, we will have a painful couple of quarters.”
Other large Indian microlenders, like Basix, Share and Spandana, also face big losses in Andhra Pradesh, but those firms do not trade on the stock exchange.
Samit Ghosh, managing director of Ujjivan Financial Services, a microlender based in Bangalore, said it would take up to two years for the industry to overcome the crisis in Andhra Pradesh, which has also made it hard for lenders to raise money from banks to make loans elsewhere in India.
“In many ways, microfinance will have to reinvent itself,” Mr. Ghosh said.
Mr. Akula said SKS would not grow as aggressively as it had initially projected. Instead it will seek to make bigger loans to qualified borrowers outside Andhra Pradesh, who he said might have fewer options because of the trouble microfinance firms are facing.
He also said SKS would expand into other businesses like loans made with gold as collateral, a popular form of personal and business finance in southern India. The firm plans to open as many as 50 offices to make such loans this year.
Mr. Akula, who started SKS as a nonprofit organization, acknowledged that the company had not anticipated the crisis in Andhra Pradesh. SKS, he said, reacted too slowly to the criticism of its business by politicians and community leaders.
“I still think it’s a solid business,” Mr. Akula said in a telephone interview from Hyderabad, where SKS is based. “Clearly, we failed at working with the broader political environment.”
Officials in Andhra Pradesh did not return calls or respond to messages.
Microfinance firms are hoping to work out repayment arrangements with borrowers in Andhra Pradesh and persuade the state government to relax the tough lending law it passed in December. Those strictures require companies to seek government approval before making each loan and call for collections to take place in front of public officials. Mr. Akula said the state had approved only 1,643 of the 73,000 loan applications SKS submitted since the new rules went into effect.
Policy makers have said they want to rein in aggressive loan collection practices that drove some overextended borrowers to commit suicide. Andhra Pradesh officials also said some borrowers took multiple loans from several lenders, amassing debts of $2,000 or more.
Last week, the Reserve Bank of India, the country’s central bank, issued its own rules for microlenders that included restricting annual interest rates to 26 percent and limiting total lending to 50,000 rupees ($1,118) per borrower.
SKS says most of its loans already comply with that limit; other lenders have charged rates of 30 percent or more in some cases.
The central bank also said commercial banks could continue to meet their regulatory targets for lending to the poor by providing loans to microfinance firms, an endorsement that should help lenders raise money.
Alok Prasad, chief executive of the Microfinance Institutions Network, an industry association, said the central bank’s moves would be helpful.
“Over all,” Mr. Prasad said, “the thrust of policy, the direction of things, is very positive and very good.”
http://www.nytimes.com/2011/05/11/business/global/11micro.html?_r=1

POVERTY: Grameen Bank cleared of financial breaches by Bangladesh government

Reuters

guardian.co.uk,  25 April 2011

A Bangladeshi government probe has cleared microlender Grameen Bank of financial irregularities, the finance minister said, but the finding will not change the decision to fire Nobel laureate Muhammad Yunus.

Yunus, 70, was dismissed by a central bank order – upheld by the high court and supreme court – on the grounds that he had overstayed in his position and refused requests to quit.
Yunus, winner of the 2006 Nobel peace prize, set up Grameen, which means village in Bengali, and had been the bank's managing director since 2000.
Lauded at home and abroad by politicians and financiers as the "banker to the poor", he has been under attack by the government since late last year, after a Norwegian documentary alleged the bank was dodging taxes.
Yunus denied any wrongdoing and a Norwegian government investigation later also cleared him of any malpractice.
The Bangladeshi finance minister, Abul Maal Abdul Muhith, told reporters on Monday that a committee appointed by the government to investigate Grameen Bank's operations had also found no evidence of financial irregularities.
But officials and experts said the finding would have no impact on the government's decision to fire Yunus as the bank's managing director, because he had overstayed the official retirement age for bank managing directors in Bangladesh of 60 years.
Associates of Yunus say his removal was government retaliation after he briefly considered a political career to challenge the prime minister, Sheikh Hasina.
No comment from Yunus or the Grameen Bank was immediately available.
http://www.guardian.co.uk/world/2011/apr/25/grameen-bank-cleared-irregularities-bangladesh

POVERTY: Malawi: Village Savings and Loan

In the small region of Chakhaza in Malawi, a group of women sit around a table. The majority of them never had the chance to finish primary school and they live in one of the poorest communities in the countries. But today they’re discussing business plans, loan repayments and meeting minutes. Thanks to CARE, these women – like hundreds more in Malawi’s countryside – are members of a village savings and loan group, investing small amounts of their own money into a fund from which they can eventually borrow.
“After we started saving, the money in savings had grown and we started lending to each other,” says Margaret, the group’s treasurer. “The money I borrowed I invested in a small business selling second-hand clothes. After making some profit I returned the loan and continued with the business.”

The principle of the group is simple: save and share together. Margaret’s group of nine meet weekly and everyone who attends is required to buy at least one share valued at 25 kwacha ($0.22). Then they can either borrow from the group or wait for the returned dividends. With the annual dividends, Margaret bought nine pigs, fertilizer for her maize field and is now using the profits from her business to send her children to school.
For Margaret, and many other women throughout Malawi, the savings and loans groups have given them the opportunity to change their own lives and find support within their communities. “We rely on each other and have become friends through the village savings and loans group. We are always together, just like one, to share our ideas and support each other.”
CARE launched our first village savings and loan program in Niger in 1991. From the beginning, clients – predominantly women – defined their own needs and capabilities. CARE’s comprehensive program supports the group for up to one year, and includes financial and business skills training. Since 1991, CARE has established more than 54,000 such groups in 21 African countries and served over 1 million members.
http://care.ca/main/index.php?en&malawi_margaret

POVERTY: BANGLADESH: Microfinance institutions pushed loans, admits major NGO

DHAKA, 20 April 2011 (IRIN) - Lack of regulation and a surplus of donor funds in Bangladesh’s microcredit industry have led to NGOs pushing loans to over-indebted borrowers, says BRAC, the world’s largest development organization and heavily involved in the country’s microfinance industry.


