Micro credit

-Dissatisfied donors

-Market failure

-Win-win situation

-Incentives to work

Market failure

• - No collateral

• -Money lenders, pawnbrokers

Micro credit today

• 29 million borrowers (1999)

• Ambition 100 million 2005

• 1/2 billion people reached

Famous examples

• Grameen Bank Bangladesh

• Banco Sol Bolivia

• Bank Raykat Indonesia

History

• Bangladesh famine 1974

• Mohammed Yunus, economics teacher

• Started to give small personal loans

• Founded Grameen Bank 1976

• 2 Million members 1996

Mechanisms

• Group lending

• Increasing loan size

• Weekly repayment and bank meetings

Social impacts

• Improve women's position

• Increase school attendance

• Better self esteem

• Many have been lifted out of poverty

But, no win-win situation

• 1 % of programs financially sustainable

• Probably 5 % of NGO programs will be

• Programs that target the poorest only cover 70 % of the costs.

• These programs will have to stop or raise interest rates to survive without further donations.

Discussion

• More poor people can be helped if the money is recycled in financially sustainable programs.

• That means higher interest rates for the poor

• Should poverty alleviation for the poorest of the poor be self financing?