An examination of the socioeconomic implications of microfinance programmes: an alternative approach in Nepal.Introduction
In Nepal, development planning was started with the implementation of the First Five-Year Plan Not to be confused with GOELRO plan.
The First Five-Year Plan (Five-Year Plan of Russia) was a list of economic goals that was designed to strengthen the USSR's economy between 1928 and 1932, making the nation both militarily and industrially self-sufficient. in 1956. Despite experiencing improvements, Nepal still remains one of the poorest countries in the world with a human development ranking of 129 out of 167 countries (UNDP UNDP United Nations Development Programme
UNDP Unión Nacional para la Democracia y el Progreso (National Union for Democracy and Progress) 2001). Since the installation of a multi-party democracy in 1990, the Eighth (1992-1997) and Ninth (1997-2002)Five-Year Plans Five-Year Plans
Method of planning economic growth over limited periods, through the use of quotas, used first in the Soviet Union and later in other socialist states. have shifted policy towards liberalization lib·er·al·ize
v. lib·er·al·ized, lib·er·al·iz·ing, lib·er·al·iz·es
To make liberal or more liberal: "Our standards of private conduct have been greatly liberalized . . . of the economy and decentralization de·cen·tral·ize
v. de·cen·tral·ized, de·cen·tral·iz·ing, de·cen·tral·iz·es
1. To distribute the administrative functions or powers of (a central authority) among several local authorities. of power to try and promote development. In particular, poverty alleviation has been the major focus of these two Plans, with a wide range of policies being instituted to try to improve the situation of the poor.
One strategy that the Nepali Government has been following to combat poverty is the use of microfinance as a tool to improve the socio-economic situation of the poor. While the use of microfinance to help combat poverty has become widespread throughout the world, debate still remains as how it can be best used to alleviate Alleviate
To make something easier to be endured.
Mentioned in: Kinesiology, Applied poverty in a sustainable manner. On the one hand, it is argued that the creation of a healthy and competitive financial landscape is the best way that microfinance can be used to alleviate poverty, while others argue that the provision of both financial and basic social services social services
welfare services provided by local authorities or a state agency for people with particular social needs
social services npl → servicios mpl sociales can better tackle the problems of poverty. The purpose of this paper is to provide a general understanding of this debate by giving a brief historical account of the development of the microfinance. With the help of flowcharts the paper also provides an understanding of how microfinance works to alleviate poverty. Secondly, an overview of the various microfinance programmes in Nepal is provided in order to gain an understanding of the Nepali microfinancial landscape and the problems that it is facing. Lastly, from all of these discussions, a conceptual framework For the concept in aesthetics and art criticism, see .
A conceptual framework is used in research to outline possible courses of action or to present a preferred approach to a system analysis project. for an alternative model is proposed that might help to improve the effectiveness and sustainability of microfinance programmes, given the severe poverty conditions existing in Nepal today.
Brief Overview of the Development of Credit Programmes
The provision of credit to those living in rural areas of the developing world has been a tool that has widely been used to try and promote development. First-generation credit programmes of the 1960's and 1970's provided low interest loans for agricultural purposes to facilitate the adoption of higher yielding technologies. While the intention of these programmes were to enable the poor to gain access to loans, the system utilized to distribute credit was incompatible incompatible adj. 1) inconsistent. 2) unmatching. 3) unable to live together as husband and wife due to irreconcilable differences. In no-fault divorce states, if one of the spouses desires to end the marriage, that fact proves incompatibility, and a divorce with their socio-economic condition. (1) In fact, tempted by interest rates that typically went as low as 2%, the rich used their political power to gain access to this credit that was not intended for them. Also, despite the fact that the rich received these low interest loans, the repayment rates Noun 1. repayment rate - the amount of money paid out per unit time
installment rate, payment rate, rate of payment
charge per unit, rate - amount of a charge or payment relative to some basis; "a 10-minute phone call at that rate would cost $5" were extremely low. Unable to recover money that was lent out, rural financial institutions (RFI (Radio Frequency Interference) High-frequency electromagnetic waves that emanate from electronic devices such as chips.
RFI - Radio Frequency Interference ) found it impossible to cover their costs of operations and were considered to be a resounding re·sound
v. re·sound·ed, re·sound·ing, re·sounds
1. To be filled with sound; reverberate: The schoolyard resounded with the laughter of children.
The development of the Ohio State University Ohio State University, main campus at Columbus; land-grant and state supported; coeducational; chartered 1870, opened 1873 as Ohio Agricultural and Mechanical College, renamed 1878. There are also campuses at Lima, Mansfield, Marion, and Newark. Rural Financial Market Theory (2) in the early 1980s provided a good understanding of why these programmes failed. While space limitations make it impossible to fully outline the theory, the basic criticism it makes about the first-generation credit programmes is that they did not allow for the proper development of the financial markets in rural areas. The subsidization sub·si·dize
tr.v. sub·si·dized, sub·si·diz·ing, sub·si·diz·es
1. To assist or support with a subsidy.
2. To secure the assistance of by granting a subsidy. of interest rates only served to distort the credit market leading to the mistargeting of credit to the rich. It is argued that rural financial institutions (RFIs) need to provide good quality banking services (3) in rural areas and charge interest rates that reflect the cost of doing business in these areas. In doing so, RFIs will be better able to serve the rural population and overcome the problems experienced in the past.
At around the same time that this theory was being proposed, the Grameen Bank Grameen Bank: see Yunus, Muhammad.
Bank in Bangladesh, the first bank to specialize in small loans for poor individuals. Originated by economist Muhammad Yunus, the Grameen banking model is based on groups of five prospective borrowers in Bangladesh was experiencing success in lending small amounts of money (microcredit microcredit, the extension to poor individuals of small loans to be used for income-generating activities that will improve the borrowers' living standards. The loans, which may be as little as $20 for very poor borrowers in some developing countries, typically are ) to the poor, without collateral, while experiencing high rates of repayment. Poor people borrowed money from the Grameen Bank, using a group lending methodology (4), and invested it into a microenterprise (5) activity. With the extra income earned from this activity, people were able to pay off their loans and get new ones. Through the repetition REPETITION, construction of wills. A repetition takes place when the same testator, by the same testamentary instrument, gives to the same legatee legacies of equal amount and of the same kind; in such case the latter is considered a repetition of the former, and the legatee is entitled of this cycle, studies showed that programme participants were able to slowly improve their socio-economic condition. These successes, along with donor enthusiasm for the potential of microfinance to help alleviate poverty, paved pave
tr.v. paved, pav·ing, paves
1. To cover with a pavement.
2. To cover uniformly, as if with pavement.
3. To be or compose the pavement of. the way for the establishment of second-generation credit policies aimed toward the development of the microeconomy by providing credit for investment into microenterprise. Since that time, many microfinance programmes have sprung up all over the world and various systems of lending have been experimented with to try and deliver these microfinance services in an efficient manner.
Two Categories of Microfinance Programmes
From all the experimentation with different types of lending systems conducted in the past two decades, there are two general types of microfinance programmes that can-be discerned. The first are welfarist wel·far·ism
The set of policies, practices, and social attitudes associated with a welfare state.
welfar·ist n. institutions that provide both financial and social services to the poor. Although the nature and degree of services provided by welfarists differ from one institution to another, they generally provide "services and training related to nutrition, health, literacy, group formation and client training." (6) The main interest of such institutions is on improving the social well being of participants, "with less interest in banking than in using credit as a means to effect fundamental social and economic changes for borrowers and communities. The result is a continued reliance on subsidies and reluctance to raise interest rates. Welfarists focus on outreach Outreach is an effort by an organization or group to connect its ideas or practices to the efforts of other organizations, groups, specific audiences or the general public. (targeting women and the poor) rather than financial sustainability" (Morduch, 1997).
The second type of micro finance programme is known as institutionalists, which focuses upon the provision of basic financial services The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. of deposit and loans. The main focus of such institutions is that of sustainability and believes that as long as sustainable financial services are provided, the entrepreneurial abilities of individuals is sufficient to bring about development. As Morduch (1997) argues, the focus of such institutions is on:
creating financial institutions to serve clients who are either not served or under-served by the formal financial system ... leading to achievement of scale (number of clients) over outreach (levels of poverty) and relegates client impact to the back burner.