 Photo: Sam Sherrat/Flickr
Millions of Bangladeshi women received loans
Asked whether BRAC itself had pushed loans onto borrowers who could not afford them, Shameran Abed, programme head of microfinance at BRAC, told IRIN: “Yes,” citing “excess liquidity” and a lack of communication between lenders.
“In the mid 2000s, the microfinancing industry grew too fast. And yes, we did,” said Abed. “But I’ll tell you why we did - we didn’t have perfect information.”
In 2009, BRAC disbursed US$1.1 billion worth of loans to women throughout Bangladesh, and like many other microfinance institutions (MFIs), claimed that 99 percent of their borrowers paid back their loans, a win-win situation.
However, the industry has also come into disrepute. A Norwegian documentary, Caught in Micro Debt, sparked international outrage in 2010 by showing the difficulties people have under the burden of paying back a loan.
Some borrowers are even taking out more loans to meet repayments, experts say
Microcredit, the practice of loaning sums as small as US$20, was first pioneered in Bangladesh in the 70s and 80s by Nobel laureate and politically controversial figure Mohammad Yunus and the organization he founded, Grameen Bank.
Since then, the industry has mushroomed to over 500 registered MFIs in Bangladesh and has come under increasing scrutiny.
Women, who are the borrowers in most cases, are subject to high interest rates and aggressive debt recovery techniques, said Lamia Karim, associate professor of anthropology at the University of Oregon. She has been researching microfinance for more than 15 years.
But BRAC’s Abed said the popular belief that high interest rates are to blame for loan defaulting is wrong. The interest on a $140 loan, he explained, is 15 percent, with weekly installments of $3.40, of which about $0.40 is interest.
"Is that 30 taka [US $0.40] tipping you over the edge? I don't think so," he said.

Inadequate regulatory body
Despite having more than 20 million micro-borrowers, the Bangladesh government still has no effective system in place to protect microcredit lenders and clients, experts agree.

 Photo: Muhammadyunus.org
Professor Muhammad Yunus

The Microcredit Regulatory Authority (MRA) formed in 2006 after repetitive calls from the microcredit industry to establish control over smaller MFIs, is hamstrung by a lack of manpower and funds, according Prodip Chandra Roy, MRA assistant director of research.
Furthermore, Roy said the MRA’s authority is severely undermined by other organizations that offer registration.
“For us the biggest challenge is to control other authorities that also have the authority to register microfinance organizations,” he said.
To register with the MRA, an MFI has to show either that it has 1,000 members (potential borrowers), or $50,000-worth of dispersible funds. To date, the MRA has registered some 548 MFIs out of thousands operating in Bangladesh.

Strong-arm tactics
Many microcredit borrowers have little or no property to be used as collateral, which makes trust a key element of the loaning process.
“For our microfinance borrowers we do not have any collateral, so we cannot take anything back. The court system doesn’t work here. So, the only way you can get your money back is to keep pestering them,” Abed said.
However, BRAC, Grameen and other NGOs have been found to do much more than pester borrowers who missed payments, some claims suggest.
As an attack on a family’s honour, women are regularly shamed in public, an activity that can have grave social repercussions, Karim said.
Stronger measures are used if the borrowers default even after public humiliation.
“Grameen, BRAC, ASA and Proshika all strong-armed women into paying back. In extreme cases homesteads are taken apart and the timber and tin sold off,” said Karim.
Though the NGOs don’t actively take part in `ghar bhanga’ (house-breaking), community members do what NGO officers order them to do, out of fear of losing access to loans, she said.
However, despite numerous papers by independent researchers, the NGO community refuses to accept such allegations.
“I’ve not had one issue of complaints [of house-breaking] coming from borrowers, or the media or the society that we work in,” said Abed.
http://www.irinnews.org/report.aspx?reportID=92528

POVERTY: Microfinance struggles to restore its reputation

MUMBAI, India (AP) — Long heralded as a way to lift the downtrodden out of poverty, microfinance has come under a cloud.
The stories of lives being changed by a $27 microloan and picture perfect scenes of smiling women with colorful handlooms, empowered by affordable credit, have been replaced by headlines about borrowers driven to suicide.
At best, microfinance seems to be failing to achieve its most noble goal: poverty alleviation. At worst, some lenders are contributing to a cycle of indebtedness and abuse, just like the loan sharks they sought to replace.
Critics say the industry has grown too quickly for its own good, with too much rapaciousness and too little regulation. That has fostered a breakdown in lending discipline, with multiple loans to overextended borrowers, and allowed some unscrupulous players to thrive.
The controversy has hit the heartland of microfinance in South Asia hard. As India prepares charges in 51 cases of suicide allegedly linked to coercive microfinance institutions, microfinance's founding father, Nobel laureate Muhammad Yunus, is fighting to hold onto his position as head of Grameen Bank in a Bangladeshi court.
Yet advocates for microfinance say it has achieved much despite the recent bad publicity. They argue that extending credit to the poor — in practice most of the borrowers are women — has fostered small businesses, helped promote gender equality, lifted incomes, and improved access to food and education for some of the world's most desperate citizens. The backlash could unwind all that progress, they warn.
"To stifle an entire industry is wrong," said Vikram Akula, chief executive of SKS Microfinance, whose listing on India's stock market last year sparked fierce debate about how much profit is justifiable when helping the poor. "It is the poor who will ultimately suffer the most if they have to return to village loan sharks for financial services."
As the industry indulges in a bout of soul searching over what has gone wrong, some say microfinance is suffering, in part, from its own success.
Microfinance has excelled at getting a lot of money to a lot of borrowers quickly, disrupting established networks of power and patronage in the process.
Some say that remarkable growth has prompted a backlash from vested political interests.
"The poor is a constituency politicians see as their own turf," said Alok Prasad, chief executive of India's Microfinance Institutions Network, whose 46 members represent about 85 percent of the lending in the sector in India. "Anything which leads to greater empowerment of the poor makes them insecure."
In Bangladesh, the government order dismissing Yunus — which he is now fighting in court — is widely seen as retribution for his 2007 attempt to form his own political party. Yunus, who in founding Grameen Bank in 1983 pioneered the concept of reducing poverty by making tiny loans to the poor, has himself been frequently critical of the commercialization of microfinance.
In India, some say pandering for voters, corruption and competition with a state-backed lending program helped spark a crackdown that has essentially frozen microlending in the southern state of Andhra Pradesh, India's most important microfinance market. The central bank had to step in to try and prevent microfinance institutions from going bankrupt.
Government lending programs for the poor in India have been losing ground to microfinance groups. In 2007, state-backed self-help groups, which link local borrowers with banks, sometimes at subsidized interest rates, added 8.5 million clients, while microfinance groups added 3.2 million. Two years later, self-help groups added just 6.7 million clients, while microfinance groups added 8.5 million, according to M-CRIL, an Indian micro-credit rating agency.
M-CRIL director Alok Misra said the gains by the private microfinance groups have shamed the government and unsettled politicians who believe the self-help groups are an important means of securing votes.
"It is showing the government its own inadequacy," Misra said. "That's a big challenge for the politicians. Politicians feel poverty-lending should be in the government's name."
R.Subrahmanyam, Principal Secretary of Rural Development in Andhra Pradesh dismisses charges of politicking as "a figment of the imagination of disgruntled elements."
"How can microfinance institutions step on political interests?" he said. "If poor are getting exploited and commit suicides by dozens, should government be a mute spectator?"
He said the state is preparing to prosecute 51 cases of suicide allegedly linked to coercive microfinance groups. Meanwhile the central bank is considering new regulations which would, among other things, cap microfinance interest rates.
"Irresponsible lending leading to multiple loans without due diligence, unproductive loans for consumption and consumer durables, lack of transparency in operations, usurious interest rates, coercive recovery practices, have all resulted in hyper-profits to microfinance institutions and impoverishment of the poor," Subrahmanyam said in an e-mail.
Many within the industry would agree with that assessment and welcome better regulation. The Microfinance Institutions Network plans to launch a microcredit bureau in India in a few weeks, which should help reduce the problem of borrowers taking on too many loans.
Evaluations which benchmark results against control groups so far haven't found evidence that microloans alone are enough to solve the complex problems of the deeply poor. Still, many warn that a world without microfinance would be much worse off.
"Microcredit is a good thing but has been oversold," said Yale professor Dean Karlan, who authored one such study. "It will not raise people out of poverty, certainly not single-handedly. But there are benefits that are important."
http://www.google.com/hostednews/ap/article/ALeqM5gWkw5ZOkT3QYIBr3X3QhyLgBsliw?docId=4314a0557a664c3e8828571eb0e31079

