NGO
Another Way (Stichting Bakens
Verzet), 1018 AM Amsterdam, Netherlands.
01. E-course : Diploma in Integrated
Development (Dip. Int. Dev.)
Edition
04:13 December, 2010.
Edition
15 : 18 October, 2014.
Quarter
2.
SECTION B :
SOLUTIONS TO THE PROBLEMS.
Value: 06
points out of 18 .
Expected work
load: 186 hours out of 504.
The points
are finally awarded only on passing the consolidated exam for Section B : Solutions
to the Problems.
Fourth
block: The structures to be created.
Value : 03 points out of 18
Expected work load: 96 hours
out of 504
The points
are finally awarded only on passing the consolidated exam for Section B :
Solutions to the Problems.
Fourth
block: The structures to be created.
Section 3:
Financial structures.[24 hours]
20.00 hours :Financial structures.
04.00 hours : Preparation report.
Section 3:
Financial structures.[24 hours]
20.00 hours :Financial structures
: analysis.
1. The basic concepts - introduction.
[ 2.5 hours]
2. The basic concepts – more
details. [ 2.5 hours]
3. The local money systems -
introduction [ 2.5 hours]
4. The local money systems –
more details. [ 2.5 hours]
5. The interest-free
micro-credit systems -
introduction.[2.5 hours]
6. The interest-free
micro-credit systems -
more details.[2.5 hours]
7. The cooperative purchasing groups -
introduction. [2.5 hours]
8. The cooperative purchasing
groups – more details. [2.5 hours]
04.00 hours : Preparation report.
Section 3:
Financial structures.[24 hours]
20.00 hours :Financial structures
: analysis.
5. The interest-free
micro-credit systems -
introduction.[ at least 2.5 hours]
The cooperative interest-free micro-credit structures
provided for in integrated development projects are innovative. They are
complementary to the local money structures covered in the preceding sessions,
under the framework of which they are created. They are fundamentally different
from those described by Nobel Prize winner Muhhamad Yunus in his book Banker
to the Poor, (Public Affairs, New York, 2003) in relation to his Grameen Bank. A good summary of Yunus’s
book is available at Banker to the Poor, The Economist,
Get Abstract, 2007. Yunus
and his work have recently been subjected to a more critical analysis than was
the case in the past. There are reports on
harsh methods for obtaining repayments, high interest rates, and
falsification of default rates, which were often claimed to be less than two
percent. The Brennpunkt programme by the National
Norwegian Television, Oslo,
transmitted its documentary on Yunus Caught in Micro-debt
on November 30, 2010.
The original version, in Norwegian, is available at Fanget i Mikrogjeld.
Suggestions of possible misuse by Yunus of
aid-funds made in the documentary were officially refuted by the Norwegian
government. Nevertheless the film . shows in detail how microfinance works and
its consequences on the borrowers. The Norwegian Minister of Development and
Environment at the time “left the post” at the end of March 2012, and the
Norwegian government “will no longer
finance new MFIs [micro-finance institutions] ” (T.Heinemann, No more financing of MFIs, NRK Brennpunkt, Oslo, 19th June, 2012.)
“There has been a
collective delusion that microfinance and its link to entrepreneurial activity
is a powerful tool to alleviate poverty despite little evidence to show that
this model works.” (Parminder Bahra,
Microfinance
: Is Grameen Founder Muhammad Yunus a
Bloodsucker of the Poor?, The Source, Wall Street Journal, New York, 6 December,
2010.)
In his Ph. D.
thesis Enslaving Development
: An Anthropological Enquiry into the World of NGO, (Chapter 8 pp.
267-303), (Durham University, Durham 2010) M.Mannan
describes how neo-liberal market ideas have come to “colonise” the development
sector in Bangladesh.
“Micro-credit did not do much to improve the well-being of women but released
the elite from their religious and social obligations to help the poor and
women in need” (p. 300).