In order to attain this goal, institutionalists need to provide high quality financial services and charge interest rates that reflect the cost of doing business in rural areas. This is a view that is touted by supporters of the Rural Financial Markets theory mentioned earlier.
In order to better understand the difference between these two methods of thought, the next two sections of this paper will describe the flowcharts shown in figures 1 and 2. These charts are an attempt at bringing about a more complete visualization Using the computer to convert data into picture form. The most basic visualization is that of turning transaction data and summary information into charts and graphs. Visualization is used in computer-aided design (CAD) to render screen images into 3D models that can be viewed from all of the socio-economic forces at work and how microfinance programmes impact upon those who participate in them. Since poverty is not only an economic issue but also a social one (7) (Chambers 1983), the flowcharts try to take this into account with the left-hand sides left-hand side n → izquierda
left-hand side left n → linke Seite f
left-hand side n → lato or of these flowcharts showing how programmes combat the economic aspects of poverty and the right-hand sides right-hand side n → derecha
right-hand side right n → rechte Seite f
right-hand side n → lato destro delineating how the social aspects of poverty are overcome.
[FIGURES 1-2 OMITTED]
Welfarists (8): By examining the experiences of welfarists programmes around the world, figure 1 is an attempt at providing visual picture of how welfarists try to alleviate poverty. Looking at figure 1, the situation of the rural poor in the developing world can be characterized char·ac·ter·ize
tr.v. character·ized, character·iz·ing, character·iz·es
1. To describe the qualities or peculiarities of: characterized the warden as ruthless.
2. by a situation of low income (9) and low social status (10). These two factors combined define the socio-economic condition I (11) box. Those entering a welfarist programme go through a screening (12) process. Those who are screened-out are rejected due to economic (13) and/or social (14) reasons. This means that these people revert re·vert
1. To return to a former condition, practice, subject, or belief.
2. To undergo genetic reversion. back to their original socio-economic condition of low income and low social status.
Those who pass the screening process, however, receive credit that can be used towards productive investment in a microenterprise and also receive training and welfare (15) support. Typically, a small portion of the loan is deposited with the bank to hedge against default. (16) Also, regular deposits (17) are usually required to instil in·still also in·stil
tr.v. in·stilled, in·still·ing, in·stills also in·stils
1. To introduce by gradual, persistent efforts; implant: "Morality . . . a savings habit. These deposits, along with the money deducted de·duct
v. de·duct·ed, de·duct·ing, de·ducts
1. To take away (a quantity) from another; subtract.
2. To derive by deduction; deduce.
v.intr. from the loan, can be considered as forced savings, which can be used as a source of capital to cover any emergencies that may arise. In terms of the microfinance programme, these forced savings play a dual role by affecting both the manpower ability (18) and the investment of a person. The availability of such savings helps to smooth-over the consumption of a person and this has a positive effect on ones manpower ability. At the same time, the existence of such a consumption-smoothing tool helps to ensure that investment money is utilized where it is supposed to be used, in the business.
As in any investment, however, there are risks and problems that arise, that can hamper ones ability to turn a profit. These problems that a person can incur are defined as investment barriers in the flowchart. Through the examination of the experiences of credit programmes around the world, five general categories of investment barriers have been identified.
The first are institutional barriers, which include problems associated with the organizational policy and strategy of the RFI, poor performance of staff members, and/or oversupply o·ver·sup·ply
n. pl. o·ver·sup·plies
A supply in excess of what is appropriate or required.
tr.v. o·ver·sup·plied, o·ver·sup·ply·ing, o·ver·sup·plies of credit (19). These are barriers in the sense that the institutional features of RFIs might riot be in tune with the situation of the rural poor that they are trying to serve. For example, the amount and frequency of loan instalments may not fit the income cycles of the borrower or the methods used to collect instalments may be inconvenient in·con·ven·ient
Not convenient, especially:
a. Not accessible; hard to reach.
b. Not suited to one's comfort, purpose, or needs: inconvenient to have no phone in the kitchen. . Such barriers can either hamper investment or lead to loan default and thus hurt the viability of the RFI.
The second are member (20) problems, which are particular to programmes utilizing group-lending methods. Incidents such as irregular HEIR, IRREGULAR. In Louisiana, irregular heirs are those who are neither testamentary nor legal, and who have been established by law to take the succession. See Civ. Code of Lo. art. 874. attendance to weekly meetings and lateness in paying loans instalments can be detrimental det·ri·men·tal
Causing damage or harm; injurious.
detri·men for other members trying to obtain loans. Also, there is always the possibility of wilful wil·ful
Variant of willful.
wilful or US willful
1. determined to do things in one's own way: a wilful and insubordinate child default where the borrower never has the intention of repaying the loan in the first place.
Geo-environmental barriers, as the name suggests, are those that relate to geography and the environment. If a village is located in an isolated area, such places typically have poor transportation and marketing facilities. This means that there is a less developed rural economy and hence less self-employment opportunities. Environmental factors deal with calamities that Mother Nature can bring. Floods, diseases and the like can destroy the investment that a person makes and hence reduces or eliminates ones ability to repay loans.
Social barriers include things Such as religious prejudice, socio-political interference and lack of family support. Such pressures can hamper a person's ability to make a success out of a microenterprise. For example, if, a woman does not have the support of the family, especially the husband's support, it may make it difficult for her to make an investment in a business succeed.
Finally, there are entrepreneurial problems such as difficulties in selecting, implementing or changing investment activities as the market may require. Poor entrepreneurial skills have a direct impact upon the ability of a business to heighten height·en
v. height·ened, height·en·ing, height·ens
1. To raise or increase the quantity or degree of; intensify.
2. To make high or higher; raise.
v.intr. ones socio-economic status. If a person does not have sufficient entrepreneurial talent to start-up or change to other activities, when the market for what they are doing becomes saturated saturated /sat·u·rat·ed/ (sach´ah-rat?ed)
1. denoting a chemical compound that has only single bonds and no double or triple bonds between atoms.
2. unable to hold in solution any more of a given substance. , this can lead to the failure of the business.
All of the above mentioned factors are problem on encounters When entering into a microfinance programme. The inability to, overcome such investment barriers can eventually lead to loan default. This means that the individual has failed to reap the benefits the programme has to offer and/or the programme design has failed to meet the needs of borrowers. As the dotted lines leading from the individual programme failure box show, such a situation leads them back to their original socio-economic condition of low income and low social status.
While there may be those who fail to succeed in a microfinance programme, there are others who are able to overcome all the abovementioned a·bove·men·tioned
The one or ones mentioned previously. investment barriers. The manpower ability of an individual plays a vital role in helping one overcome these barriers and ideally lead to income creation and loan repayment. If all goes well, a person is able to save some of the profits, which can then be deposited in to a savings account Savings Account
A deposit account intended for funds that are expected to stay in for the short term. A savings account offers lower returns than the market rates.
Notes: , as depicted de·pict
tr.v. de·pict·ed, de·pict·ing, de·picts
1. To represent in a picture or sculpture.
2. To represent in words; describe. See Synonyms at represent. by the loan repayment/savings box.
From the economic viewpoint, the repayment of a loan and possible accumulation of savings allows the borrower to build some creditworthiness Creditworthiness
The condition in which the risk of default on a debt obligation by that entity is deemed low.
Eligibility of an individual or firm to borrow money. with the RFI. This creditworthiness enables one to gain more credit, possibly of a larger amount. This new loan can then be invested into improving the existing microenterprise or the starting of a new one. If a borrower is able to successfully repeat this cycle of credit, income creation, loan repayment/savings, creditworthiness, that person will eventually improve their household income. On the social side, continual participation in a programme also allows for continued access to training and welfare, which will steadily improve ones manpower ability.
After repeating this cycle, borrowers will eventually be able to experience improved household income and success in a microenterprise also leads to a change of attitude in ones abilities. Prior to obtaining a loan, the borrower may not have had much confidence in their abilities due to their low social status. By succeeding in a microfinance programme, a person is able to obtain higher income and higher social status, which in turn leads to the socioeconomic so·ci·o·ec·o·nom·ic
Of or involving both social and economic factors.
of or involving economic and social factors
Adj. 1. condition II (21) box, as is depicted in the bottom section of the figure 1.