POVERTY: Microcredit: sorting out where the problems lie

By David Korten : January 22, 2011.
David Korten is co-founder and board chair of YES! Magazine, co-chair of the New Economy Working Group, president of the People-Centered Development Forum, and a founding board member of the Business Alliance for Local Living Economies (BALLE). His latest book is Agenda for a New Economy: From Phantom Wealth to Real Wealth.



 Patrick-Emil Zörner/Wikimedia Commons
Muhammad Yunus speaks at in Wiesbaden, Germany, in 2009.

The introduction of for-profit operations set the stage for problems. What happened in poor communities began to mirror troubles seen with the U.S. banking system.

For more than 20 years, microcredit has been widely heralded as the remedy for world poverty. Recent news stories, however, have sullied microcredit’s glowing reputation with reports on scandals, exorbitant compensation to managers, skyrocketing interest rates, and aggressive marketing schemes.
Once praised as a universal panacea, microlenders are now being widely attacked as predatory loan sharks. In December 2010, Sheik Hasina Wazed, the prime minister of Bangladesh and former microcredit advocate, accused microcredit programs of “sucking blood from the poor in the name of poverty alleviation.”

What happened?
It turns out there are two very different models of microcredit. As Muhammad Yunus, winner of the 2006 Nobel Prize, pointed out in his Jan. 15, 2011 New York Times op-ed, one type of microcredit program is designed to serve the poor; another to maximize financial returns to program managers and Wall Street investors.
The differences raise crucial questions for the future directions of microfinance. They also help us see where the banking system here in the United States went off course and how we must restructure it to support prosperous Main Street economies.
In 1983 Yunus founded the Grameen Bank, universally cited as the inspiration and model for the global microcredit movement. His purpose was to improve the lives of millions of poor Bangladeshis by making small loans to poor women to fund income-generating microbusinesses.
The basis for the Grameen Bank’s worldwide renown lies in a number of key characteristics that are not widely understood.
Most local branches are self-funded by deposits of their local members in taka, the Bangladesh national currency.
By serving as a depository for its members, Grameen Bank allows the poor to build their own financial asset base.
The bank extends loans to its members at a maximum interest rate of 20 percent, a fraction of what many other microlenders charge.
Operating on a cooperative model, profits are redistributed to the Grameen Bank’s owner-members or are invested in community projects.
These features root the Grameen Bank in the community it serves and keep money, including interest payments, continuously circulating locally to facilitate productive local exchange and build real community wealth.
Microcredit programs seeking to replicate the Grameen model have spread rapidly across the globe. Most, however, replicate only the loan feature. Few provide their members with depository services or replicate the Grameen Bank’s other defining features, though these features are central to its commitment to community wealth building.
As microlending programs became increasingly focused on repayment rates and growing the size of their loan portfolios, they looked for new sources of capital to expand their reach. With encouragement from foreign philanthropists, many turned to foreign commercial equity investors. Since private equity conflicts with the nonprofit model, sometime around 2005 many nonprofit microcredit programs changed their status to for-profit enterprises and converted their philanthropic nonprofit assets into private for-profit assets.
One such micro-finance program was Compartamos in Mexico, which in 2007 launched an initial public stock offering. According to a New York Times article, it charged its borrowers an annual interest rate of near 90 percent, producing a return on equity of more than 40 percent, nearly three times the 15 percent average for Mexican commercial banks. This made Compartamos highly attractive to private equity investors. The public offering brought in $458 million, of which “private Mexican investors, including the bank’s top executives, pocketed $150 million.”
For the groups that turned to Wall Street for financing, the line between social purpose microcredit and predatory loan sharking began to disappear.
Another example is SKS Microfinance in India, whose initial public offering in August 2010 raised $358 million from international investors and yielded its founders stock options worth more than $40 million.
Yunus describes the consequences of such conversions and public sales: To ensure that the small loans would be profitable for their shareholders, such banks needed to raise interest rates and engage in aggressive marketing and loan collection. The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared.
For the groups that turned to Wall Street for financing, the line between social purpose microcredit and predatory loan sharking began to disappear, with some programs charging annual interests rates of more than 100 percent. Programs that had raised philanthropic funding to help put money into poor communities became vehicles for sucking wealth out of them to generate financial profits for already wealthy people.
Apologists argue that so long as the Wall Street-funded microcredit programs charge interest rates lower than the local money lenders, they still benefit the poor.
Tara Thiagarajan, Chairperson of Madura Micro Finance, a for-profit microcredit program in India, followed the money and challenged this premise in a thoughtful and self-critical blog: The local moneylender … may charge a higher interest rate, but being local will probably spend most of that income in the village supporting the overall village economy. So potentially, local lending at higher rates could be more beneficial to the village if the money is in turn spent in the village, compared to lower rates where the money leaves the village.
Because foreign private equity investors expect to recover their investment plus a perpetual flow of profits, the contradictions go even deeper than what Thiagrarajan outlined.
Say an equity investor in the United States buys shares in a microcredit program in India. The investor pays for the shares in U.S. dollars and in turn expects to be paid in U.S. dollars. The microlender, however, does business in Indian rupees.
The dollars, therefore, are exchanged for rupees in the foreign exchange market and become part of India’s foreign exchange pool, which funds consumer imports, machinery, foreign scholarships, capital flight, arms imports, foreign travel, and whatever other uses India may have for dollars—virtually none of which benefit the poor.
A small short-term economic gain can come at a large long-term cost when it is funded with outside debt or equity.
If the microlender meets its profit projections, this creates claims by the foreign investors on India’s foreign exchange reserves potentially many times the amount of the original investment. To fulfill this obligation, India must produce goods and service for sale abroad or sell or mortgage additional assets to foreigners, which creates still greater claims against future foreign exchange earnings. The community in which the borrowers reside will be dealing only in rupees, but faces a similar external drain on its resources to meet the borrowers’ obligations to the lending organization.
Say the microlending supported an increase in village food production. Rather than improving the diets of the workers who produce it, however, a portion of their additional production must be sold to outsiders to generate the rupees to repay their debts.
In return for a short-term inflow of money, both India and the village bind themselves to a long-term outflow of money and real wealth. It is an insidious dynamic that supports a classic pattern of colonization and wealth concentration long characteristic of foreign equity investment and loan funded foreign aid. A small short-term economic gain can come at a large long-term cost when it is funded with outside debt or equity.
The microcredit experience brings to light a larger principle: The institutional structure of a financial system determines where money flows and who benefits. In short, structure determines purpose.
The transformation of microcredit institutions from a model that serves communities to a model that is “sucking blood from the poor in the name of poverty alleviation” mirrors a similar transformation of the U.S. banking system, which occurred through the process of banking deregulation that began in the United States in 1970s.
Throughout the 1940s, 50s, and 60s the United States had a system of locally owned and strictly regulated community banks, mutual savings and loans, and credit unions, many of them organized on a cooperative ownership model much like the Grameen Bank. They were organized and managed to serve the financial needs of the communities in which they were located and kept money flowing within the community in service to community needs.
Banking deregulation over the past 30 years led to a wave of banking mergers and acquisitions that created too-big-to-fail Wall Street banks devoted to maximizing financial returns to Wall Street bankers and financiers. Rather than supporting local wealth creation, the system now sucks money and real resources out of the community. Both the microcredit experience and the aftermath of the 2008 Wall Street financial crash vividly reveal that the values and interests of Wall Street stand in fundamental opposition to those of Main Street.
Financial institutions can serve communities in pursuit of a better life for all or they can serve global markets to maximize financial returns to Wall Street bankers and financiers. They cannot serve both.
The world does not need more predatory lenders in service to Wall Street. We all need more local, cooperatively owned community banks on the model of Grameen.

