Microfinance services provide a set of financial products to those excluded from the conventional or formal financial system 1 . They generally relate to the poor inhabitants of developing countries .
More generally, microfinance refers to a vision of the world in which “the maximum number of poor or assimilated households can have permanent access to a range of high-quality financial services adapted to their needs, including not only credit but also lending. savings, insurance and money transfers 2 “.
More narrowly, microfinance refers to a number of private or public institutions that claim to be microfinance.
In this article, microfinance institutions are often referred to as ” MFIs “.
Normally, banks do not provide financial services to customers with no minimum income. To manage a customer account, these same banks have to bear a fairly substantial fixed cost that does not depend on the amount of money involved. For example, the total profits generated by a hundred credits of 1,000 euros each is roughly equal to the profit generated by a credit of 100,000 euros, while the management of one hundred credits implies a hundred times more work and various expenses than the management of one. The same basic equation governs the economy of other financial services. There is a break-even pointassociated with the credit or depositwhich means that the bank loses money when it makes a transaction below a certain amount. The financial needs of the poor are generally below this threshold.
Moreover, the poor do not have enough goods that can be considered collateral , that is to say that can serve as collateral. Even when they own their land, they often have no title to it. This has been particularly well studied by the economist Hernando de Soto 3 . This implies that banks have virtually no recourse against defaulting borrowers .
From a more general point of view, it has long been accepted that the development of a prosperous national financial system is an important intermediate objective that can then serve as a catalyst for national economic development, which is the ultimate goal (see eg Alexander Gerschenkron , Paul Rosenstein-Rodan , Joseph Schumpeter , Anne Krueger , etc.). However, both the planning authorities of the States concerned and the international experts favor the development of the commercial banking sectorspecializing in operations involving large sums of money and often neglecting institutions that can provide services to households with limited means, even though these categories of households make up the largest part of the population.
Because of these difficulties, when the poor are forced to borrow, they often have to rely on their family or local lenders who charge very high interest rates. A synthesis of 28 studies of informal credit interest rates from 14 countries in Asia, Latin America and Africa concludes that 76% of the interest rates charged by local lenders are above 10% per annum. months, and of these, 22% exceed 100% per month. These lenders usually charge for the poorest higher rates than the less poor 4 . While these lenders are often stigmatized and treated as usurers, their services are accessible, fast and very flexible when borrowers face problems. The hopes that we had of trying to eliminate them from the circuit proved to be unrealistic even in contexts where microfinance institutions were very active.
In the past, the visionary practices of some monks Franciscans who founded the xv th century of pawnshops exhibited Community guidelines. Also in Europe, in 1849, a Prussian mayor Friedrich Wilhelm Raiffeisen , founded in the Rhineland the first cooperative savings and credit , an institution that offers savings services to poor working people and excluded from conventional banks. The savings collected make it possible to grant loans to other clients. These organizations are called mutualist. Mutualism including financial knows from 1941, a rather exceptional development in the Spanish Basque Country around the Mondragón cooperatives . Apart from the case of Mondragón, the organizations and institutions that develop on this basis in Europe and North America, then, after the Second World War in the countries of the South, focus on savings and offer few financial services. credit 5 .
In the 1970s, with Grameen Bank , Muhammad Yunus developed microcredit in Bangladesh and pioneered many other experiments around the world. Institutions are created to provide the poor with the means to create their livelihood and the tools to manage the associated risk, that is to say the normal financial services offered to the wealthiest classes 6 . The success of Grameen Banknow counting more than 7 million poor Bangladeshis as clients worldwide, in practice it has been difficult to recopy this experience. In countries where population densities are lower, it is much more problematic to combine the conditions of profitability to create services and local shops. Nevertheless Grameen has shown that not only the poor repay their loans, but they can pay high interest and that the institution can therefore cover its own costs 7 .
In the late 1980s, initiatives multiplied. In Latin America, the institutions providing urban credits begin to cover their costs without subsidy 8 . The Bolivian NGO PRODEM, created in 1986, decided to “spin off” its microfinance activities into a bank by creating Banco Solidario SA, better known as BancoSol . This is the emergence of a “microfinance industry 8 “.