Institutionalist: The way that institutionalists try to alleviate poverty is to provide quality credit and deposit facilities for their rural clients. The institutionalists method is depicted in Figure 2, with the credit functions on the left-hand side and savings functions on the right. The initial socioeconomic condition (22) of the poor who participate in institutionalist programmes is defined by a situation of low income and low social status. A person who wants to obtain a loan has to go through some kind of screening (23) process; the rules and regulations regarding this process will differ from one institution to another. The Bank Rakyat Indonesia Bank Rakyat Indonesia or PT. Bank Rakyat Indonesia (Persero) (BRI), (tr. People's Bank of Indonesia), is one of the larger banks in Indonesia. It specialises in small scale and microfinance style borrowing from and lending to its approximately 30 million retail clients through its Unit Desas (BRIUD), for example, requires some form of collateral (24) and a recommendation from the village head. This recommendation is needed because if a person is late in their payment, the village head along with the bank worker will go to that person's house and demand repayment. In this system, the village head is a willing participant because he will get a share of the branches profits. Thus there is an incentive for the village head to make people repay because nonpayment by a borrower can reduce the profits of the branch.
Other institutions, such as credit unions, typically require a person to have a savings account with their institution. After the person has saved regularly he/she can become eligible for a loan either with or without collateral. Some credit unions require a savings account but will lend only a certain percentage of what the person has saved. Since the opening of a savings account as a screening requirement does not apply to all institutions, this part is depicted by the dotted line connecting the screening and savings facilities boxes.
Once the screening of clients is accomplished, those who are not considered to be good credit risks are screened-out. Similar to the welfarist model, a person will be screened-out for economic and/or social reasons. A person who is ineligible in·el·i·gi·ble
1. Disqualified by law, rule, or provision: ineligible to run for office; ineligible for health benefits.
2. for a loan reverts back to the original socioeconomic condition of low income and low social status. Those who pass the screening process, however, obtain credit and can invest it in a microenterprise.
As with any investment, there are barriers that have to be overcome and this is where the key difference between the welfarists and institutionalist models to financial intermediation can be found. In general, it can be said that those with a higher level of manpower ability will have a greater chance of succeeding in a microenterprise. While welfarists, through their welfare and training programmes, actively try to raise the awareness level of the poor in order to improve their manpower ability, institutionalists are content with simply offering savings facilities, which act as a consumption-smoothing (25) tool. In recent years, some institutions have started to offer insurance and remittance Money sent from one individual to another in the form of cash, check, or some other manner.
Financial statements sent by a creditor to a debtor frequently refer to the process of submitting a monthly remittance.
REMITTANCE, comm. law. services as well to improve the consumption smoothing ability of clients. Institutionalists believe that by having savings to cover such costs or by receiving credit for such purposes, delineated de·lin·e·ate
tr.v. de·lin·e·at·ed, de·lin·e·at·ing, de·lin·e·ates
1. To draw or trace the outline of; sketch out.
2. To represent pictorially; depict.
3. by the dotted line extending from the credit to consumption smoothing box, the manpower ability of that person can be enhanced.
This difference in ideology, however, has also led to a difference in the population that each institution serves. When looking at the poor, it becomes obvious that they should not be seen as being homogenous homogenous - homogeneous group and that within the poor, there are three basic subgroups that can be ascertained as·cer·tain
tr.v. as·cer·tained, as·cer·tain·ing, as·cer·tains
1. To discover with certainty, as through examination or experimentation. See Synonyms at discover.
2. . These are the "extreme poor" (26) whose income is 40% below the poverty line; the "moderate poor" living just below the poverty line; and the "vulnerable non-poor" who are living above but close to the poverty line and constantly risk falling below it (Woods and Sharif sha·rif
Variant of sherif. 1997:67). Due to the fact that institutionalists do not offer training and welfare services similar to that of welfarists, experience has found that they typically exclude the "extreme poor" from programme participation. Although the people who borrow from institutionalist programmes are poor, they typically belong to the non-vulnerable and moderate poor groups and thus the degrees to which they are affected by each of the elements in the investment barriers box are less. For example, a person participating in an institutionalist programme would find institutional and entrepreneurial barriers as being the most difficult obstacle to overcome. Social and member barriers would be less of a concern, while the ability to cope with geo-environmental barriers would be similar to that of a person participating in a welfarist programme.
Those participating in welfarist programmes, however, have all five of these barriers working against them. In particular, the social barriers that members of welfarist face are quite considerable. Gender, racial, and religious prejudices can play a disruptive disruptive /dis·rup·tive/ (-tiv)
1. bursting apart; rending.
2. causing confusion or disorder. role in enabling one to succeed in a microenterprise. Thus, the training and welfare activities conducted in welfarist programmes attempt to increase the social awareness level of their participants so that they can overcome such social barriers.
Nevertheless, those who fail to overcome these investment barriers follow the dotted lines of loan default, individual programme failure, and revert back to a socio-economic status of low income and low social status. Those who overcome investment barriers and are able to succeed in income creation are able to repay their loans, save money (if enough profit is made) and gain creditworthiness with the financial institution. Any savings that are accrued ac·crue
v. ac·crued, ac·cru·ing, ac·crues
1. To come to one as a gain, addition, or increment: interest accruing in my savings account.
2. can be deposited in the savings facilities, which will enhance ones consumption smoothing capabilities and in turn increase their level of manpower ability to overcome investment barriers. On the economic side, creditworthiness leads to access to more credit, which can be invested in the same or different microenterprise, and lead to income creation, loan repayment/savings, and so on. The last portion of the flowchart is the same as the welfarist model. After going through the institutionalist cycle a number of times, the borrower will eventually find his/herself in an improved socio-economic condition (27).
Microfinance and Poverty Alleviation in Nepal
In Nepal there are a wide variety of institutions that are trying to utilize microfinance as a poverty alleviation tool. The Intensive Banking Programme (IBP IBP (Fraunhofer) Institut für Bauphysik (Stuttgart, Germany)
IBP Interactive Business Planner
IBP Integrated Bar of the Philippines
IBP International Buyer Program ), Small Farmers Development Programme (SFDP SFDP Segment First and Deflect Policy ), Production Credit for Rural Women (PCRW PCRW Phase Change ReWritable
PCRW Portable Cd Rewriter ), Microcredit Project for Women (MCPW), Grameen replicators consisting of five Grameen Bikas Banks and two NGOs (28) (Nirdhan and Centre for Self-Help Development) are examples of the best-known institutions that provide financial services to the poor in Nepal. There are also a wide range of saving and credit organizations, cooperatives and NGOs providing financial services to those underserved by formal financial institutions.
Looking at table 1, it is evident that the three major poverty alleviation microfinance programmes in Nepal, the IBP, SFDP, and PCRW are experiencing problems in their viability due to poor repayment rates and difficulties in covering their costs of operations. Seibel et. al. (1998) in their study of microfinance in Nepal state that the "remedies to the disease of unviability seem clear: insistence on, and incentives for, timely repayment; elimination of interest rate subsidies in favour of cost-covering rates of interest; and lowering of transaction costs Transaction Costs
Costs incurred when buying or selling securities. These include brokers' commissions and spreads (the difference between the price the dealer paid for a security and the price they can sell it). " (Seibel et. al. 1998:308). The recent successes experienced by the transformation of SFDP sub-project offices (SPOs) into autonomous cooperatives, called Small Farmer's Cooperatives Limited (SFCL SFCL Stripline Ferrite Coupled Line ), is cited as an example of how such a remedy can be achieved.
