Give Us Credit: How access to loans
and basic social services can enrich
and empower people
Small loans to poor people, when combined with
basic social services and key social development
messages, improve the well-being borrowers'
children -- particularly girls. Such credit empowers
women, enabling them to make economic decisions
and help increase family income. It is therefore an
important part of the strategy to achieve the year
2000 goals for children.
The development equation:
Microcredit + basic social services
Microcredit is the extension of small loans to groups
of poor people, especially women, for the purpose
of investing in self-employment programmes . It is a
way of improving the earning capacity and therefore
the standard of living of the poor. Nevertheless, a
poor woman who generates income through
microcredit but who does not have adequate access
to health care for herself and her family, who lacks
essential information about health and nutrition and
who is unable to send her children to school is still
living in poverty.
There is a greater reduction in poverty when
microcredit programmes are combined with
increased access to basic social services than when
the programmes focus on credit alone.
When microcredit is linked with access to basic
social services and key social development
messages, the health and nutrition of borrowers'
children -- particularly girls -- improves; school
enrolment increases; safe water and sanitation use
broadens. This combined approach, therefore, is an
important strategy for achieving the year 2000 goals
for children. Microcredit also empowers women, by
enabling them to make economic decisions and
become the source of increased household income.
Experience shows that with the empowerment of
women come significant improvements in children's
survival rates, health, nutrition and development.
Successful experiences with microcredit involve a
combination of credit and savings. When borrowers
are obliged to set aside a minimum amount of
savings on a weekly or a monthly basis, this savings
component reinforces the discipline of the borrower
to make regular repayments of the borrowed
money. It also creates a sense of 'ownership' on the
part of the borrowers that is vital in ensuring the
scheme's sustainability.
Group-based lending has helped marginalized
groups gain access to credit. Because the poor lack
material collateral, group-based lending allows for
the sharing of risks. The group collectively works to
ensure that all loans are repaid on time so that other
members of the group are not deprived of credit if a
member defaults. This creates a sense of joint
responsibility and generates peer pressure to comply
with the repayment schedule.
Experience with microcredit has shown that the
poor can be disciplined borrowers and savers, able
to repay loans on time and to save. If poor families
are to pull themselves out of poverty, they need
access to the successive loans that microcredit
programmes provide.
Where microcredit is working
UNICEF is not new to microcredit, having
supported the Grameen Bank's efforts in
Bangladesh since the early 1980s. A number of
country offices have also made credit an integral
component of programmes designed to increase
access to, and sustainability of, basic social services.
UNICEF-supported programmes are successful not
only as measured by loan recovery rates but also
because they have broadened access to basic social
services and empowered women in a number of
countries, including Bangladesh, Benin, Brazil,
Cambodia, Egypt, Guatemala, India, Kenya, Nepal
and Viet Nam.
In Bangladesh, the Grameen Bank, with UNICEF
assistance, integrated social development activities
into its credit extension services, adopting the now
familiar 'Sixteen Decisions' that are recited in every
weekly meeting of the Bank's borrowers. The
decisions affirm, among other things, the need for
health services, adequate nutrition, child spacing,
safe water and sanitation and primary education, as
well as the elimination of dowry in marriage.
In Nepal, UNICEF has linked the delivery of social
services to credit and other support provided under
the Small Farmer Development Programme (SFDP)
since 1982-1983. Implemented by the Government,
the programme reached 123,000 families in 422
villages and 75 districts by 1992. In areas where
credit has been combined with support for basic
social services, infant mortality is lower, school
attendance for girls is higher and children's health,
nutrition and education have shown greater
improvement, than in areas where credit alone is
given or where no credit is provided. In 1982,
UNICEF began supporting the Production Credit
for Rural Women (PCRW) programme by
providing credit and training and supporting
community development in five districts. In 1988,
the programme was extended to 37 districts for
which the International Fund for Agricultural
Development (IFAD) supplied funds for credit.
Since 1989, credit has been linked with social
development messages, drawing on the experiences
of the Grameen Bank and the Self Employed
Women's Association in India. The approach of
combining credit and basic social services has been
successful, attracting support from a number of
donor and multilateral agencies.
In Viet Nam, UNICEF provides loan funds for
programmes administered by national
non-governmental organizations (NGOs). These
programmes combine credit with access to basic
social services and information, using tools such as
the basic health manual, Facts for Life, and
opportunities such as the national literacy campaign.