Much progress has been made, but not all the problems have been solved, and the vast majority of the population earning less than one euro per day, especially in rural areas, still have no access to the sector. normal financial The microfinance sector has grown steadily until in 2007 $ 25 billion for all funds under the Microfinance 9 . It would take ten times longer to provide the poor capital they need 9 . The microfinance sector has experienced strong growth, to the point where it was questionable whether there was not a risk in allowing so much capital to flow to a sector that does not
Delimitation and principles
In principle, microfinance can encompass all approaches to increasing access or improving the quality of financial services that the poorest can use or that can be of any use to them. For example, the poor borrow from local lenders and similarly place their economies in the informal economy . As another example, they use charitable organizations to contract loans or benefit from a guarantee. They can also take advantage of the insurance offered by a nationalized company. They transfer money through traditional networks like Hawala. Or they bury their jewels in a secret cache, ask someone in their family to look after their finances, and raise chickens to save money for their wedding .
It is very difficult to draw a clear line between microfinance and similar activities. We can defend the position that a government that mandates a state bank to open accounts for low-income consumers, a lender who practices usury , or an association like Heifer International that allows the poorest to practice lending. farming and gardening for sustenance, all these different actors participate in microfinance. However, it is generally accepted that microfinance is not about distributing, but about giving the poorest ways to earn a living by giving them access to financial services.. It is also recognized that this problem of access is best addressed by adapting these financial institutions as much as possible to its beneficiaries and by developing the capacity of these institutions. In recent years, particular emphasis has been placed on the necessary diversity of microfinance institutions to meet the most diverse needs.
In 2004, some principles that sum up a century and a half of various practices were grouped together in a kind of manifesto by CGAP (Consultative Group to Assist the Poor) and selected by the leaders of the G8 at the summit of June 10, 2004 : 6
- 1. The poor do not only need credit, but also means to invest their savings , insurance , and money transfer services.
- 2. Microfinance must provide benefits to poor households: raising standards of living , building wealth and guarantees to protect them from the upheaval they may face.
- 3. “Microfinance can pay for itself ” 11 , that is, it does not necessarily need external inputs. Subsidies from donors or the government are scarce and uncertain. Therefore, to reach more of the poor, microfinance must be self-sustaining.
- 4. Microfinance involves setting up permanent local institutions.
- 5. Microfinance also involves integrating the financial needs of the poor into a national financial system.
- 6. It is up to the government to make financial services possible, not necessarily to provide them 12 .
- 7. Donor funds should complement private capital, rather than replace them 12 .
- 8. “The critical bottleneck is the shortage of strong institutions and managers.” 12 Donors should focus on creative potential.
- 9. The cap on interest rates goes against the interests of the poor by preventing microfinance institutions from covering their costs, which blocks the provision of credit.
- 10. Microfinance institutions should measure and publish their financial and social performance.
Microfinance should not be confused with some forms of humanitarian action. It is preferable to provide subsidies to families in need as they are likely to be unable to generate the resources needed to repay a loan. This is a situation that can be found, for example in areas devastated by war or natural disaster .
Debates on the delimitation
Several types of debates emerged to clarify the boundaries of microfinance.
Microfinance advocates, both professionals and donors, often argue that the use of microcredit should be restricted to the production of goods or services, typically the creation or development of micro-enterprises . Private sector actors respond that the “fungibility” of money makes this restriction illusory, and that in any case it is not up to the rich to determine how the poor should use their money.
Perhaps because of Western prejudices about usury , the role of traditional local lenders has been denounced, especially in the nascent era of modern microfinance. As more and more people had access to the services of microcredit institutionsit became increasingly clear that the services of traditional lenders remained useful. Borrowers were willing to pay a high interest rate for services such as quick release of credits, confidentiality and flexibility of repayment deadlines. They saw no evidence of the benefits of lower interest rates if they were to pay the price by attending meetings or internships necessary to receive credit or by monthly dues. They also found it unpleasant to be forced into borrowing to start a business, whereas they had often borrowed for other reasons such as tuition and health fees or. The recent trend is to lend more legitimacy to lenders on the premise that the more competition among offers, the greater the diversity of services offered to the poor.