 http://crosscut.com/2011/01/22/econ-finance/20563/Microcredit:-sorting-out-where-the-problems-lie/

POVERTY: YUNUS: Sacrificing Microcredit for Megaprofits

MUHAMMAD YUNUS [Muhammad Yunus, the founder of Grameen Bank, received the Nobel Peace Prize in 2006.] Published NYT: January 14, 2011

IN the 1970s, when I began working here on what would eventually be called “microcredit,” one of my goals was to eliminate the presence of loan sharks who grow rich by preying on the poor. In 1983, I founded Grameen Bank to provide small loans that people, especially poor women, could use to bring themselves out of poverty. At that time, I never imagined that one day microcredit would give rise to its own breed of loan sharks.
But it has. And as a result, many borrowers in India have been defaulting on their microloans, which could then result in lenders being driven out of business. India’s crisis points to a clear need to get microcredit back on track.
Troubles with microcredit began around 2005, when many lenders started looking for ways to make a profit on the loans by shifting from their status as nonprofit organizations to commercial enterprises. In 2007, Compartamos, a Mexican bank, became Latin America’s first microcredit bank to go public. And this past August, SKS Microfinance, the largest bank of its kind in India, raised $358 million in an initial public offering.
To ensure that the small loans would be profitable for their shareholders, such banks needed to raise interest rates and engage in aggressive marketing and loan collection. The kind of empathy that had once been shown toward borrowers when the lenders were nonprofits disappeared. The people whom microcredit was supposed to help were being harmed. In India, borrowers came to believe lenders were taking advantage of them, and stopped repaying their loans.
Commercialization has been a terrible wrong turn for microfinance, and it indicates a worrying “mission drift” in the motivation of those lending to the poor. Poverty should be eradicated, not seen as a money-making opportunity.
There are serious practical problems with treating microcredit as an ordinary profit-maximizing business. Instead of creating wholesale funds dedicated to lending money to microfinance institutions, as Bangladesh has done, these commercial organizations raise larger sums in volatile international financial markets, and then transmit financial risks to the poor.
Furthermore, it means commercial microcredit institutions are subject to demands for ever-increasing profits, which can only come in the form of higher interest rates charged to the poor, defeating the very purpose of the loans.
Some advocates of commercialization say it’s the only way to attract the money that’s needed to expand the availability of microcredit and to “liberate” the system from dependence on foundations and other charitable donors. But it is possible to harness investment in microcredit — and even make a profit — without working through either charities or global financial markets.
Grameen Bank, where I am managing director, has 2,500 branches in Bangladesh. It lends out more than $100 million a month, from loans of less than $10 for beggars in our “Struggling Members” program, to micro-enterprise loans of about $1,000. Most branches are financially self-reliant, dependent only on deposits from ordinary Bangladeshis. When borrowers join the bank, they open a savings account. All borrowers have savings accounts at the bank, many with balances larger than their loans. And every year, the bank’s profits are returned to the borrowers — 97 percent of them poor women — in the form of dividends.
More microcredit institutions should adopt this model. The community needs to reaffirm the original definition of microcredit, abandon commercialization and turn back to serving the poor.
Stricter government regulation could help. The maximum interest rate should not exceed the cost of the fund — meaning the cost that is incurred by the bank to procure the money to lend — plus 15 percent of the fund. That 15 percent goes to cover operational costs and contribute to profit. In the case of Grameen Bank, the cost of fund is 10 percent. So, the maximum interest rate could be 25 percent. However, we charge 20 percent to the borrowers. The ideal “spread” between the cost of the fund and the lending rate should be close to 10 percent.
To enforce such a cap, every country where microloans are made needs a microcredit regulatory authority. Bangladesh, which has the most microcredit borrowers per square mile in the world, has had such an authority for several years, and it is devoted to ensuring transparency in lending and prevented excessive interest rates and collection practices. In the future, it may be able to accredit microfinance banks. India, with its burgeoning microcredit sector, is most in need of a similar agency.
There are always people eager to take advantage of the vulnerable. But credit programs that seek to profit from the suffering of the poor should not be described as “microcredit,” and investors who own such programs should not be allowed to benefit from the trust and respect that microcredit banks have rightly earned.
Governments are responsible for preventing such abuse. In 1997, then First Lady Hillary Clinton and Prime Minister Sheikh Hasina of Bangladesh met with other world leaders to commit to providing 100 million poor people with microloans and other financial services by 2005. At the time, it looked like an utterly impossible task, but by 2006 we had achieved it. World leaders should come together again to provide the powerful and visionary leadership to help steer microcredit back on course.
http://www.nytimes.com/2011/01/15/opinion/15yunus.html?_r=1&ref=opinion