The same study also takes an in depth look at the Purbanchal Grameen Bikas Bank, a Grameen replicator See port replicator.
replicator - Any construct that acts to produce copies of itself; this could be a living organism, an idea (see meme), a program (see quine, worm, wabbit, fork bomb, and virus), a pattern in a cellular automaton (see life), or (speculatively) a robot or located in the plain area of Eastern Nepal Eastern Nepal is Southwards and includes the highest mountain in the world. Cities
The major cities of this region are Biratnagar, Rajbiraj, Dharan and Dhankuta. Another notable place is Namche Bazaar, the town near the base camp of Mt. . A comparison is made between the performances of the Purbanchal with that of the NGO NGO
Noun 1. NGO - an organization that is not part of the local or state or federal government
nongovernmental organization run replicators, two NGOs supported by the Rural Self-Help Fund (29) (RSHF), i.e., Adarsha Krishak Samanwaya Samiti (Adarsha) and Vyccu Bachat Tatha Rin Sahakari Samstha (Vyccu), and two cooperatives operating in Nepal, i.e., SFCL in Bhumisthan, Dhading and Navajiban Cooperative Limited (Navajiban) in Dhangadi. It is found that government-owned poverty lending institutions Noun 1. lending institution - a financial institution that makes loans
financial institution, financial organisation, financial organization - an institution (public or private) that collects funds (from the public or other institutions) and invests them in have a much harder time in achieving viability in comparison to NGOs and cooperatives. As can be seen from table 2, the cooperatives seem to be performing the best in terms of financial self-sufficiency, followed by the two NGOs supported by the RSHF. Even among the Grameen replicators, the financial self-sufficiency figures are higher for the NGO run replicator in comparison to the government run bank. The main conclusions and recommendations from this study are in line with the institutionalist mode of thinking. The study recommends a need to remove all interest rate subsidies and charging of rates that over costs of operation, which not only distort the rural financial markets and set up unfair competition to market-oriented establishments but also undermine the mobilization mobilization
Organization of a nation's armed forces for active military service in time of war or other national emergency. It includes recruiting and training, building military bases and training camps, and procuring and distributing weapons, ammunition, uniforms, of savings. Looking at table 2, institutions such as Navajiban and Adarsha, which have the highest degrees of self-sufficiency, also have 100% of its loans financed from savings collected and thus mobilization of savings can be seen as a key factor in helping microfinancial institutions reach self-sufficiency. Thus Seibel et. al. argue for the privatization privatization: see nationalization.
Transfer of government services or assets to the private sector. State-owned assets may be sold to private owners, or statutory restrictions on competition between privately and publicly owned of government-owned institutions and a stop to all practices of using MFIs as channels for programmes with emphasis placed on internal resource mobilization Resource mobilization is a social theory related to the study of social movements. It focuses on the ability of the members of the movement to acquire resources and mobilize people in order to advance their goals. and promotion of linkages between institutions belonging to various financial sub-sectors. They also argue for a need to select and test successful microcredit, microsavings and microinsurance products and strategies and their dissemination dissemination Medtalk The spread of a pernicious process–eg, CA, acute infection Oncology Metastasis, see there throughout the formal, semiformal sem·i·for·mal
1. Moderately formal: a semiformal dance.
2. Suitable or appropriate for a moderately formal occasion: semiformal attire.
Adj. and informal financial sectors (Seibel et al. 1998:327).
While the recommendations made in this study are very important and can go a long way to help develop the rural financial landscape, there are certain things that must be considered when following the institutionalist path to microfinance. Firstly, there are the claims that institutionalist programmes are better in that they can reach large numbers of people and in this manner have a positive impact on poverty alleviation. Studies have found, however, that their outreach (30), in terms of depth, has been limited to the moderate and vulnerable non-poor households (Hulme and Mosely 1996). This exclusion of the extreme poor is only natural since the institutionalist line of thinking is based on capitalistic cap·i·tal·is·tic
1. Of or relating to capitalism or capitalists.
2. Favoring or practicing capitalism: a capitalistic country. principles of free competition, less government intervention, and the leaving of economic development to free market forces. As Johnson (1998: 799) notes, the "economic and social processes in the late twentieth century appear to be producing a `South in the North' at the same time as rapid development in some contexts is resulting in the emergence of a `North in the South'". In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke"
put differently , the institutionalist system inherently makes it difficult for the most vulnerable segments of society to gain access to the financial services it has to offer.
Institutionalists may argue that the exclusion of this group can be considered as an acceptable trade-off to developing a healthy financial landscape, but considering the severity of poverty in Nepal, it is an issue that must be given due consideration. The Nepali government divides those living below the poverty line into two categories, the poor and ultra poor. While the exact definition of the ultra poor is not given, the poverty line (31) is estimated at standing around NRs. 4404 per person per year. From this measure, it is estimated that 42% of the population in Nepal lives below the poverty line, with 24.9% of this group considered being poor and 17.1% being ultra-poor. Considering the large proportion of the population living in such an ultra-impoverished state, poverty alleviation programs need to be able to include as much of this segment of society in their activities as Possible.
There are also questions concerning a central tenet TENET. Which he holds. There are two ways of stating the tenure in an action of waste. The averment is either in the tenet and the tenuit; it has a reference to the time of the waste done, and not to the time of bringing the action.
2. of the institutionalist perspective, which insists that credit programs must eventually be able to function without subsidies. The Rural Financial Market theories advocate that institutions should charge interest rates that cover their costs of operations and that the poor are willing and able to pay high interest rates for their loans. For example, it has been found that in some countries moneylenders can charge interest rates of over 100%. If a RFI can cover its costs of operations by charging interest of 30% to 40%, the poor could and would gladly pay this rate of interest.
While it is ideal for an institution to function without subsidies, institutions that provide social services to their clientele can find this difficult to achieve given the costs associated with the provision of such services. This is the biggest dilemma facing welfarists in that while they are able to include more of the poor in their programs, they are not able to sustain themselves without subsidies. The reason welfarist programmes can include more of the poor into their program lies in their provision of training and welfare. As mentioned earlier, poverty is both an economic and a social issue. While credit can improve the economic side of poverty, training and welfare services are required to improve the social elements of poverty. By increasing the consciousness level of the poor through the provision of literacy, health education and child care services, for example, many of the social elements of poverty can be improved. As was seen in figure 1, the provision of such services enables people to improve their manpower ability which can help people to make a success out of their investment and thus impact positively on repayment rates and savings mobilization of the institution as a whole.
Pressures exerted by donors, government and the like have forced welfarist programs to seriously consider the issue of sustainability. In particular, the expansion of lending activities, in order to take advantage of economies of scale, and maintenance of high repayment rates have generally been regarded as key factors in attaining this goal. This pressure can have a positive influence, by forcing programmes to become efficient in its credit operations. However, it can also lead to a dilution in the programme ideology by shift in the focus of attention to the credit aspects of the programme and a reduction in the attention paid to the extent of training and welfare provided. This in turn can force programmes to lend larger loans, which in turn leads to the exclusion of the poorest of the poor; the very group that welfarists were originally designed to help. (32)
However, when looking at the root of the "zero subsidy subsidy, financial assistance granted by a government or philanthropic foundation to a person or association for the purpose of promoting an enterprise considered beneficial to the public welfare. is best" line of thinking, it becomes difficult to say that this is an absolute truth. Morduch (2000) sums up the argument with an excellent example:
Consider a program lending exclusively to poor borrowers. It would have to charge, say, 30% per year in order to break even. In contrast, a formal sector program aimed at richer borrowers could break even when charging say 15% per year since it can easily take advantage of returns to scale. Loans at 5% per year will seem appealing to all households when the alternative formal sector charge 15%. Nearly without fail, such absolutely cheap credit has led to subsidy traps. Loans around 20%, however, are not seen as gifts. The loans are cheap relative to full costs, but they are not absolutely cheap. Mistargeting has thus not been a major concern for those programs providing moderate-size subsidies. The lesson from the failures of the 1960s and 1970s is to avoid excessive subsidies. The lesson is not to avoid subsidies altogether, (Morduch 2000:624)
Therefore, if modest subsidies can help welfarist institutions break even, further thinking and experimentation is needed to see how welfarist institutions can be integrated into the financial landscape.
In order to examine this issue further, the following sections will examine in further detail two of the oldest welfarist style organizations in Nepal, the SFDP and PCRW. From the examination of the experiences of these two institutions, an alternative model will be proposed at the end of this paper to show that further experimentation is needed and efforts should be made to try and help welfarists attain sustainability.
The Small Farmers Development Programme: The SFDP, the largest target group oriented o·ri·ent
1. Orient The countries of Asia, especially of eastern Asia.
a. The luster characteristic of a pearl of high quality.
b. A pearl having exceptional luster.