In the 1970s emerged a modern microfinance that sought priority solutions in the private sector. This was evident from the fact that in developing countries the constitution of state banks for the financing of the agricultural sector has been a complete failure. The argument that emerges from the classic compilation of Adams, Graham and Von Pischke 14 is that these banks actually went against the development objectives they were supposed to serve. In addition, jurisdictions in many countries may have different perspectives and continue to intervene directly in the microfinance market.
There was a long debate about the delicate trade-off between ” proximity ” – the ability of microfinance institutions to actually reach the poorest and most excluded and “sustainability” – -to say their ability to independently cover their operational costs for their customers at a given time, and if possible, the costs necessary for the expansion of their clientele 15 . Although it is generally accepted that microfinance practitioners should seek to achieve both of these goals, there is a very wide range of strategies, from BancoSol in Bolivia, which is part of a profit-seeking logic that is certainly minimalist. , untilBangladesh Rural Advancement Committee ) in Bangladesh that excludes profit. This debate between two orientations does not only affect each of the microfinance institutions, but also the governments engaged in the development of microfinance systems at the national level.
The so-called developed countries also need microfinance services. However, in developed economies, competition within the mainstream financial sector, combined with the diversity of financial institutions, provides access to financial services for the vast majority of the population. According to Cheryl Frankiewicz, attempts to transfer microfinance innovations from poor countries such as solidarity groups to rich countries would have met with only modest success. In France associations such as Association for the right to economic initiative (ADIE) are part of this trend.
Microfinance in developed countries: a way to fight against banking exclusion
The example of France
Microfinance is one of the means to fight against banking and social exclusion . In France in particular, microcredit is present in two forms:
- the accompanied personal microcredit is a loan usually of less than € 3,000granted with a low interest rate (3.5% on average) the objective of which is to finance small projects (car, license, equipment …) carried by people whose resources do not allow them to claim a credit to consumption. Personal microcredit, also called social microcredit, differs from donation because even if it depends on the social situation of the borrower (unemployment, precarious contract …), it is a loan that must be repaid. In this, the borrower is empowered and revalorized: it is a relationship of trust that is established and especially autonomy: once the microcredit refunded, the borrower owes nothing “to society”.
- The microcredit professional is a loan generally less than 25 000 € for people wishing to create or take over a business but whose resources are insufficient to qualify for a conventional loan. To benefit from a microcredit, the borrower must be accompanied by a specialized and competent support network such as: France Active , France Initiative , the Boutiques de Gestion or the Fondation du 2e Chance . These networks will help him to set up his project, to investigate his request for financing and to develop his activity. The main actor is ADIE (Association for the development of the economic initiative).
As Audencia microfinance researchers point out, “microfinance is part of the CSR commitments of most banks […] and there are strong economic reasons to enter the [banking] market through microcredit”. Microcredit is a means for banks to reach a solvent clientele, but until then in the margin of the banking sector. As recalled by the Inspection Générale des Finances, in a report made public in December 2009, the banks have the expertise and sufficient means to develop this activity in partnership with associations and local authorities.
For example: the ” Entrepreneurship in the Suburbs ” program set up by PlaNet Finance in the ZUS Sensitive Urban Zones with the aim of raising awareness among young people towards the creation of microenterprises and access to microcredit in banks near the area. For this PlaNet Finance has created a network of ADAM (Microentrepreneurs Detection and Support Associations) in order to identify and prepare potential autoentrepreneurs 16 .
Banks can be actors of microfinance in a direct way (this is the case of Savings Banks , Postal Bank , Credit Mutuel …) or indirectly (by financing MFIs like BNP Paribas , Banques Populaires). …)
The financial needs of the poor
In developing economies, and particularly in rural areas, many of the activities that would be considered in the developed world as part of the financial sector are not monetized , that is, these activities can be carried out without recourse to money. By definition, the poor have very little money. But it often happens that in their lives circumstances arise in which they need money or what money can buy.