POVERTY: 15 years in, Microcredit has made a few enemies

VIKAS BAJAJ : Jan 06, 2011 Microcredit was once extolled by world leaders like Bill Clinton and Tony Blair as a powerful tool that could help eliminate poverty, through loans as small as $50 to cowherds, basket weavers and other poor people for starting or expanding businesses. But now microloans have sparked political hostility in Bangladesh, India, Nicaragua and other developing countries.
In December, the prime minister of Bangladesh, Sheikh Hasina Wazed, who had championed microloans alongside Clinton at talks in Washington in 1997, turned her back on them. She said microlenders were “sucking blood from the poor in the name of poverty alleviation,” and she ordered an investigation into Grameen Bank, which had pioneered microcredit and along with its founder was awarded the Nobel Peace Prize in 2006.
Here in India, until recently home to the world’s fastest-growing microcredit businesses, lending has slowed sharply since the state with the most microloans adopted a strict law restricting lending. In Nicaragua, Pakistan and Bolivia, activists and politicians have urged borrowers not to repay their loans
The hostility toward microfinance is a sharp reversal from the praise and good will that politicians, social workers and bankers showered on the sector in the last decade. Philanthropists and investors poured billions of dollars into nonprofit and profit-making microlenders, who were considered vital players in achieving the United Nations’ ambitious Millennium Development Goals for 2015 that world leaders set in 2000. One of the goals was to reduce by half the number of people in extreme poverty
The attention lavished on microcredit helped the sector reach more than 91 million customers, most of them women, with loans totaling more than $70 billion by the end of 2009. India and Bangladesh together account for half of all borrowers
But as with other trumpeted development initiatives that have promised to lift hundreds of millions from poverty, microcredit has struggled to turn rhetoric into tangible success
Done right, these loans have shown promise in allowing some borrowers to build sustainable livelihoods. But it has also become clear that the rapid growth of microcredit — in India some lending firms were growing at 60 percent to 100 percent a year — has made the loans much less effective

Most borrowers do not appear to be climbing out of poverty, and a sizable minority is getting trapped in a spiral of debt, according to studies and analysts.


“Credit is both the source of possibilities and it’s a bond,” said David Roodman, a senior fellow at the Center for Global Development, a research organization in Washington. “Credit is often operating at this knife’s edge, and that gets forgotten.”


Even as the results for borrowers have been mixed, some lenders have minted profits that might make Wall Street bankers envious. For instance, investors in India’s largest microcredit firm, SKS Microfinance, sold shares last year for as much as 95 times what they paid for them a few years earlier.


Meanwhile, politicians in developing nations, some of whom had long resented microlenders as competitors for the hearts and minds of the poor, have taken to depicting lenders as profiteering at the expense of borrowers.


Nicaragua’s president, Daniel Ortega, for example, supported “movimiento no pago,” or the no-pay movement, which was started in 2008 by farmers after some borrowers could not pay their debts. Partly as a result of that campaign, a judge recently ordered the liquidation of one of the country’s leading microlenders, Banco del Exito, or Success Bank.


“These crises happen when the microfinance sector gets saturated, when it grows too fast, and the mechanisms for controlling overindebtedness is not very well developed,” said Elisabeth Rhyne, a senior official at Accion International, a organization in Boston that invests in microlenders. “On the political side, politicians or political actors take advantage of an opportunity. When they see grievances, they go, ‘Wow, we can make some hay with this.”’


While a broad thread of resentment and disenchantment runs across the globe, the hostility toward microcredit stems from different circumstances in each nation.


In Bangladesh, Hasina appears to have become embittered with Grameen after its founder, Muhammad Yunus, who shared the Nobel, announced in 2007 that he would start a political party. At that time, the country was ruled by a caretaker government appointed by the military. Though Yunus later gave up on the idea, analysts say Hasina and Yunus have not made amends.


Hasina’s recent comments about microcredit were prompted by a Norwegian documentary that accused Grameen of improperly transferring to an affiliate $100 million that Norway had donated to it more than a decade ago. Hasina said Grameen, 3.4 percent of which is owned by the government, might have transferred the money to avoid taxes.


The bank, which has denied that accusation, reversed the transfer after Norwegian officials objected to it. Norway recently issued a statement clearing Grameen of wrongdoing.


The prime minister’s press secretary did not return calls seeking comment.


In India, leaders in the southern state of Andhra Pradesh, which accounts for about a third of the country’s microloans, have accused lenders of impoverishing customers. Stories proliferated in the local news media about women who had amassed debts of $1,000 or more as loan officers cajoled them into borrowing more than they could afford and then browbeating them to repay. Many had used the money to pay for televisions or health care or to soften the blow of failed crops, rather than as seed money for businesses.


Microcredit firms in India were also accused of siphoning borrowers from government-run “self-help groups” — women’s organizations that can borrow small amounts at subsidized interest rates from government-owned banks.


The movement against microcredit was started by opposition politicians, who have encouraged borrowers not to repay their loans and have accused senior leaders of the ruling Congress Party of being in cahoots with lenders. The Congress-led state government made the cause its own and passed a tough new law in December to cap interest rates and regulate collections.


The crisis has had ripples across the nation. Banks, the primary source of money for microlenders, have turned off the tap because they are worried about the industry’s future. As a result, microlenders have slowed or stopped lending nationwide.


Grameen Financial Services, a microlender in Bangalore that is not related to Grameen Bank, has idled 600 new employees it hired just a few months earlier with plans to expand into western and central India. The firm does not lend in Andhra Pradesh.


“This is frustrating,” said Suresh K. Krishna, managing director of Grameen Financial. “This is not what we set out for. The whole objective of floating this was to support entrepreneurs and support people in the rural areas and people below the poverty line.”


Industry leaders say they hope the issues will be resolved soon. The federal government and the Reserve Bank of India, the country’s central bank, are working on new federal regulations to oversee microcredit, said Alok Prasad, chief executive of the Microfinance Institutions Network.


Still, some industry officials acknowledge that the sector also needs to reform itself to overcome political opposition and live up to its promise. They say that organizations that now offer only loans need to diversify into microsavings accounts, which many specialists assert are much better than loans at alleviating poverty.