3. poverty alleviation programme in Nepal, was first launched by the ADB/N as a project in 1975 to better enable small farmers (33) to receive credit and other supporting services from line agencies so as to improve their living standards living standards npl → nivel msg de vida
living standards living npl → niveau m de vie
living standards living npl . A sub-project office (SPO SPO System(s) Program Office
SPO System(s) Project Office
Spo Schizosaccharomyces Pombe
SPO Srpski Pokret Obnove ), alt ADB/N office, responsible for SFDP, is established in a Village Development Committee (VDC VDC Volts Direct Current
VDC Venture Development Corporation
VDC Vehicle Dynamic Control
VDC Village Development Committee (Nepal)
VDC Virtual Data Center
VdC Verband der Cigarettenindustrie ) and is staffed by a group organizer (GO) and a women group organizer whenever there is a Women's Development Programme in the VDC. The GO is basically responsible for all aspects of the programme including motivating people, making annual plans, assessing project viability, sanctioning sanc·tion
1. Authoritative permission or approval that makes a course of action valid. See Synonyms at permission.
2. Support or encouragement, as from public opinion or established custom.
3. and disbursing loans, collecting repayments and savings, and making line agency services such as training, marketing, raw material supply, family planning family planning
Use of measures designed to regulate the number and spacing of children within a family, largely to curb population growth and ensure each family’s access to limited resources. , adult literacy available to members.
Farmers are organized into groups of five to twelve members and loans of up to NRs. 30,000 per member are provided on an individual, group or intergroup in·ter·group
Being or occurring between two or more social groups: intergroup relations; intergroup violence. basis. Failure to repay loans can halt disbursement DISBURSEMENT. Literally, to take money out of a purse. Figuratively, to pay out money; to expend money; and sometimes it signifies to advance money.
2. of loans to other members or prevent new loans from being disbursed until all loans are repaid. While the group loans were supposed to do away with collateral requirements, the actual reality finds that farmers must also provide some physical collateral to obtain loans. The average loans size for 1994/95 disbursed by SFDP was NRs. 10,870 and the recovery rate of loans was only 58%.
There are many problems facing the SFDP especially in the management of the programme. It has been found that non-poor are being included in the SFDP groups and the practice of requiring collateral on top of the group formation may be a reason for this phenomenon. The programme tends to work well in areas with a well-trained and dedicated GO, but the lack of incentives for good performance and lack of attention paid by the ADBN ADBN Amateur Danssport Bond Nederland (Netherlands Amateur Dancing Club)
ADBN Asian Development Bank Notes
ADBN Arbitrary Directed Bipartite Network (34) to the programme has led to a deterioration de·te·ri·o·ra·tion
The process or condition of becoming worse. of a programme that had experienced success during its project phase.
In light of the problems being faced by the SFDP, the GTZ GTZ Deutsche Gesellschaft für Technische Zusammenarbeit GmbH (German society for technical cooperation)
GTZ Agence Allemande de Coopération Technique (French)
GTZ Gt Zagato in collaboration with the ADBN launched a technical assistance project in 1987 to try and transform SFDP SPOs into autonomous financial intermediaries Financial intermediaries
institution that provide the market function of matching borrowers and lenders or traders. , owned and managed by the members. By creating Small Farmer's Cooperatives Limited (SFCL), this project has been able to implement the SFDP in a more cost-efficient and sustainable manner. As Seibel et al. (1998:310) note, with the implementation of the SFCL concept in four SPOs in Dhading, farmers were able to "mobilize mo·bi·lize
1. To make mobile or capable of movement.
2. To restore the power of motion to a joint.
3. To release into the body, as glycogen from the liver. their own resources, which reached 20% of all loans outstanding within the first two years of their existence; the repayment rate of ADBN channelling loans (which continued unabated un·a·bat·ed
Sustaining an original intensity or maintaining full force with no decrease: an unabated windstorm; a battle fought with unabated violence. ) virtually doubled; and the repayment rate of loans from internal resources jumped to 98% as of 7/1995."
While problems still exist for these SFCLs to reach full autonomy, the initial success of the project has led to the replication In database management, the ability to keep distributed databases synchronized by routinely copying the entire database or subsets of the database to other servers in the network.
There are various replication methods. of this concept and provides evidence as to how to transform an unviable government programme into one that covers their costs of operations. According to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. Kievelitz et al., two important shortcomings A shortcoming is a character flaw.
Shortcomings may also be:
the definition of small farmers seems to have been applied quite loosely. It is quite likely that the program is also benefiting the relatively better off amongst the poor. Further the program as yet has not been able to reach out to the marginal areas of the country. The SFCLs have as yet weak linkages with services agencies, which limits the effectiveness of many investments that the farmers make with their loans (1998:27)
From examining the problems of the SFDP and the successes of the SFCL, poor management can be seem as the major factor that has hurt the viability of the SFDP. The transference TRANSFERENCE, Scotch law. The name of an action by which a suit, which was pending at the time the parties died, is transferred from the deceased to his representatives, in the same condition in which it stood formerly. of the management of the SPOs to its members has improved the overall supervision of the programme and thus its viability. However, another reason that can be cited as contributing to the poor performance of the SFDP is the poor linkages that it has had with government line agencies that are supposed to provide training and welfare services to the poor. Even the SFCLs have weak linkages with various service agencies and this can be seen as a problem that was carried over from the SFDP.
Being a programme run under the ADBN, it is only natural that the focus of the programme be placed upon its financial aspects. However, the lack of attention or priority placed on the social aspects of the programme, can also be seen as a contributing to poor loan repayment and the requirement of collateral in spite of the use of a group lending system to try to improve loan recovery; such actions inevitably leads to the disbursement of loans to those who are better off and the exclusion of the poorest of the poor from programme participation. The successes of the SFCL are an encouraging phenomenon but the fact that it is benefiting those who are relatively better off amongst the poor is not surprising. The ability to manage such groups requires a certain degree of education, which is something that those living in abject poverty typically do not have. Even if poorer members are included in the SFCL, such members will typically require a greater degree of assistance in terms of training and welfare activities if they are to overcome the various investment barriers shown in figure 1. Stronger linkages with government line agencies to provide social services are required in the SFCL programme is to see success in terms of the participation of the vulnerable poor.
Production Credit for Rural Women
The PCRW is a programme initiated by the then Ministry of Panchayat Noun 1. panchayat - a village council in India or southern Pakistan
council - a body serving in an administrative capacity; "student council" and Local Development (now known as the Ministry of Local Development), with the collaboration of the NBL NBL National Basketball League (Australia)
NBL National Bicycle League
NBL Neutral Buoyancy Laboratory
NBL New Brunswick Laboratory
NBL Not Bloody Likely
NBL National Baseball League
NBL Nothing But Love , RBB RBB Rundfunk Berlin-Brandenburg (TV channel)
RBB Results Based Budgeting
RBB Residential Broadband
RBB Right Bundle Branch
RBB Reverse Body Bias (electronics)
RBB Rebirth Brass Band , ADBN, UNICEF UNICEF (y`nĭsĕf'), the United Nations Children's Fund, an affiliated agency of the United Nations. , and other line agencies in 1982. Given the disadvantaged This article or section may contain original research or unverified claims.
Please help Wikipedia by adding references. See the for details.