In his book The Poor and Their Money , Stuart Rutherford draws up a typology of the needs for financial services 17 :
- The needs of the life cycle such as weddings, funerals, births, education, housing, widowhood, old age.
- Personal disasters such as illness and injury, unemployment, theft, harassment or death.
- Disasters Environmental disasters such as fires, floods, cyclones and disasters resulting from human action as the war or destroyed 18 homes.
- Opportunities to invest in job creation or business development, purchase of land or equipment, renovation of housing, stabilization of employment, which often involves paying bribes wine.
The poor are able to use their imagination to meet these needs, mainly through the creation and exchange of different forms of non-monetary goods. Money substitutes vary from one country to another, but they are typically cattle, grains, jewelery and precious metals.
According to Marguerite Robinson, the 1980s showed that “microfinance can provide large-scale assistance in a profitable way” and that in the 1990s, “microfinance begins to develop as an industry ” 19 . In the 2000s, the goal of the microfinance industry is to satisfy unmet demand on a large scale and to play a role in reducing poverty. While in recent decades much progress has been made in developing a viable microfinance sector, a number of issues remain to be addressed before the industry is able to massively meet global demand:
- inappropriate subsidies;
- inadequate regulation and supervision of microfinance institutions (MFIs) involved in the repository;
- too few MFIs mobilize savings;
- poor quality of MFI management;
- institutional inefficiency;
- need to expand the methodologies of rural microfinance.
The social impact social performance vs.
Social performance is defined by CGAP 20 as “the effective translation into practice of the social objectives / social mission of an institution, in accordance with recognized social values”. Social indicators are defined to assess social performance and are used by microfinance training organizations.
The social impact consists in measuring the effects of microfinance on customers, at the level of the income-generating activity of the client or his living conditions.
Impact studies concern three types of actors 21 :
- Funders make impact studies for the efficient provision of funds.
- Practitioners make impact studies to improve the services offered (quality or quantity).
- Academics want to prove that microfinance has an influence on poverty reduction.
The limits of social impact measurement
The controversy about microfinance highlights the fact that there is no impact 22 but effects 23 . For example, it is difficult to correlate credit with the impact of its credits. Some recent studies conducted by several microfinance institutions such as Spandana in India or Al Amana seem to show that there is no profound transformation in the lives of clients as a result of access to microfinance 24 , 25 .
How the poor manage their money
According to Rutherford, the typical financial problem facing the poor is the accumulation of a large enough amount of money to be useful. Building your home may require putting various building materials in storage for years until there is enough to consider starting construction. The schooling of children can be financed by raising chickens: they must first be bought, then raised and put on sale as the deadlines fall (uniforms, bribes, etc.). ) because the amount is accumulated before the due dates: this money management strategy is called the ” a priori 26 savings ”
People often borrow to meet a need they can not afford. A poor family could borrow from parents to buy land or a lender to buy rice or an MFI to buy a sewing machine. Since these credits must be reimbursed by saving after having incurred the expenditure, we talk about savings after the event. Rutherford’s position is that microcredit is only half of the problem, and he thinks the bottom half is that the poor are borrowing to afford to save and build wealth. MFIs should finance their loans through savings accounts to help the poor cope with all the risks that threaten them.
Most needs are met by mixing savings and credit. A joint study by Grameen Bank and two other large MFIs in Bangladesh showed that for every euro loaned to clients for microenterprises in the rural non-farm sector, there were 2.5 from other sources, mainly the savings of their customers 27 in fact, we find the same tendency in the West where family businesses are funded primarily through savings, especially during the startup phase.
Recent studies have also shown that informal savings methods such as tontines are very unsafe. For example, the Wright and Mutesasira study in Uganda concluded that “those who have no choice but to save in the informal sector are almost forced to lose money, probably a quarter of the spared. » 28
Work like Rutherford’s, Wright’s, has led practitioners to question the traditional paradigm of microcredit. Poor people get out of poverty by borrowing, creating their microenterprise and increasing their income . The new paradigm attaches greater importance to the efforts of the poor to reduce their many vulnerabilities by increasing the share of their income that they retain to build wealth. While they need credit, they may find it as useful to borrow for their consumption as for microenterprise. A safe and flexible place to put your money and spend it in a timely manner is also important for managing your household and your family risks.