At p. 286 cites a BRAC client :
“You came to help
us. Why are you charging interest?”
At p. 298 :
“I accepted money
to become rich, but now happiness has disappeared.”
The “cautious” conclusion 1 of a comprehensive review
on microfinance in sub-Saharan Africa reads :
“We conclude that some people are made poorer, and not richer, by
microfinance, particularly micro-credit clients. This seems to be because: they
consume more instead of investing in their futures; their businesses fail to
produce enough profit to pay high interest rates; their investment in other
longer-term aspects of their futures is not sufficient to give a return on
their investment; and because the context in which microfinance clients live is
by definition fragile.” (Stewart, R. and others, What is the impact of microfinance
on poor people? A systemic review of evidence from sub-Saharan Africa, EPPI Centre, Social Science
Research Unit, University of London, London, 2010. ISBN 978-1-907345-04-3.)
The negative effects of
“financial inclusion” of the poor are discussed by M. Bateman in Why Doesn’t Microfinance Work? The
Destructive Rise of Neoliberalism,
Overseas Development Institute (ODI), London,
July 2010. (Book launch presentation). Book : Zed Books, London, 2010. ISBN 978-1-848133327.
“A microfinance
customer is overindebted if he/she is continuously
struggling to meet repayment deadlines and structurally has to make unduly high
sacrifices related to his/her loan obligations”. (Schicks,
J., Over-indebtedness in microfinance
– An empirical analysis of related factors on the borrower level, Université Libre de Bruxelles, Solvay Brussels School of Economics and
Management, Centre Émile Bernheim,
CEB Working Paper 12/017, Brussels, 2012, p. 3.)
Appendix 2 (p. 38) of the Schicks paper lists the
borrower sacrifices and acceptability levels :
“1) Reduce
food quantity/quality (cut down eating)
2) Reduce
education (e.g. taking children out of school)
3) Work more
than usual (e.g. take additional labor, work longer
hours, on Sundays, and when ill)
4) Postpone
important expenses (e.g. for health, housing, business assets etc.)
5) Deplete
your financial savings (e.g. money in the house or in a savings account)
6) Borrow
anew to repay (take an additional loan from another lender)
7) Sell or
pawn assets (e.g. jewelry, cattle, productive or
household assets)
8) Seizure of
assets (MFI takes property by force to make up for missed payment)
9) Use
family/friends' support to repay
10) Suffer
from shame or insults (also gossip about you/exclusion from a contract)
11) Feel
threatened/harassed by peers/family/loan officer
12) Suffer
psychological stress yourself or in your marriage
13) Other
Respondents
ranked the acceptability and frequency of each sacrifice on a scale from 1 to
4.
■
Easily acceptable, Only just acceptable, Not really acceptable, Not acceptable
at all.
■ Once
in past year, 1-3 times in past year, > 3 times but not often, Frequently in
past year.”
Bateman’s
criticisms appear to be taken seriously even in The Micro-Finance
Illusion : The Post 2015 Development Agenda Should Rethink its Development
Approach for Local Financing, Published by the Global Policy Forum through the United
Nations Non-Governmental Liaison Service, New York, 14 February, 2013.
Official approach
to profit-making Micro-credit finance at the cost of the poorest is changing.
As Claire Provost wonders whether the microcredit story was
“a convenient guise, at least for some, to pursue personal gain and other aims”
(The rise and fall of
microcredit, Guardian, Poverty Matters Blog, London,
21 November, 2012.)
Furthermore, “all impact
evaluations of microfinance suffer from weak methodologies and
inadequate data” (Duvendak, M. et al, What is the evidence of the impact
of microfinance on the well-being of poor people?, Report 1912, EPPI Centre, Social Science Research Unit, Institute of
Education, University of London, London, August, 2011 for the Department for
International Development. (ISBN 978-1-907345-19-7), conclusions p. 4). The
authors point out on p. 75:
“Microfinance
activities and finance have absorbed a significant proportion of development
resources, both in terms of finances and people. Microfinance activities are
highly attractive, not only to the development industry but also to mainstream
financial and business interests with little interest in poverty reduction or
empowerment of women, … it remains
unclear under what circumstances, and for whom, microfinance has been and could
be of real, rather than imagined, benefit to poor people.”