The industry, they say, also needs to speed up efforts to build a credit bureau that would reduce overlending. And organizations need to measure their success not just by growth and profits, but by how fast their customers are getting out of poverty, experts say.


“We at microfinance have a job to do to make it easier for politicians to support us,” said Alex Counts, the chief executive of the Grameen Foundation, a nonprofit in Washington that is not part of Grameen Bank. “Rather than make claims that get out in front of the research, we need to impose on ourselves the discipline of transparency about poverty reduction.”

http://www.staradvertiser.com/news/20110106_15_years_in_Microcredit_has_made_a_few_enemies.html

POVERTY: Grameen Bank operation in question

Dhaka, Dec 23 (bdnews24.com)—A parliamentary watchdog has sought explanation why Grameen Bank is not yet being operated under the Microcredit Regulatory Act 2006.
"We've sought an explanation for Grameen Bank's operations from the finance ministry's banks and non-bank financial institution division," chairman of the standing committee on finance ministry A N H Mostafa Kamal told reporters on Thursday after a meeting of the committee.
He, however, refused to comment on the recent controversies over fund management saying that the government would probe the matter.
"The committee has been informed that a high-powered committee will investigate the matter and we'll comment only after the committee submits its report."
Replying to a query, Kamal said the committee would be formed within a few days.
He said the standing committee feels that microcredit operation in the country should be regulated properly. "The committee also believes that rules and regulations of the MRA [Microcredit Regulatory Authority] are weak to regulate the sector."
He added that the regulatory body's manpower should also be increased for strong monitoring activities. "The MRA needs to work at the country's grassroots-level."
http://www.bdnews24.com/details.php?id=182418&cid=4

POVERTY: Grameen founder Muhammad Yunus in Bangladesh aid probe

2 December 2010 By Ethirajan Anbarasan: BBC News, Dhaka

  Grameen Bank's micro-finance model has been replicated around the world

Norway says it is examining reports that Nobel Peace Laureate Muhammad Yunus allegedly diverted millions of dollars of aid money from a bank.
International Development Minister Erik Solheim said that it was "totally unacceptable that aid is used for other purposes than intended".
A documentary maker has alleged that cash was diverted from Professor Yunus' Grameen Bank to other parts of Grameen.
In a statement, the bank said that the allegations were false.
It said that a full explanation with more details would be provided at the "earliest convenient time".
The bank was set up by Professor Yunus to provide micro-credit - or small loans - to the poor.
The move by the Norwegians - who insist that no criminal activity has taken place - comes at a time when the reputation of the micro-credit industry has been under attack.
The original aim of the micro-credit concept was poverty reduction, but in recent years some micro-financial institutions have been criticised over exorbitant interest rates and alleged coercive debt collection.
In the south-eastern Indian state of Andhra Pradesh, for example, micro-loans have been blamed for a series of suicides among struggling farmers.
It is estimated some 250 organisations in the state have handed out loans totalling more than £1.65bn (£883m), only a small proportion of which have been paid back.

Objections
The Grameen Bank's denial followed the release of a documentary by Danish filmmaker, Tom Heinemann, who claimed Professor Yunus and his associates diverted nearly $100m of grant money to another company - Grameen Kalyan - which was not involved in micro-credit operations.
Mr Heinemann said he stumbled upon the documents and letters relating to the alleged transfer while doing research for his documentary on micro-credit.
"I got most of the documents from the archives of Norad, the Norwegian aid agency in Oslo," he said.
The Grameen group of more than 30 companies headed by Professor Yunus is divided between those not operating for profit and those which do.
Mr Heinemann's report alleged that after the Norwegian authorities raised objections to the alleged transfer of funds, the Grameen bank returned about $30m. The aid money was from Norway, Sweden and Germany.
Professor Yunus, known as the Banker to the Poor, and the Grameen Bank were awarded the Nobel Peace Prize in 2006 "for their efforts to create economic and social development from below".

Replicated model
The economist founded the bank, which is one of numerous organisations now providing loans to the poor - especially women - in Bangladesh.
The micro-credit lending model has been replicated in other parts of the world.
Reacting to the latest report, the Norwegian authorities say they have no suspicions of tax fraud or corruption committed by Grameen Bank.
"Having said that, the Government of Norway finds it totally unacceptable that aid is used for other purposes than intended no matter how praiseworthy the causes might be," Norwegian International Development Minister Erik Solheim said in a statement e-mailed to the BBC.
Mr Solheim said that he had asked the Norwegian Agency for Development Co-operation for a full report on the matter.
"At the same time it is important to stress that we are firm believers in micro-finance as a tool in the fight against poverty," he said.
The documentary "Caught in Micro Debt" was shown on Norwegian National Television earlier this week.
"I travelled to Bangladesh, India and Mexico to find out whether micro-credit loans have really helped the poor. But I found out that poor people are getting into more and more debt because of micro-credit loans," Mr Heinemann told the BBC.
He said that he was not accusing Professor Yunus of misusing the money or personally benefiting from the transfer.
http://www.bbc.co.uk/news/world-south-asia-11899506

POVERTY: Assessing Grameen Foundation’s Progress Out of Poverty Index

November 8, 2010
The Net Impact session on "Beyond Microfinance: Investing in the Developing World" was timely in that it highlighted the certification program for the Grameen Foundation's Progress out of Poverty Index (PPI). I thought I would take this opportunity to highlight some of the potential strengths and possible shortcomings of the 5-month-old certification process.

What is the Progress out of Poverty Index?
According to the Grameen Foundation, "The PPI is a simple and accurate tool that measures poverty levels of groups and individuals. Using the PPI, MFIs can better determine their clients' needs, which programs are most effective, how quickly clients leave poverty, and what helps them to move out of poverty faster."
The tool is adapted to each country by using their national household survey (or another equivalent survey) to find the indicators most highly correlated with poverty. These indicators are then narrowed down to a set of 10 (see diagram below) that will be used to quickly evaluate movement out of poverty within MFIs.