Microfinance provides access to financial autonomy. In fact, microcredit makes it possible to give poor people access to banking activities and allows banking inclusion. On the other hand, microfinance brings choices through decision-making powers. It brings a certain independence and autonomy that allow emancipation and therefore a breakthrough for women. If we focus on women, as Muhammad Yunus does, the contribution of microfinance is very positive. Women are a very good target because they are used to managing the family budget and make sure that there is money left at the end of the month for children. According to Yunus, microcredit has a more positive impact on them because they manage the budget, know the needs and educate the children. Women are more patient and would take less risk compared to return on investment. cf PlaNet Finance AwardsAna Lucia, who is a textile artisan in Brazil. “I started having my own money and I liked having my own money”! “Thought she was going to get married and depend on her husband all her life, who would not know anything about the world and would never benefit from her freedom.” Microcredit allows women to be independent of their husbands, fathers and earn their own source of income. This brings them “dignity” and true autonomy. Some economists even say that microcredit would lead them to invest more for their health or education and to reduce discrimination against women and girls. Some went so far as to suggest that by granting women access to capital, microcredit would help fight AIDS … (source Esther Duflo).
Another positive point is that Yunus has put an end to prejudices about the poor. Communities are poorly served by banks (women, ethnic minorities, patients: risk factor …). There is a mistrust and prejudice on the part of the banks to lend money to these people and vice versa , that is to say that these people are not very confident to go to the banks. There is a gap between the mentality of families and the formalism of banks (the seriousness of banks can impress people who have not done studies etc.); it is the problem of financial illiteracy (cf: Muhammad Yunus ) as a cause of self-exclusion. Mohammad Yunus thanks to Grameen bankand micro-loans has been successful in helping the poor without making them dependent. The fight against poverty does not need charity: it is enough to create the good opportunities that the poor will seize. This message is very seductive. It highlights the hidden human wealth and opportunities for these people that a microfinance would help unlock. In addition, the system works well. The repayment rate indicators are good. On average, people pay well. The default of payment represents only 2 and 3%.
Statistics and figures
A 2004 study attempted to identify alternative financial institutions in the developing world 29 . The authors, Christen, Rosenberg, and Jayadeva, account for 665 million customer accounts in 3,000 institutions that serve poorer populations than those served by commercial banks. In reality, only 120 million of these accounts are what is normally understood by an MFI. Of the others, 318 million are managed by savings banks, integrated into the postal services, 172 million by state banking institutions oriented towards agriculture or development and 35 million by financial cooperatives or credit unions.. The remaining 19 million accounts are managed by rural banks 30 .
It was in India that we find the largest concentration with 188 million accounts representing 18% of the total population. The Latin America and Caribbeanare particularly underserved, at least according to the study of Christen, Rosenberg and Jayadeva who only collect 14 million accounts corresponding to 3% of the population. Africa is at an almost equivalent level with 27 million accounts corresponding to 4% of the population. If we consider that most customers in the developed world use several accounts to manage their business, these figures show that a lot of work remains to be done for the microfinance movement. In general, and regardless of the geographical area considered, in the count of Christen, when considering the type of services provided, savings accounts are four times more numerous than credits 31 .
There is a wealth of detailed data on MFIs in the MicroBanking Bulletin . Thus, at the end of 2006, this review gave a panorama of 704 MFIs that served 52 million borrowers with a total outstanding credits of $ 23.3 billion and 56 million savers with a total of 15 deposits. , $ 4 billion. 70% of these clients were in Asia and 20% in Latin America 32 .
Studies that indicate how informal microfinance institutions such as tontines and informal associations that help people cope with expenses such as weddings, funerals and illnesses are not yet available. Many case studies have nevertheless been published which show that these structures are usually set up and managed by the poor with minimal external support operate in most countries of the developing world 33 .
Inclusive financial systems
The era of microcredit that began in the 1970s has given way to a less restrictive approach to financial systems . While microcredit has had some success for family-owned projects in urban and peri-urban areas, its development has been relatively weaker in areas of lower density. In addition, it seems doubtful that the microcredit movement has achieved one of its major objectives, which was to oust traditional lenders who currently charge interest rates of 10% per month.