This article has been tagged since September 2007. status of women in a male-dominated society such as Nepal, the basic aim of the PCRW was to "institutionalize in·sti·tu·tion·a·lize
To place a person in the care of an institution, especially one providing care for the disabled or mentally ill.
in the programme within the existing financial and institutional infrastructure of the government--to mobilize the government's root mechanisms to serve the interests and needs of the women rather than creating a separate state machinery for women's programmes." (AFDA AFDA Alt.Fan.Douglas-Adams (USENET)
AFDA Association of Federal Defense Attorneys
AFDA Australian Funeral Directors Association
AFDA Association Francaise des Arabisants
AFDA American Family Data Archive 1996:50) Thus the program focused on creating women's groups of between four to ten members who belong to low-income families having annual per-capita income less than or equal to NRs. 2,511 with the following broad objectives:
1) Improve economic and social status of rural women in the society, accomplished through a combination of income generating activities, training and community development activities;
2) Establish self-reliant women's groups enabling them to initiate and undertake productive activities;
3) Integrate women into the regular service delivery system for credit and technical support services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services ;
4) Develop the capacity of Women's Development Division (WDD (Windows Distributed Desktop) Software from Tektronix, Wilsonville, OR, that allows Unix workstations and X terminals access to Windows applications running under an enhanced version of Windows NT or Windows 2000 Server. ) to ensure that women's interest are reflected in the development policies of the country. (AFDA 1996:12)
The large majority of loans are given for the purchase of livestock and the ultimate aim is to develop these groups into "viable saving and credit cooperatives which would thereafter stand and mange mange (mānj), contagious skin disease of domestic and wild animals. The several types of mange, including follicular and sarcoptic mange, are caused by various minute parasitic mites that burrow into skin, hair follicles, or sweat glands. on their own without outside help" (Sharma and Nepal 1997:42). The key player in this system is the staff of the Women's Development Section (WDS Wds Words
WDS Wireless Distribution System (Joint Common Database)
WDS Wide-area Data Services
WDS Wireless Domain Services (Cisco Systems technology)
WDS Wavelength Dispersive Spectroscopy ), which motivate and assist members in selecting the right type of project and recommend them for loans to the IBP or ADBN branch working in the area. Loans that are approved are given under a group guarantee scheme without collateral and the supervision of loans, social and community development activities are carried out by staff of the WDS, Problems have been experienced, however, in developing the leadership capacity of members given the fact that once group leaders are chosen, they tend to remain in that position as opposed to the rotation of leadership roles among group members as envisioned by the programme.
This problem of developing leadership has consequently made it difficult to realize the graduation Graduation is the action of receiving or conferring an academic degree or the associated ceremony. The date of event is often called degree day. The event itself is also called commencement, convocation or invocation. of groups into autonomous cooperatives and this may in part be explained by the large role that the programme staff have to play in the running of the programme. As was mentioned earlier, the main aim of PCRW was to institutionalize into the overall government infrastructure the development needs of women. In practice, however, the training and welfare aspects of the programme have fallen solely on the shoulders of the field staff due to a lack of cooperation between PCRW and district line agencies; services that members require are not available on a timely basis and any services that are provided were "fulfilled ful·fill also ful·fil
tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils
1. To bring into actuality; effect: fulfilled their promises.
2. depending upon personal requests and relationship of WDO WDO Window
WDO Waste Diversion Ontario (Canada)
WDO Wood Destroying Organism (insects)
WDO Women Defending Ourselves (Stanford, CA)
WDO Well Done Opponents and line agency staff. In addition, the WDO's expressed that they had to send repeated requests and reminders for line agency support and cooperation" (AFDA 1998:56). Heavy reliance upon the field staff can be seen as a reason for why field staffs are regarded as "mothers" or "guardians of the group rather than trying to relegate rel·e·gate
tr.v. rel·e·gat·ed, rel·e·gat·ing, rel·e·gates
1. To assign to an obscure place, position, or condition.
2. To assign to a particular class or category; classify. See Synonyms at commit. that role to the members themselves resulting in the programme being viewed as a gift from the government rather than creating groups that can demand services that government line agencies have to offer them.
Another problem with the programme is the high cost of service delivery with the World Bank estimating that the PCRW would have to raise their lending rates of interest to 72.4% in order to cover their costs of operations. Sharma and Nepal (1997) estimate that two-thirds of the staff time is devoted to the deliver of social service aspect of the programme which can account for the high costs associated with service delivery. Pressures to attain sustainability, however, have created a need to expand the programme and lend more loans to try and generate income. These pressures, while positive in terms of trying to make the system more efficient, has also resulted in a shift in the programme focus from community development to the credit activities. Given the fact that women are the targeted beneficiaries of the programme, reduction in the social intermediation aspects of the programme will make it more difficult for members to succeed within the programme.
The PCRW is also facing problems with a high rate of staff turnover, which can also be seen as raising the costs of operations due to the expense associated with the training of new people. The major problem is that 72% of the staff members are hired on a temporary basis and whenever new and permanent forms of employment are available, workers tend to leave the programme. The hiring of staff on a more permanent basis with the provision of incentives for good performance can go a long way in reducing costs associated with staff training and thus help to reduce the amount of subsidies the programme is receiving.
Conceptual Framework for an Alternative Approach to Microfinance
As was seen from the descriptions of the SFDP and PCRW, poor management has been a major factor affecting the performance of these programmes. Both of these programmes, when they first started, had met with considerable success and this helped to fuel expansion of programmes to other districts. As the programmes grew in size, however, they tended to lose their effectiveness and this is a reason for why government programmes have not performed as well as the cooperatives or NGO run institutions seen in Table 2.
There are a number of reasons that can account for this decline in effectiveness. The first deals with the lack of qualified staff to keep up with the expansion of programmes. In terms of the SFDP, the rapid expansion of the programme had forced the ADBN "to place a person from the regular staff pool as a GO. Such a person possesses neither the required skills nor is motivated mo·ti·vate
tr.v. mo·ti·vat·ed, mo·ti·vat·ing, mo·ti·vates
To provide with an incentive; move to action; impel.
mo to work with the rural poor. This practice has an adverse effect on the quality of the programme" (Sharma and Nepal 1997:37). The PCRW, on the other hand, has a problem with a limited number of field staff, which acts as an impediment A disability or obstruction that prevents an individual from entering into a contract.
Infancy, for example, is an impediment in making certain contracts. Impediments to marriage include such factors as consanguinity between the parties or an earlier marriage that is still valid. to the expansion of the programme. At the same time, the high turnover of staff not only adds to the cost of the programme but also affects its effectiveness. Such problems can be addressed, however, through the provision of incentives to workers for good performance.
A more important reason for the decline in performance, however, can be attributed to the dilution of programme ideology. When looking at the history of the microfinance movement, the overall focus has tended to be placed on the financial, i.e. saving and credit, aspects of programmes. While it is realized that the social intermediation aspects do play a positive role, insistence on being able to function without subsidies inevitably leads to a decline in the quality and quantity of services provided; more time spent by staff to extend larger loans which results in a decline in amount of time spent on social intermediation activities and exclusion of the more vulnerable sections of the poor.
The point that this paper is trying to make is that microfinance programmes aimed at the poorest of the poor need to give equal weight to both the financial and social intermediation aspects. In the case of Nepal, however, the focus of the government has been leaning more towards the financial aspects and this attitude is reflected in the government policies towards microfinance. For example, in the IBP, the government requires commercial banks to allocate 12% of their loan portfolio to the priority sector but there has been no policy mandate to direct district line agencies to concentrate a certain percentage of their resources to service provision to microfinance programmes. While the SFDP and PCRW conceptually have linkages with line agencies, the actual practice has seen little cooperation between the SFDP and PCRW with line agencies and has thus contributed negatively to their overall performance.
In order to over come these deficiencies, figure 3 provides a conceptual framework for an alternative model to microfinancial intermediation. The main idea behind this framework is to have better integration of government welfare policies with the activities of microfinancial programmes. As was mentioned earlier, the costs associated with Social service provision has been a major impediment to the sustainability of welfarist institutions and pressures to attain sustainability has led to the exclusion of the extreme poor from programme participation. Government support for training and welfare activities can help welfarists to attain sustainability as long as the financial side of their operation is conducted in a viable manner.
[FIGURE 3 OMITTED]
Looking at Figure 3, we see that the alternative model is based on the welfarist flowchart. The government welfare policy box is catching those who are being screened out with an arrow leading towards the training and welfare box. There are many ways that such a system of cooperation between the microfinance programme and the government welfare policy could be developed. If there is an overlapping of the social services being offered by the government and the welfarist microfinance programme, discussions can be initiated to try to integrate the programmes that each are operating. For example, if a government has an adult literacy programme in place and the NGO is also has a programme of their own, an integration of the two programmes is a possibility. If the government is running a programme that the microfinance programme does not offer, members can be introduced to it and this would further the social empowerment em·pow·er
tr.v. em·pow·ered, em·pow·er·ing, em·pow·ers
1. To invest with power, especially legal power or official authority. See Synonyms at authorize.
2. of its members.