Accurate
information on interest-rates applied by micro-finance institutions is not easy
to find.
As one report
wryly puts it : “Collection of data is labor-intensive
and depends on the willing cooperation of micro-lenders who might occasionally
find the publication of their pricing specifics embarrassing. ” (Rosenberg, R. et
al, Microcredit Interest
Rates and Their Determinants 2004-2011, Consultative Group to Assist the Poor (CGAP),
and its partners, Washington, Report 7, June, 2013, p. 4)
Micro Finance
Transparency, Lancaster (PA), however, lists information for 17 countries in [Information on microfinance interest rates] All countries :
Introduction. When accessed on 24th July 2014, the
following information applied to the
major “markets” amongst the 17 countries. There is a wide variation of rates
amongst the lenders. Sometimes, but not always, this depends on the original
source of funding. Funding from the open money market will usually be more
expensive than that provided under aid programmes. In general, the smaller the
loan, the higher the rate of interest. The following shows typical ranges of
variations for small loans. Some rates are much higher still, and have been
discounted.
1. India : 23%
- 40%.
2. Ethiopia: 14% - 38%.
3. Philippines : 20% - 200% (up to
450% for very small loans).
4. Colombia : 25% - 43%.
5. Kenya : 20% - 50% (very small loans
more than 50%)
6. Ghana : 45% - 150% (even more for
very small loans)
7. Cambodia : 3% - 40%.
8. Bolivia : 20% - 70%.
Information is still not available
for many major markets including Bangladesh,
Mexico and Nigeria.
Just how much of a
burden micro-finance in Bangladesh
is is
discussed in detail in D.Hulme and M. Maitrot, Has Microfinance Lost its Moral Compass?, (Brooks World Poverty Institute, Working Paper 205, University
of Manchester, Manchester, August 2014) :
“..the compelling
narrative [in Western media] of the
success of microfinance–of millions of heroic and entrepreneurial women lifting
themselves and their children out of poverty (and into relative affluence)
through small loans and self-employment- is not supported by serious
evaluations of microcredit.” (p.5).
“…for poor
households a small loan from an MFI is the beginning of a long and winding road
of increasing debt and, for some, over-indebtedness (a debt burden that cannot
be serviced from household income). A
majority of poor MFI clients reported through interviews and focus group
discussions extreme livelihood compromises – sending children out to work,
reducing quantity and quality of food and distress sales of essential
productive assets. For some households weekly repayments to multiple MFIs had reached up to US$50 a
week, a staggeringly high figure for people on rural wage rates in Bangladesh (Maitrot, 2013).” (p.7) [Bold added by Stichting
Bakens Verzet]. Other
pressures include those to postpone burying their husband; take children out of
school; and, take loans from other MFIs (to repay the
loans officer’s MFI).” (p.7).
The Hulme and Maitrot paper contains
some 50 references for further study.
J. Ghosh provides a detailed discussion of the problems
related to traditional for-profit and not-for-profit microfinance practices,
especially self-help group (SHG) initiatives in
India, in his article Microfinance and the
challenge of financial inclusion for development, published for the Cambridge Journal
of Economics, 13 September 2013 by Oxford University Press, Oxford, 2013.
MICRO CREDIT SYSTEM STRUCTURES IN
INTEGRATED DEVELOPMENT PROJECTS.
Micro-credit loans
under the Model are interest-free and free from all formal money costs, as they
are managed under the local money systems set up. They offer a viable
alternative to the business-based micro-finance industry.
This section
refers to micro-credit systems in general. The following section 6. Interest-free micro-credit systems : in depth
analysis refers to the actual setting up of the micro-credit structures.