The new approach to financial systems further recognizes the richness of centuries of microfinance history and the immense diversity of institutions serving the poor in today’s developing world. The new approach is also rooted in a growing awareness of the diversity of the needs of the poorest populations in terms of financial services and the diversity of their living and working conditions.
In his book The Creation of Financial Sectors Brigitte Helms distinguishes four categories of microfinance providers and advocates a pro-active strategy involving each of these categories to mobilize to the ideals of the microfinance movement 34 .
Informal providers of financial services
Included in this category are traditional lenders, pawnbrokers , savings collectors, purses 35 , tontines, ASCA and input supply shop . Because they are familiar with the people in their community where they live, these informal providers understand the financial context of their contacts and can offer them flexible, fast and personalized services. These services can also be expensive and the choice of financial products limited and very short term. As for savings, it is very risky and many savers are losing their money.
These are self-help groups , credit unions , as well as a hybrid variety of structures such as financial services associations and CVECA (village self-managed savings and loan fund).). Like informal providers, these mutual associations are usually small, well-established structures at the local level, which implies that they will have a good knowledge of each other’s financial context and will be able to offer personalized and flexible services. As their managers are poor, the costs of operations will be low. On the other hand, these amateurs are not always very competent in the financial field and can panic when the economic situation gets darker or when the operations become too complex. As they are effectively mentored, they may be under the influence of one or two influential leaders and members may lose their money.
The Microcredit Summit Campaign identified 3,133 NGOs in contact with 113 million clients at the end of 2005 36 . The largest of these NGOs are Grameen Bank and BRAC in Bangladesh , Prodem in Bolivia , and FINCA International , headquartered in Washington . Those NGOs that have developed around the world since 1975 have been very innovative in bank forms as the solidarity credit, village banks 37 and mobile banking 38. They managed to break the barriers that could prevent them from reaching the poorest populations. Nevertheless, with boards that do not necessarily represent capital or clients, they may suffer from weak governance and may become overly dependent on external donors. Other NGOs (such as ADA in Luxembourg) have the role of strengthening the autonomy and capacity of microfinance institutions but also supporting governments in their initiatives related to the microfinance sector. 39
Institutional Financial Structures
In this category, in addition to commercial banks, state-owned banks, agricultural development banks, savings banks, rural banks and non-bank financial institutions are classi fi ed and managed classically. offer a wide range of financial services and control networks of agencies that may extend beyond the borders of their country of origin.These institutions have nevertheless proved to be very reluctant to assume social missions and, because their cost per operation is high, they often can not offer their services to poor or excluded populations, and the increasing use of non-financial information 40 to measure the risks of certain loans, such asConsumer credit has been growing interest in these institutions for microfinance 41
With proper management and good supervision, each of these international structures can solve some of the problems of microfinance. For example, attempts have been made to link self-help groups with commercial banks and mutual networks to achieve economies of scale and to encourage the efforts of commercial banks to go ahead. small customers by integrating mobile banking and electronic payment technologies into their networks.
Criticisms of microfinance
Is it obvious that microfinance reduces poverty?
For many microfinance supporters, the evidence that microfinance is an effective tool in the fight against poverty is self- evident . This idea has been the subject of a number of criticisms 42 , 43 .
Sociologist Jon Westover found that much of the evidence for the effectiveness of microfinance in reducing poverty was based on anecdotal case studies. He sifted through 100 articles on the subject. Only six articles relied on fairly quantitative data to be representative. Among these six publications, one of them found that microfinance reduces poverty. Two others were unable to conclude that microfinance reduced poverty, although the authors attributed some positive effect to the program. The other three studies came to roughly the same conclusion:44 .
The Microfinance Guide by Boyé, Hajdenberg and Poursat, while recognizing that some studies have concluded that there is no impact or a negative impact, gives them little significance because of the low frequency of these results. . The authors of the guide note that several studies 45 carried out years apart and on different continents have shown that the action of MFIs is producing impressive results, both economically and with an impact on the level of income and the ability to save only socially, with effects on children’s schooling, access to care and housing improvement 46 .