(Source: Grameen Foundation PPI)
How is the PPI value proposition different from other evaluation methods?
Grameen Foundation promotes the PPI approach as a cost-effective, easy-to-use method for evaluating poverty. The tool requires measurement of only ten items, all of which are observable upon visiting the borrowers' households (i.e., type of flooring or roofing). Additionally, analysis of results may be done quickly by adding weighted values for each question, which total to a score of 100. Individuals' progress out of poverty is determined on a scale from 0 to 100. The measurement is conducted each year and any changes are compared over time.
Outside of the features highlighted on the Grameen website, one potentially beneficial impact of the PPI approach is that it could, if used appropriately and in a widespread fashion, standardize the process for how movement out of poverty is measured and create a large sample population for comparison. This standardization would enable interested parties to compare results over time and across groups, regions, organizations etc.
So what’s in store for microfinance in the next generation using the PPI approach?
Grameen Foundation aims to help MFIs across the world stay true to their mission to alleviate poverty. Groups using the PPI platform can define their measures for success in a systematic way, respond quickly when said measures are not showing documented results and provide feedback to their investors. While these organizations’ aims generally do not differ much from the objectives of any evaluation or impact assessment platform, Grameen Foundation’s certification program – in conjunction with its PPI assessment – has the potential to raise the bar of evaluation for some groups that are not currently conducting yearly assessments and potentially standardize the process.
Some final thoughts and questions for moving forward…
Regardless of the impact, Grameen Foundation’s support for a certification process in measuring movement out of poverty provides one coordinated effort for measuring impact among a growing number of suggested approaches (GIIN, GIRRS, IRIS etc.). While the tool is easy to use, transferrable and certified, there are some questions left unanswered about this approach. For instance, in an effort to better serve those at the BoP, how can we be sure that we are portraying a realistic picture, both successes and failures, associated with a particular poverty alleviation method?
One way to do this is to engage multiple models of assessment, viewing the movement out of poverty as a multifaceted change therefore needing a variety of quickly acquired outputs as well as robust outcomes. A helpful example to convey this point comes from the Grameen Foundation website. The PPI method “aims to measure changes in poverty through time. Thus, some powerful indicators (such as education of the female head/spouse) that are unlikely to change as poverty changes are omitted in favor of slightly less-powerful indicators (such as the number of radios) that are more likely to change.” I would argue this dichotomy is unnecessary, potentially harmful and something that appears to have staying power as we’ve been discussing for some time (See this article by Heather Esper).
If we focus primarily on measures that can be counted, easily observed and quantified in a shorter period of time as our standard method for assessment, we will potentially skew our timeframe for change and also simplify perceptions of relative successes and failures. As the old adage goes, usually the things worth doing in life are also often the most seemingly difficult to do. In the case of assessment this might mean spending more time on detail, measuring a greater number of diverse impacts and, overall, investing more time in the process. The results of in-depth assessments of this nature are potentially the greatest (and most accurate) indication of how individuals are being served by a program.
In this vein of thought, I propose that a better conversation to be having is how can we integrate both standardized methods for evaluating short-term changes related to poverty alleviation as well as powerful standardized long-term outcomes. And in doing so, how can we change our measurement model for social change to track and continually assess both short and long-term benchmarks? Additionally, what type of enabling environment needs to be in place to support multifaceted approaches to measure movement out of poverty?
http://www.nextbillion.net/blog/2010/11/08/assessing-grameen-foundations-progress-out-of-poverty-index

POVERTY: India's Microfinance Crisis Not Threat to Banks

ERIKA KINETZ
MUMBAI, India November 19, 2010 (AP)
India's microfinance repayment crisis is not a threat to banking system's stability

A steep drop in microloan repayment in India does not threaten the health of the nation's banking system, analysts and regulators say.
Many small borrowers in Andhra Pradesh state, which accounts for about a third of India's microlending, stopped repaying their loans after a government crackdown on unscrupulous lending practices that allegedly contributed to dozens of suicides.
Now the crackdown on microlending — small loans typically no more than a few hundred dollars — seems to be spreading. Orissa state is also examining microfinance lending practices and wants to cap interest rates charged to borrowers, state finance minister Prafulla Ghadai told reporters Friday. The Reserve Bank of India is conducting its own review of microlending practices as well.
India's commercial banks are the main source of financing for microfinance institutions, prompting fears that loan defaults could reverberate through the banking system, causing instability — a concern regulators and analysts say is unfounded.
"There is no implication for the stability of the financial system," Reserve Bank of India governor D. Subbarao said at the bank's last policy review, in response to a question about microfinance institutions, or MFIs. "On a systemic level, the MFI issue is not likely to have any implications."
Indian banks in the fiscal year ending March 2010 had up to 101.5 billion rupees ($2.2 billion) in loans outstanding to microfinance institutions, about twice as much as the prior year, according to the National Bank for Agriculture and Rural Development.
While banks are an important source of capital for microfinance institutions, microfinance institutions account for less than 1 percent of the banking industry's outstanding loan book today, analysts say. That means even if the entire sector defaulted — an unlikely scenario — banks could absorb the losses.
"The banking sector is well protected," said Angel Broking analyst Vaibhav Agrawal. "It's not that big a deal."
http://abcnews.go.com/Business/wireStory?id=12188939&page=1

POVERTY: Bangladesh caps microcredit interest rates

11/9/2010
Microfinance lending pioneer Bangladesh plans to cap the industry's interest rates amid criticism that for-profit groups are demanding excessive payments from poor borrowers, an official said Tuesday.
Muhammad Yunus, who created the microfinance concept and built up specialist lender Grameen Bank, won a Nobel prize for his work but the sector has since grown into an unregulated, multi-billion-dollar commercial industry.
The government's Microcredit Regulatory Authority (MRA) has approved new rules banning microfinance lenders from charging more than 27 percent interest on loans, MRA director Sazzad Hossain said.
"Many microlenders have earned a bad name for charging high interest rates. There are also isolated incidents in which lenders have used force to compel borrowers to repay loans," Hossain told AFP.
One out of every five of Bangladesh's 146 million citizens is a micro-credit borrower, relying on one of more than 1,200 micro-finance institutions whose interest rates vary from 20 percent to 51 percent, according to the MRA.
"We oppose the interest rate cap. It will be hard for micro-lenders to stay afloat charging just 27 percent interest," said Mosharraf Hossain, head of the Credit Development Forum, a microfinance industry association.
Hossain said local microfinance institutions have high costs as many borrow money from private banks at around 13 percent interest, then lend the money on, adding that there are extra costs when operating in remote, rural areas.
"We also write off huge amount of loans during natural disasters such as cyclones, floods," he said, warning that if the sector collapsed due to caps on interest rates, it would hit the poor hardest.
The MRA move comes after India's Andhra Pradesh state, the hub of Indian small loan activity, cracked down on microfinanciers following accusations that high interest rates and aggressive debt collectors had led to over 30 suicides.
Bangladesh's new regulations, to come into force in July 2011, also ban unofficial deductions by lenders for so-called saving schemes, limit charges for administration fees and set a 15-day mandatory grace period for repayment.
http://news.ph.msn.com/business/article.aspx?cp-documentid=4447987

POVERTY: India, microcredit abounds

Yadamari, India
When Gajendra and his wife Marigamala want a loan, they are spoiled for choice in this village six hours from Bangalore.
Five microfinance institutions offering small loans to the poor have set up shop here in the past five years, and at least two smaller unregistered ones offer money as well. The couple has taken loans from four of them, totaling 50,000 rupees ($1,000). With private microcredit lenders, unlike a bank or savings group, says Gajendra, “you just need a ration card and a photograph.”