Here is a
drawing showing the interest-free micro-credit loans cycle.
Multiple re-cycled interest-free micro-credits will
provide formal money needed to develop local production capacity. The rest of
the development will be done with the LETS systems.
The capital available for re-cycling in the form of
micro-credits is made of:
a) Part of the initial seed money until it is needed
for the project.
b) Seed loan repayments.
c) Micro-credit repayments.
d) The long term maintenance fund.
e) The system capital replacement fund which will be built up after the ten
years' seed loan has been fully repaid.
For instance, a woman may need a sewing machine to be
able to make clothes. She will need "formal" currency to buy the
sewing machine. That money will be available in the form of an interest-free
micro credit. She will sell outside the local LETS system some of the clothes
she makes to earn the "formal" money she needs to repay her loan. The
rest of the clothes can be sold within the local currency LETS system.
As she repays her loan, the repaid capital can be
loaned again for another interest free micro-credit project, so the available
seed money repeatedly re-circulates within the local economy.
The micro-credit structure will provide each family,
on an average, with a total of at least Euro 1500 in micro-credits for
productivity purposes during each period of operation of ten years.
Illustration of the micro-credits system.
How the original grant of seed-loan is used.
The Cooperative
Local Development Fund will manage formal currency funds necessary for running
the project, acting on instructions of the project coordinator given on receipt
of the indications received from those responsible at tank commission level.
The Fund intervenes only in the practical management and transfer of the funds.
Funding decisions are taken by the users' structures set up under the project.
The Fund formally belongs to the users. In principle, all monies paid into the
fund are contributed by the users themselves. Formal money budget costs (€
30.000) are needed only to physically set the micro-credit system structures
up.
Where seed funding
for a given integrated development project is by way of an interest-free loan,
the seed money reverts to financing parties at the expiry of the 10 years'
interest-free credit term. The money to be repaid is collected in the
Cooperative Local Development Fund and continuously recycled for interest-free
micro-credits until repayment falls due. In that case, the interests of the
financing parties are protected by their representatives (if any) nominated to
the auditing commission and by prescribed auditing procedures. On-going
monitoring will be carried out by the Cooperative for the on-going maintenance
of project structures.
The Cooperative
Local Development Fund will be formed during the capacitation
workshop held in each project area for that purpose.
The services of
the Fund will be paid in local LETS monies at a fixed rate per transaction to
be set during the workshop. The Fund can then use its LETS credits to pay its
staff, and if it so wishes, to purchase goods and services inside the project
area and sell them for formal money outside the project area to cover any
formal money costs.
Micro-credits will
be granted at tank-commission, well-commission, and central management
levels. How much will be distributed at
each level will be decided during the capacitation
workshop.
Loans at tank
commission level will be handled during a fixed agenda-point at each
tank-commission meeting, during which monthly contributions and loan repayments are collected, and new
loans distributed. Credit balances are
transmitted to the local well-commission.
Each tank commission has a micro-credits delegate and a substitute.
Loans at well
commission level will be handled during a fixed agenda-point at each
well-commission meeting, during which loan repayments are collected, and new
loans distributed. Credit balances are
transmitted to the central management group. Each well commission has a
micro-credits delegate and a substitute.
Loans at project
level will be handled during a fixed agenda-point at each micro-credit
management meeting, during which loan repayments are collected, new loans
distributed, and statistics and policy decisions discussed.
Rules for the
organisation of the Micro-Credit meetings will be set up during phase two of
the various project applications with the full participation of the beneficiary
communities. These rules must lay down the general principles behind the
systems. These would, for example, presumably include the following principles:
1) All loans are
to enable the beneficiary to extend his/her LETS and formal currency income by
producing more goods and services.
2) The goods and
services must benefit the general interests of the community and encourage
exchanges under the local LETS systems.
3) Some of the
goods and services must be saleable outside the LETS systems to earn formal
currency to repay the micro-loans.