High interest rate for microcredit
Criticism has also been raised about the high interest rates borrowers have to pay . In 2006, the average annual interest rate stood at 23.3% for a sample of 704 MFIs that agreed to submit their balance sheets to the MicroBanking Bulletin 47 . Muhammad Yunus spoke on this point in the 2007 edition of A World Without Poverty . For the founder of the Grameen Bank, MFIs that offer higher interest rates to 15% for loans in the long term , should be penalized.
These high interest rates can be explained by several factors:
- High risks for small amounts (which explains why the people concerned are bank exclusives)
- Personalized service based on proximity and commitment
- The need for MFIs themselves to finance themselves with “traditional” banks
- Increase in their own funds in certain cases
Good use of donor money?
The proper use of donor money has also been questioned. CGAP recently suggested that ” Much of the money spent is not used effectively, either because it hangs up on complicated funding mechanisms , or the money is turned over to partners. whose performance is not credible. In some cases, poorly designed programs have delayed the development of financial systems inclusive producing market distortions and diverting domestic commercial initiatives towards money cheap or free 48 . “
Exploitation of MFI beneficiaries?
MFI facilitators have also been criticized for not paying enough attention to the working conditions of poor households, particularly when borrowers become quasi-employees of MFIs to whom they sell handicrafts or agricultural products they occur. The willingness of MFIs to help borrowers diversify and increase their incomes has led to this type of relationship in several countries, notably in Bangladesh , where hundreds of thousands of borrowers actually work as employees for Grameen Bank’s commercial subsidiaries. BRAC. According to these critics, schedules, holidays, working conditions and safety would not be subject to any regulation.and controls to uncover abuses would be exceptional 49 .
Should we target the poorest?
Some of the microfinance programs have the specific objective of reaching poor people, sometimes even the “poorest”. Thus the poorest families could improve their situation through microfinance. This statement raised some questions 50 :
- Do MFIs that claim to target the poorest really achieve their goals?
- Is it not risky to indebt the poorest who will not have the repayment capacity?
- Is it not better to target a less poor audience in order to create an economic dynamic that will indirectly benefit the poor?
- If microfinance does not reach the poor, is it not likely to contribute to increased inequality ?
On these questions, the authors of the Guide to Microfinance offer some answers 51 :
- Microfinance is not a suitable tool for reaching the poor, that is, “the poorest of the poor”.
- Microfinance is relevant for very poor households, capable of economic initiatives, but the proposed financial services must be accompanied by additional services requiring sustainable subsidies .
- It is among households just above the poverty line , but still vulnerable, that microcredit finds its full relevance.
Various scandals have shaken the world of microfinance, which highlights the possibility of drifts of this system and highlights the need for a real framework. The Mexican MFI Compartamos, which went public in 2010, was accused of enriching itself on the backs of the poorest. How, indeed, reconcile the interests of investors and those of micro entrepreneurs? How can microfinance reconcile financial performance with social performance? Another scandal concerns the Indian MFI SKS with a wave of suicides at 2 esemester 2010 committed by micro entrepreneurs in the Indian state of Andra Pradesh. Since there was no control, micro entrepreneurs could take out several loans from different MFIs, which is also known as cross-debt. The latter were unable to repay their loans. They borrow from one to repay the other and find themselves locked in the phenomenon of cavalry. In the end, unable to repay their various loans, they rely on loan sharks, an excuse knowing that microfinance aims to emancipate micro entrepreneurs from the dependence on usurers. After the entry into the SKS Bombay Stock Exchange on July 28, 2010, there was a general runaway. The number of beneficiaries jumped in this region from 250,000 in 2006 to 9.7 million at the end of 2010(Liberation, 2011) [ archive ] . Finally, critics denounce the way loan officers are paid: according to the number of customers in their portfolio and the rate of reimbursement of customers. This system may have led to a real harassment of loan officers towards their clients. In the case of SKS, the government of Andra Pradesh went so far as to promulgate a law heavily condemning the “harassment” of loan officers.