Direct subsidies by the government for a social programme offered by a microfinance institution are another possibility. In some cases, the NGO may be better able to provide services in a certain district than the government. Another possibility is that the NGO social programme is of a much better quality and so the government could take the money it spends on its own programme and subsidize sub·si·dize
tr.v. sub·si·dized, sub·si·diz·ing, sub·si·diz·es
1. To assist or support with a subsidy.
2. To secure the assistance of by granting a subsidy. the one run by the NGO. Such subsidies, if sufficient in amount, might even enable the microfinance programme to expand the variety of social services they provide (35) and thus lead to further social empowerment for participating members. For such an option to be even considered, however, the NGO running the microfinance programme would have to show a considerable degree of success and efficiency in its lending operations. (36)
For the extreme poor, the extension of loans to them does not necessarily have to occur immediately. Many institutions have found difficulties in lending to this extreme poor group. A more practical solution might be to get them into the welfare programme so that they can gain access to basic health, literacy and other training to improve their manpower ability. Forcing participants to maintain a regular savings habit can also teach them the value of doing so. If a programme is able to improve the social poverty of the extreme poor group, it will have at least had an impact and provide them with better manpower ability to tackle the economic side of poverty.
The politics and logistics involved in such an endeavour may seem quite daunting daunt
tr.v. daunt·ed, daunt·ing, daunts
To abate the courage of; discourage. See Synonyms at dismay.
[Middle English daunten, from Old French danter, from Latin but also point out that there are alternatives for welfarist microfinance programs trying to obtain sustainability. An environment of mutual trust between government and NGOs would have to be established before any such alternative could be considered. As was mentioned earlier, the present model for development in most of the world relies upon market forces. This makes welfare programs all the more necessary in order to protect the most vulnerable. This is not to say that all programs must be welfarist in nature but that there is room in the financial landscape for subsidized sub·si·dize
tr.v. sub·si·dized, sub·si·diz·ing, sub·si·diz·es
1. To assist or support with a subsidy.
2. To secure the assistance of by granting a subsidy. welfare programmes that are aimed towards the poorest of the poor.
Much of the literature, pertaining per·tain
intr.v. per·tained, per·tain·ing, per·tains
1. To have reference; relate: evidence that pertains to the accident.
2. to sustainability aspects of microfinance programmes, tends to only evaluate the economic aspects of the programme. Investments are also needed to help people overcome the social side of poverty as well. While the thinking behind welfarist programmes was to accomplish this, the pressure for sustainability has started to exclude the poorest of the poor and this is something that has to be taken seriously. The alternative model proposed in this paper, might be one of the options that are available to include the most vulnerable in the development process.
Throughout this past two decades, there has been much enthusiasm for microfinance programmes as a method to alleviate poverty. To gain a better understanding of the socioeconomic forces at work within microfinance programmes, flowcharts depicting institutionalist and welfarist approaches to financial intermediation were presented. Research into the outreach and sustainability aspects of microfinance programmes has found that institutionalists, by and large, have excluded the poor from participation. Welfarists have also felt pressure from donors to expand their scale of operation and become sustainable. This pressure, however, has led to the exclusion of the extreme poor from programme participation.
Examination of the SFDP and PCRW in Nepal had found that poor management has been a major impediment to programme performance. While the provision of proper incentives to workers can help to overcome some of the problems, the flowcharts showing the socio-economic implications of microfinance programmes have tried to illustrate that the social intermediation aspects of programmes are just as important as the credit side and the lack of cooperation and coordination of these programmes with district line agencies can also be seen as a major reason for poor programme performance. The intent of this paper is not to discredit TO DISCREDIT, practice, evidence. To deprive one of credit or confidence.
2. In general, a party may discredit a witness called by the opposite party, who testifies against him, by proving that his character is such as not to entitle him to credit or the valuable contribution that institutionalists can play in alleviating poverty through the development of a healthy financial landscape, but tries to point out that it may not be the only alternative available for the creation of sustainable institutions. The provision of government subsidies and/or amalgamation amalgamation /amal·ga·ma·tion/ (ah-mal´gah-ma´shun) trituration (3).
amalgamation ( of the social services provided by the NGOs and government might be one way to lessen less·en
v. less·ened, less·en·ing, less·ens
1. To make less; reduce.
2. Archaic To make little of; belittle.
To become less; decrease. the financial burdens taken on by the microfinance programme. Such an alternative might be an interesting starting point Noun 1. starting point - earliest limiting point
terminus a quo
commencement, get-go, offset, outset, showtime, starting time, beginning, start, kickoff, first - the time at which something is supposed to begin; "they got an early start"; "she knew from the for cooperation between NGOs and government. Further research into how the alternative model presented here could work, might lead to a much more dynamic financial landscape than the one that is presently in existence.
Table 1: Lending and Viability Figures of Major Poverty Lending Programmes in Nepal (1995/96) Loan Disbursement Repayment No. of Avg amount (NRs. Program borrowers Amount (1) (NRs.) million) IBP 37,082 975.92 26,318 529.69 SFDP 63,497 690.21 10,870 503.53 PCRW 9,270 74.64 8,052 34.27 On-lending Overdue interest rate (%) (2) (NRs. Recovery Program million) rate (%) Actual Required IBP 605.60 46.66 18.10 42.5 SFDP 364.19 58.00 15.55 43.5 PCRW 19.65 63.56 15.55 72.4 Subsidy dependency Program index (3) IBP 1.35 SFDP 1.80 PCRW 3.66 Source: Sharma and Nepal (1997) and Seibel, Pant, and Dhungel (1998) Note: (1) Amounts are in NRs. Million (2) The interest rates stated are for 1991/92 (3) Subsidy dependency index = (Required rate - Average rate)/Average rate (Jacob Yaron, The World Bank) Table 2: Operational and financial self sufficiency in six MFIs in Nepal, 1995 Grameen Replicators Bank NGO Lending rate of interest 20 20 On-time repayment rate 100 100 Mean loan size (NRs. '000) 3.15 3.39 Savings (Million NRs.) (1) 13.92 1.03 Loans outsanding (Million NRs.) (1) 78.74 6.56 Savings/loans outgoing (%) (1) 18 16 Degree of partial financial self-sufficiency (%) 18 64 (2) Degree of full financial self-sufficiency (%) 15 59 (2) Rural Self Reliance Fund Vycuu Adarsha Lending rate of interest 18 18 On-time repayment rate 97 100 Mean loan size (NRs. '000) 9.2 13.72 Savings (Million NRs.) (1) 0.23 1.20 Loans outsanding (Million NRs.) (1) 0.45 1.19 Savings/loans outgoing (%) (1) 51 100 Degree of partial financial self-sufficiency (%) 103 96 Degree of full financial self-sufficiency (%) 71 84 Cooperatives SFCL Navajiban Lending rate of interest 15-18 12-21 On-time repayment rate 64 92 Mean loan size (NRs. '000) 6.66 84.13 Savings (Million NRs.) (1) 0.56 17.86 Loans outsanding (Million NRs.) (1) 4.94 17.84 Savings/loans outgoing (%) (1) 11 100 Degree of partial financial self-sufficiency (%) 136 127 Degree of full financial self-sufficiency (%) 82 113 Source: Seibel et. al. (1998:320 and 325) Note: (1) Figures are for December 1995 (2) These data pertain to July 1996
(1) In terms of the system used to deliver credit, in order to gain access to a loan, one needed to fill out paperwork and have collateral. Since many of the poor are illiterate ILLITERATE. This term is applied to one unacquainted with letters.
2. When an ignorant man, unable to read, signs a deed or agreement, or makes his mark instead of a signature, and he alleges, and can provide that it was falsely read to him, he is not bound by and have very little they can offer as collateral, this system made it extremely difficult for them to access these low interest loans. There are many other reasons why these programs failed to reach the poor and these are extremely well documented. See Frank Ellis Frank Ellis can refer to:
(2) See Adams et al., eds. (1984) for a full explanation of the Rural Financial Market theory.
(3) This means that branches have to be located close to the villages of their clients, have office hours office hours,
n.pl See business hours. that reflect the work schedule of rural people, and generally provide services that are needed by them. This is something that first-generation credit programs failed to provide.