4) The
Micro-Credit loans must promote the rapid circulation of formal money within
the beneficiary communities. For example, using formal currency to build a
clinic or hospital would not qualify for micro-credits because the capital
invested cannot be re-circulated. On the other hand, buying equipment for
testing water quality (foreseen in the Model) would qualify, as the formal
currency cost can be recovered by charging in formal currency for water
analyses conducted for users outside the project area until the micro loan has
been repaid.
5) Special
priority will be given in the first instance to micro-loans to start the
collection and transport of compost, urine, and grey water, and establish the
recycling centres that will collect, store, and export non-organic waste
products from the project area. The formal currency micro-loans will be
recovered by sale of the waste outside the project areas.
6) Beneficiaries
will provide at least 3 family members and/or friends to guarantee the timely repayments of the
micro-credit loans.
7) Beneficiaries
will provide due backup for their micro-credits to ensure continuation of their
investments and repayments in case of disability or death caused by accident or
illness. (With thanks to Ms Angela Eikhout, Eindhoven, Netherlands for her contribution.)
Some do’s and don’ts.
Indian
micro-finance banker Harishchandra Sukhdeve wrote the following contribution to the
Micro-Finance Gateway resources list on 26th September 2007. His words have
been edited with his permission for inclusion in this Model. [ The original
internet source for this article is no
longer available.]
“Group formation
and its nurturing in a right way is a key to not only poverty alleviation but
also conflict resolution and women’s empowerment.
Women’s groups are
found to be more efficient and professional.
However, while
forming groups certain Do's and Don'ts are must.
A list of do’s
01. Interact with
people through village level meetings.
02. Encourage
groups to hold regular meetings.
03. Educate them
about community living, public hygiene, education, nutrition, etc.
04. Proactively
pass on all legitimate benefits to farmers/villagers.
05. Ensure
trouble-free timely finance to farmers as well as other group members.
06. Promote
farmers groups for collective farming.
07. Promote
share-croppers' groups.
08.
Ensure/facilitate appropriate training for entrepreneurship development.
09. Encourage
innovation and self regulation by the groups.
10. Encourage
inclusiveness.
11. Encourage
young volunteers to promote the culture of
the groups.
A list of don'ts:
01. Do not allow
groups to be formed of the same family members except for farmer’s groups for
collective farming.
02. Do not allow
groups to finance to non-members.
03. Do not allow
one person to become member of more than one group.
04. Discourage
control of groups by any single person.
05. Do not try to
regulate the groups too much as this may hamper their ingenuity,
06. Do not stretch
hand-holding for too long a period. ”
THE MICRO-CREDIT FUND AND EMERGENCIES.
How would the
cooperative micro-credit fund work in conditions of extended drought or other
emergencies? The project creates social, financial, productive and
service structures. These structures are permanent. They are run by the management
cooperative set up for the purpose, and they remain in place as long as people
continue to live in the project area. This is so even where inhabitants return
to the project area after a temporary migration outside of the project area for
survival purposes.
The situation
with the Cooperative Local Development Fund at any given point of time depends
on the decisions taken by those chosen to manage it. It is reasonable to expect that in times of
extended drought and similar crisis conditions that families have difficulties
making their monthly contributions to the Fund and that beneficiaries (and
their guarantors) have problems repaying
the micro-credit loans they have received.
The
micro-credit fund is cooperative. Should a point be reached where as a result
of Act of God outside the control of the parties, families are unable to make
their monthly payments or beneficiaries are unable to repay their debts, the
managers of the Fund may decide to waive payments of contributions meantime or
to leave it up to the families whether to make their payments or not. In any
case the Fund would remain intact. It
would continue to be systematically recycled interest-free. But the total
amount in the Fund would not continue to increase as it would otherwise have
done. In case of projects financed by interest-free ten year credits, the
situation could arise that the monies collected in Fund turn out to be
insufficient to pay the whole of the original loan back at the close of the
first ten year period. On the other hand, where a productive period follows one
of extended drought or crisis, the Fund management could require an increase in
the monthly contribution of families to reinstate the Fund in time for
repayment at the end of the ten year period.