Never has credit been so easy for some in the villages of Andhra Pradesh. The southern Indian state is at the epicenter of a decade-long boom in microfinance lending, a system of small loans so successful in aiding the poor that its pioneer, Muhammad Yunus, won the Nobel Peace Prize in 2006. That boom has intensified in India in recent years, transforming a largely nonprofit sector into a destination for private equity investors drawn by high returns and resilience despite recession.
Microfinance institutions (MFIs) watched their loan portfolio in India jump from $252 million to $2.5 billion between 2005 and 2009, according to data compiled by Sa-Dhan, an umbrella group for the sector. Last year alone the number of borrowers jumped 59 percent to more than 22 million people, and loan portfolio grew 56 percent. When including government-supported microcredit programs, the sector overall grew to more than 70 million borrowers and a $7.5 billion market.
But the spectacular growth and the rush of private capital into private MFIs – microfinance comprised 40 percent of equity deals in India last year – have some experts worried about a subprimelike bubble. The expansion has been too large, too fast, and too geographically concentrated, critics say, pointing to incidents of mass default in pockets of the country.


“Once irrational exuberance takes hold, it is difficult to puncture it until it is punctured,” says Sanjay Sinha, managing director of Micro-Credit Ratings International Limited in New Delhi, referring to the subprime housing crisis that triggered the US recession. A March report from the Consultative Group to Assist the Poor (CGAP) found private equity valuations for Indian microfinance were six times book value, and three times the global median. Excess capital flows were driving overvaluation, the report said.
Last year, overheated microfinance markets led to repayment crises in Bosnia, Nicaragua, Morocco, and Pakistan, Mr. Sinha notes, which forced some MFIs to close shop. “There is a global exuberance about microfinance – a flood of money without the infrastructure to distribute that money.”
A vast microfinance market
With an estimated 400 million people lacking access to formal banking services, according to the central bank, India is considered one of the world's largest microfinance markets. By providing small loans at interest rates lower than moneylenders’, though higher than banks, microfinance enables the poor to access credit to make larger purchases or set up enterprises.
http://www.csmonitor.com/World/Asia-South-Central/2010/0630/In-India-warnings-of-a-microfinance-bubble

POVERTY: Microcredit in Guatemala

GUATEMALA CITY, Jun 21, 2010 (IPS) - Rosenda Gómez, a 53-year-old mother of five, knows all about challenges. To overcome them, she started a modest sausage business in Guatemala, and thanks to her leadership skills and training and other support she received, she is now an example of the economic empowerment of women.Sixteen years ago she began to make homemade sausages in her village, Laguna Ocubilá, to sell in the nearby city of Huehuetenango, the capital of the northwestern province of the same name. But her business was a micro-enterprise that allowed her family to just barely scrape by -- until things changed radically three years ago, when the Centros de Servicios para los Emprendimientos de las Mujeres (CSEM) came to her village. CSEM, a network of centres providing technical and financial services for women entrepreneurs, is sponsored by the United Nations Development Fund for Women (UNIFEM) in association with Guatemalan institutions. "We began to receive support, in the form of credit, training to improve our products, and promotion of our chicken and pork sausages in markets and fairs -- none of which we had before," Gómez told IPS. With that boost, Gómez, who only went to school up to third grade, managed to increase production from five to 50 kgs of sausages a week, and demand continues to grow. She also received support to set up a meat processing centre, along with other women backed by the CSEM, which changed the life of her family and her business. Her three youngest children, between the ages of 13 and 15, still live with Gómez and her husband, a truck driver, while the other two have already given them seven grandchildren, she says proudly. Her achievement is even more impressive given the limited economic independence of women in this impoverished Central American country. Men represent 65 percent of the economically active population, and women only 35 percent, according to the government's national survey on employment and income. Social organisations point to the vicious circle of poverty, lack of education and lack of health care suffered by so many in this country of 14.3 million people, where the poverty rate is slightly higher for women (51.5 percent) than for men (48.4 percent), according to the 2006 national survey on living conditions. The CSEM is now supporting 3,273 women in seven services centres that began to be established in 2006 in the country's poorest provinces. Seven others operate in El Salvador, Honduras and Nicaragua. "We learned how to draw up a business plan, market our products and estimate production costs," Sonia Paz, the head of the Asociación de Mujeres Olopenses women's association in the eastern province of Chiquimula, where one of the CSEM centres operates, told IPS. Paz forms part of a group of 36 women who make and sell handicrafts like bags and keychains using fibre from the maguey, or agave, plant. "Thanks to support from the CSEM, we have improved the quality of our products and we have registered with the tax office," said Paz. Rita Cassisi, UNIFEM coordinator in Guatemala, told IPS that the CSEM helps women set up businesses by offering loans, organisational training, assistance in improving products, marketing techniques and other support. "One of the vacuums that we have seen is women's access to financing, which is why the programme is focused on a strategy of economic empowerment at the local, national and regional levels," she explained. At the local level, the CSEM centres work with economic development agencies and public and private lending institutions; at the national level they work with universities, the Economy Ministry, the Presidential Secretariat of Women, and women's groups; and in Central America as a region they work with organisations and agencies that support women. According to Cassisi, the CSEM's beneficiaries "are at the base of the business pyramid; they are women who set up micro-enterprises and micro-businesses, which help move the economy." Like any effort, the CSEM has run into hurdles. Gilda Rivera, head of the CSEM in the western province of San Marcos, told IPS a that although they opened their doors in April 2009, things are moving slowly. "The problem is that we don't have funds to invest, and we have around 80 women waiting for our support," she said. In Rivera's view, too many requisites are set for approval of projects in some cases, which slows down the process, while many women are waiting for training and loans in order to upgrade their businesses and increase production. According to the third regional report on the labour market in Central America and the Dominican Republic produced by the International Labour Organisation (ILO) and the Central American Integration System (SICA), 73 percent of women in the labour force in Guatemala work in the informal economy. Iris Alvarado at the non-governmental Centro de Investigación, Capacitación y Apoyo a la Mujer (CICAM - Centre for Women's Research, Training and Support), told IPS that Guatemala faces serious challenges in terms of gender equity, above and beyond women's economic independence. The country's high levels of gender violence and limited access to education and health, especially in rural areas, must be addressed in the attempt to combat gender inequalities and to provide equal opportunities and living conditions for girls and women, Alvarado said.
http://ipsnews.net/news.asp?idnews=51893