(4) Group lending is system whereby members of a group are responsible for each other's loans. If a person in their group cannot repay their loan, other members can also lose access to credit. The social pressure that is created to repay takes the place of physical collateral that is common with most bank loans.
(5) Microenterprises should not be confused with small-scale enterprises. The distinguishing features of microenterprises are that they require small sums of money and utilize very simple technology. Common examples of microenterprises in the developing world would include activities such as chicken rearing, rickshaw pulling, peddle-vending, etc.
(6) World Bank, "Sustainable Banking with the Poor (SBP SBP Spontaneous bacterial peritonitis, see there ): A Worldwide Inventory of Microfinance Institutions," <http://www-esd. worldbank.org/html/esd/agr/sbp/micro/micro1.html>
(7) Chambers (1983) argues that poverty is an inter-linking of powerlessness pow·er·less
1. Lacking strength or power; helpless and totally ineffectual.
2. Lacking legal or other authority.
pow , vulnerability, physical weakness, poverty, and isolation factors.
(8) In the following description and analysis, the words in bold correspond to the words found in the boxes of the flowchart.
(9) This is defined as a situation characterized by low savings and poor consumption.
(10) Low social status is defined as a situation characterized by little power and little awareness.
(11) Defined as the socioeconomic condition of an individual characterized by low income and low social status, consisting of the extreme and moderate poor.
(12) The process used to accept or reject potential borrowers. In terms of the group lending method, the members of the group are the ones who decide who gets credit and who does not.
(13) Rejection due to economic reasons, i.e., a person is too poor, does not have a regular income.
(14) For example, group members perceive them too be too poor or too far down the social ladder to be accepted.
(15) Since welfarist programmes give loans without collateral, group-lending methods are utilized. At group meetings, on top of collecting loan installments, various training and welfare activities are also conducted. For example, moral support from group members and bank workers, the forcing of regular savings to teach borrowers the value of saving small amounts of money on a regular basis, literacy and health training, and other activities that can raise the awareness level of the borrower.
(16) The Emergency Fund of the Grameen Bank, for example, requires borrowers to deposit 5%of a loan over 1000 takas to be deposited. This is collected to hedge against default when accidents, death, or crisis hits a borrower.
(17) For members of the Grameen Bank, two takas must be deposited in the Group Fund at every weekly meeting. Up to half of the funds in this account can be borrowed, though group approval is needed, to help those that are struggling.
(18) Defined as the health and knowledge level of a borrower. Good health enables a person to work productively, which enhances their ability to repay loans. The more knowledge one has, the better one is able to deal with the socioeconomic environment around them, which can help to ensure that better quality investment is be made. These have a direct impact on the investment; the arrow pointing from the manpower ability to the investment box depicts this fact.
(19) The oversupply of credit refers to two things: a) the loan amount extended is too big for the borrower to manage. b) The popularity of the microfinance movement has led to the growth in number of programmes available. If a village has numerous programmes, one can borrow from different institutions and end up owing more money than they are capable of repaying.
(20) Defined as the people participating in the microfinance programme.
(21) Defined as the socioeconomic condition of an individual who has managed to cross the poverty line.
(22) The term socioeconomic condition I is not used here as it was in the welfarist model. This is because those joining an institutionalist program are not necessarily below the poverty line when they join, i.e., they are from the vulnerable non-poor and non-poor group.
(23) For programmes, which utilize group-lending methods, members are the ones, who screen other members. However, many institutionalists lend to individuals and thus require collateral and/or a recommendation from a village leader or guarantor guarantor n. a person or entity that agrees to be responsible for another's debt or performance under a contract, if the other fails to pay or perform. (See: guarantee)
GUARANTOR, contracts. He who makes a guaranty.
(24) For the BRI-UD, collateral does not necessarily have to be land, a common practice of most banks. It can be a household item but in actual practice, repossession The taking back of an item that has been sold on credit and delivered to the purchaser because the payments have not been made on it.
For example, if an individual fails to render prompt payments on a new car, the car might be subject to repossession by the finance company, does not occur because of the role of the village head.
(25) Defined as money used for emergency consumption needs such as food shortages, sickness SICKNESS. By sickness is understood any affection of the body which deprives it temporarily of the power to fulfill its usual functions.
2. Sickness is either such as affects the body generally, or only some parts of it. , funerals, weddings, that will help to maintain ones lifestyle to meet various contingencies.
(26) This extreme poor group is also known as the core-poor, ultra-poor, and poorest of the poor in the academic literature.
(27) The term socioeconomic condition II was not used here because people participating in institutionalist programs are not necessarily those who are moving from below to above the poverty line. For example, a vulnerable non-poor person may be able to get rid of their vulnerability and stabilize stabilize
See peg. their income to that which is above the poverty line and thus the term improved socioeconomic condition is used here.
(28) Grameen replication is being engaged by both banks and NGOs as a way to test which method is better suited for the situation of Nepal.
(29) The NRB NRB National Religious Broadcasters
NRB Nepal Rastra Bank
NRB Natural Resources Board
NRB National Reconstruction Bureau (Pakistan)
NRB National Research Bureau
NRB National Review Board
NRB Needle Roller Bearing has tried to support selected NGOs to become financial intermediaries with the establishment of a Rural Self-Help Fund which provides funds at rate of eight percent per annum Per annum
Yearly. on loans to NGOs which direct the loans to beneficiary beneficiary
Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. groups at or around the prevailing bank rates with the difference between borrowing and lending rate to take care of the overhead expenses of NGOs. The study conducted by Seibel et al. refers to this program as the Rural Self-Reliance Fund.
(30) This term connotes two things, scale and depth. Outreach of scale refers to the overall numbers being reached by the institution. Outreach of depth refers to how well institutions are reaching the extreme poor.
(31) The poverty line is estimated as being the annual amount of expenditure required to purchase a daily caloric caloric /ca·lo·ric/ (kah-lor´ik) pertaining to heat or to calories.
1. Of or relating to calories.
2. Of or relating to heat. intake of 2124 calories per year and other essential non-food items. Per capita [Latin, By the heads or polls.] A term used in the Descent and Distribution of the estate of one who dies without a will. It means to share and share alike according to the number of individuals. annual expense to purchase 2124 calories per person per day is estimated at NRs. 2637.
(32) A good example of this can be seen with the Grameen Bank when it needed to expand their scale of operations to address the sustainability issue. Since there are costs associated with the establishment of new branches, as of 1992 the Grameen Bank focussed its efforts on expanding the number of members within its existing infrastructure. This was accomplished by intensifying in·ten·si·fy
v. in·ten·si·fied, in·ten·si·fy·ing, in·ten·si·fies
1. To make intense or more intense: the workload of bank workers by increasing the number of groups he/she was responsible for from six to eight per center. The problem of doing this is that it reduces the amount of time a bank worker can spend monitoring groups and the uses of the loans. At the same time, there is external and internal pressure to maintain high repayment rates and thus bank workers tend to get appraised on their ability to recover loans as opposed to their supervision of them (Rahman, 1999, 75-76). Thus workers will begin to concentrate their efforts on the credit aspects of the program and spend less time on the social intermediation aspects.
(33) Small farmers were first defined as those having a per capita annual income of less than NRs. 950, which was raised to NRs. 2,500 in 1991 (NRB, Vol. 2 1994:215)
(34) The regular lending of ADBN constitutes over 80% of total lending volume and thus the SFDP does not get as much attention as required.
(35) Karim and Osada (1998), for example, state that the implementation of a formal child-care system could be something that would reduce dropouts of Grameen Bank members and thus positively contribute to the sustainability of the Bank.
(36) A good candidate for receiving such subsidies would be a programme that shows itself to be financially sustainable but is having problems obtaining economic sustainability.
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TAKASHI TAKAHATAKE, Ph.D., at Division of Cultural and Regional Studies, Graduate School for International Development and Cooperation, Hiroshima University Hiroshima University (広島大学 Hiroshima Daigaku , Hiroshima, Japan
KESHAV L. MAHARJAN, Ph.D., Associate Professor at Graduate School for International Development and Cooperation, Hiroshima University, Hiroshima, Japan