In times of
drought and scarcity, beneficiaries and those guaranteeing them may also face
great difficulty in making repayments of their micro-credits. What happens in
such a situation depends on the decision of the Fund management which is chosen
by the Central Committee of the Project. Logic would suggest in such situations
to grant more time to beneficiaries and those guaranteeing them to make their
payments. This would lead to a slowing down in the rate of recycling of the
monies in the funds, and therefore to a (temporary) slow-down in the rate of
development in the project area. However, the capital in the Fund would still
remain intact.
Yet another
situation which might arise is that the drought or other environmental
condition in the project area is so serious that the Fund management team
decide to gradually reimburse the monies in the Fund to the inhabitants to
supplement their extra costs for purchase of drinking water or food supplies
for survival purposes. In practice this means that as monies are (with great
difficulty) repaid by beneficiaries into the Fund, the repayments are for a
period of time re-distributed amongst all of the inhabitants, or amongst the
most needy. The cooperative local development fund would in this case operate
as an Emergency Fund. The consequences of this use would depend on the
reactions of donors and funding organisations and on the real and just
possibilities of subsequent recovery taking the cooperative nature of the Fund
into account. In the worst imaginable situation, the Fund might find itself
without any capital left. However, even in that case the structure of the Fund
would remain in place. Upon improvement in the climatic situation, families
would recommence making their monthly contributions to the Fund, which would
build up to full strength again after ten years.
Refer also to
section The effects of inflation on the Cooperative Local
Development Fund and gift content and to section Project insurance and forfeit in the form of gift in
case of loss of capital structures.
1. Research.
Give a detailed
two-page comparison between the micro-credit structures foreseen in the Model
for integrated development projects and those of micro-credit agencies such as
the Grameen Bank. First provide a short introduction.
Then discuss the reasons for high interest rates charged in traditional systems
and how they are eliminated in integrated development structure. Discuss the
contrast between micro-credit loans seen as “business” and the cooperative
system foreseen in integrated development projects. Discuss the nature and the difference between the target
beneficiaries and the aspects concerning their exclusion (traditional systems)
and non-exclusion (Model) from the system benefits. Discuss the indirect
financial leakage from project areas under traditional systems and the way this is blocked by integrated
development projects. Draw your conclusions.
2. Opinion.
On two pages
take the results of your research and use them to make a presentation of the
Model system to the representatives of Civil Society in your project area. Make a note of their reactions.
3. Opinion.
The previsions
in the Model for integrated development take an average two-year pay-back time
into account. After having spoken to the population in your chosen project
area, explain on one page the average payback time you would foresee in your
area and the consequences this would have on the on-going re-cycling of funds.
4. Research.
Provide a
one-page explanation to the women in your chosen area of a 20 year cycle of
management of the Cooperative Local Development Fund there What are their
reactions?
◄ ►
◄ Fourth block
: Section 3: Financial structures.
◄ Fourth
block : The structures to be created.
◄ Main index for the Diploma in Integrated Development
(Dip. Int. Dev.)
>◄ List of key words.
◄ List of references.
◄ Course chart.
◄ Technical aspects.
◄ Courses available.
◄ Homepage Bakens Verzet
"Money
is not the key that opens the gates of the market but the bolt that bars
them."
Gesell,
Silvio, The Natural Economic Order, revised English
edition, Peter Owen, London
1958, page 228./span>
“Poverty is created scarcity”
Wahu Kaara,
point 8 of the Global Call to Action Against Poverty, 58th annual
NGO Conference, United Nations, New
York 7th September 2005.
This work is licensed under a Creative Commons
Attribution-Non-commercial-Share Alike 3.0 Licence.
