The Virtual Library on Microcredit
Conceptual Framework

	Hari Srinivas
	Concept Note Series C-057

The concept of "Microcredit" is as much about money as it is about information. With sustainability and non-dependence on external resources being key to the growth of microcredit programmes, the website focuses on providing pertinent and timely information in the form of strategies, tools, ideas and guides, to grassroots and intermediary organizations, and at the same time, educating the larger public on broader issues related to microfinance and microcredit.

he Virtual Library on Microcredit (formerly the Informal Credit Homepage) is a library, journal and think tank rolled into one. It contains tools, in the form of practical ideas, guides, strategies, courses and methodologies; success stories, in the form of case studies, comparisons, inspiring ideas, and best practices; articles, in the form of theoretical and practical analyses of the issues of interest; and resources, in the form of organizational and operational information on current policies, programmes, projects and other initiatives.

The website is, in effect, a repository of information on alternative, non-conventional financial systems and microcredit. Community mobilization and enviro-economic development also find a place here.

Microcredit and Microfinance Microcredit usually refers to small loans offered, often without collateral, to an individual or through group lending. Microfinance, however, refers to a broader range of financial products and services, including loans, savings, insurance, transfer services and other financial instruments targeted at low-income clients. A survey of various definitions and discussions on the two terms show that they are frequently used interchangeably, despite having distinct meanings.

Why microcredit?

Walking along the street of any low-income settlement in developing countries, one is struck by the apparent contrast of dwelling and habitat. On one side of the street is a dilapidated, single story, windowless house of tin sheets and open drains; across the street is a fine two-storied brick and concrete house with glass windows, paneled doors, and painted walls. While there are many reasons for such contrasts, one variable that repeatedly surfaces as a common denominator is the accessibility to different sources and types of credit. This is also true if one looks at products and services.

The website attempts to facilitate a broader and deeper understanding of the quality and quantity of credit that low-income households prefer - aptly illustrated by the title of F.J.A. Bouman's book, Small, Short and Unsecured ¹. The website also highlights the viability of microfinance schemes to satisfy their financial needs.

A binding conviction that the poor will never remain poor, that economic development will take place, and incomes will increase, has provided much of the strength to develop this website

The "micro" of credit

Banks and other financial institutions have systematically kept low-income households outside their credit delivery networks, forcing them to resort to informal and non-conventional systems of mobilizing credit. The positive features of such loans are only now being understood:

1. Loans are small in size since money is acquired only for a part of a larger activity. These small amounts contrast starkly with loans from banks, which tends to be large, and for lump sum investments.
2. Loans are usually made for very short periods. Borrowers prefer to repay loans quickly to avoid long-term commitments in repayments. This also reflects the insecurity of borrowers' jobs and income.
3. Loans are unsecured, with little or no collateral or guarantees. Lenders rely on personal information and close proximity links to "keep an eye" on borrowers' expenditures and ensure repayment. Since services are localized, and only well- known borrowers serviced, the rate of repayment is also very high.

There is much we can learn from the people, listening to them and understanding and comprehending the solutions that they themselves have developed. These solutions have used resources that local, sustainable and accessible to them, transcending barriers that typify formal institutions.

Microcredit=Money?

But microcredit is more than just money and access to credit. As the contents of the website reflect, a broader perspective needs to be taken, emphasizing roles for local governments, NGOs, community development issues, and networking. Education and training, including the design of microcredit policies and programmes should also receive prominence. Of greater significance from a long term and broader view is the role and effect of microcredit on environmental problems and sustainable development. Supporting and inspiring these objectives with pertinant and timely information has been the key activity of the website.

The world's seven richest men could wipe out global poverty. Their combined wealth is more than enough to provide the basic needs of the poorest quarter of the world's people. According to the UN's 1997 Human Development Report (HDR), it would cost just $80 billion to provide access to basic social services and income transfers to the poverty-stricken - less than the net wealth of these seven billionaires. In fact, the top ten billionaires have 1.5 times as much money as the combined national incomes of the 48 poorest countries, home to 10 % of the world's people. - Anuradha Vittachi in OneWorld

Guiding keywords

Some of the keywords that have guided the development of the website include (and not restricted to) -

Operational aspects:

replication, scaling up, innovations and best practices, Capacity Building for Microfinance, micro-credit, community credit mobilization, informal credit markets, community participation, credit access for women, microenterprises;

Organizational aspects:

NGOs, community groups, people's organizations, self-help groups, credit unions, cooperatives, commercial banks, international NGOs/agencies;

Regional specificity:

low-income countries, Asia, Africa, Latin America, Central and Eastern Europe.

Microcredit and Microfinance?

Microcredit and microfinance are related concepts, but they have distinct meanings. Microfinance is a broader term that encompasses various financial services provided to low-income individuals, while microcredit specifically refers to the provision of small loans to these individuals. Here are the key distinctions between microcredit and microfinance:

Aspect	Microfinance	Microcredit
Scope	Encompasses a range of financial services beyond credit	Specifically refers to the provision of small loans
Services Offered	Includes credit, savings, insurance, and other financial products	Primarily involves providing small loans
Financial Products	Offers savings accounts, insurance, etc., in addition to credit	Focuses on providing small loans for income-generating activities
Holistic Approach	Takes a holistic approach to financial inclusion	Has a narrow focus on providing credit
Social and Economic Objectives	Aims for broader social and economic development goals	Primarily focused on improving economic conditions through credit

The Seven Faces of Microfinance

The seven "faces" of microfinance that will help us better understand the context within which it operates, include:

1. Small Loan Amounts: Microfinance institutions (MFIs) offer small loans to borrowers who may not qualify for traditional bank loans due to their limited financial resources.
2. Financial Inclusion: Microfinance aims to include people who are excluded from the formal banking sector, often due to factors like poverty, lack of collateral, or limited credit history.
3. Entrepreneurial Focus: Microfinance often targets entrepreneurs and small business owners who need capital to start or expand their businesses. This helps in fostering economic development at the grassroots level.
4. Group Lending: In some cases, microfinance employs a group lending model, where a small group of individuals collectively guarantees each other's loans. This approach promotes social collateral and support within the community.
5. Interest Rates: While interest rates in microfinance are generally higher than those offered by traditional banks, they are typically lower than the rates charged by informal lenders. The goal is to strike a balance between sustainability for the microfinance institution and affordability for the borrowers.
6. Financial Education: Microfinance institutions often provide financial literacy training to their clients. This education aims to empower borrowers with the skills and knowledge needed to manage their finances effectively.
7. Social Impact: Microfinance is often seen as a tool for poverty alleviation and social development. By providing financial services to those at the bottom of the economic pyramid, it seeks to improve living standards, promote entrepreneurship, and reduce dependency on informal lending