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Spain, Microcredit and the Challenges Ahead
Category: Microcredit | By Editor, 22-Dec-2011 | Viewed 2942  Comments 0
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Steve Rickard
At the November microcredit summit in Spain, we learned about the progress in microcredit which was both good and bad news. In the beginning the poor had no access to commercial banking. To understand the significance of this imagine where you would be today without loans for tuition, automobiles, or homes. Well, once the gates were open, a torrent of much needed micro credit (i.e., small loans for business and other financial services) were available to the poor.

Understandably the pent up demand for access was voracious. The number of microcredit borrowers has now reached over 200 million. Considering that the average borrower supports five or more dependents the movement has reached over a billion people in the last 30 years. So the good news is that access to basic microcredit is experiencing dynamic growth. In all likelihood by 2015, microcredit activities will lift above the poverty line, by reaching the first of the eight Millennium Development Goals, 1.2 Billion of the world's poorest people.

The bad news is that some institutions have found a way to exploit the situation. In the frenzy to place loans, some irresponsible credit granting officers have saddled their clients with too much credit. Stories of the poor, in an attempt to repay over indebtedness, selling their bodily organs like kidneys and part of their liver for human transplant, rankles all but the most hard hearted. Harsh treatment of those unable to repay including beatings, harassment sometimes leading to suicide are reported in certain circumstances.

Solutions range from better education of the borrowers to government regulations. Responsible microcredit organizations like Grameen have been using literacy and numeracy training from the beginning. Others, that saw a way to make a quick buck and avoided the expense of such training, are now finding increasing loan losses and must resort to more forcible collection tactics. Not surprising Government intervention is touted as a solution. This is especially true for those who as a result of political appointment or worse the capacity to enforce graft, would find themselves in a position to accept bribes for regulating this new flow of cash in the local economy.

In the end it is the due diligence of the investor / donor which will ensure the best interests of the borrowers are being achieved. New Indicators such as the yardstick, Progress out of Poverty Index tell a lot about microcredit lending practices.

The take away from the Spain Microcredit World Summit was to be vigilant about who you choose to work with and to expect transparency in their actions. Don't depend on the old chestnuts like the number of borrowers or their repayment rates. Ask about the deployment of training, plus the availability of other financial services such as savings and insurance. Only then will the investing public be assured that microcredit is being well and properly used.

Steve Rickard is the founding president of the Rotarian Action Group for Microcredit
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