The results are positive: In one programme, 97 per
cent of daughters of borrowers attend school
compared with 73 per cent of daughters of
non-borrowers. Dramatic improvements in
household food security were also observed, with
only 12 per cent of borrowers reporting food
shortages of three months or more compared with
73 per cent of non-borrower households.
Communities identified having water closer to the
home as a major need that they would like to see
fulfilled through access to credit.
In Cambodia, since 1988 UNICEF has provided
core funds for microcredit through NGOs.
Microcredit helps build the borrower's confidence:
By completing successful rounds of credit with the
NGO, the borrower is in a better position to apply
for credit with commercial lenders or state-owned
banks. The programme is now managed by
commercial banks and government departments.
UNICEF no longer provides funds for credit,
directing support instead at capacity-building at the
district level. Since the programme's inception, over
15,000 women have received credit. The recovery
rate of 70 per cent is relatively low because it has
been affected by severe fluctuations in borrowers'
incomes because of droughts, flood and war. Based
on national experience and exchange visits to the
Grameen Bank, a savings component and a fund for
insurance against natural disasters have been
instituted.
In Egypt, the UNICEF-supported Family
Development Fund Project was set up in 1993 in
cooperation with the Government. The programme,
growing rapidly, now has 3,600 borrowers and is
being implemented through local NGOs in four poor
rural regions. Loans are used for small-scale
enterprises in cattle raising, retail trades, food
processing, sewing and handicrafts. Another 2,700
borrowers are reached through a programme that
was initiated with UNICEF assistance, but that is
now managed and run by a commercial bank. In
another scheme, microcredit is helping to combat
child labour in an urban slum area by making credit
available to poor women whose children work, as
long as the children also attend school. The recovery
rates in the various schemes are all over 95 per cent.
A commercial bank has recently committed credit of
almost $6 million for the poor to be lent through
group-based schemes along the lines of the
Grameen Bank model, with UNICEF providing
technical support.
In India, UNICEF has supported the Development
of Women and Children in Rural Areas (DWCRA)
programme run by the Government, which in some
regions advances loans to women. In Nellore and
Anantapur Districts in the state of Andhra Pradesh,
for example, women pool their savings as a group:
the money is then used as a revolving fund from
which members of the group can borrow, at above
market rates of interest but still below moneylender
rates. Once the borrowers have shown that they can
manage the payments, additional resources for loans
are provided by the Government and donors. In
some villages, these funds have been rotated 22
times since 1988.
The credit is linked to access to basic social services
and social development messages and as a result,
the children of borrowers are healthier -- almost
100 per cent of children are immunized. Families
have improved their nutritional status, through the
cultivation of kitchen gardens, and they follow clean
sanitary practices. Women have been empowered
through the programme, openly discussing domestic
violence, alcoholism and village conflicts. They are
treated with greater respect by men and are more
aware of their health needs, seeking medical
attention for ailments that would have been endured
silently in the past. It is recognized that while the
empowerment of women is a process that will not
happen automatically, credit is an important
component for accelerating that process.
Country experiences
Nepal: Loans for small farmers
The Small Farmer Development Programme
(SFDP), implemented by the Government of Nepal,
gives loans of up to NRs30,000 (currently $1 =
56.8 Nepalese rupees) on a group-collateral basis
to small groups of farmers for various
income-raising, agro-based enterprises. By 1992,
the programme had formed 19,307 credit groups
for men and 4,837 for women, each with 5 to 10
members. The groups covered 123,000 families
whose annual per capita income was below
Nrs2,500.
UNICEF has supported SFDP in some areas since
1982-1983 with interventions in health, nutrition,
education and water and sanitation. The repayment
rate for the loans is above 80 per cent in the
women's groups and 60 per cent in the men's. The
loan repayment rates are higher in those areas where
social interventions are combined with credit than in
areas where credit alone is given. Social indicators
also show greater improvement in areas where
credit is combined with delivery of basic social
services:
- school attendance of girls between 5 and 14
years of age was higher in families that
received both credit and support for basic
social services than it was in families that
received credit alone and in families in areas
where there was no SFDP (75 per cent, 63
per cent and 50 per cent respectively);
- infant mortality rates were lower in areas with
a combined credit and basic social services
approach than in areas where credit was
extended without social services and in those
where no credit was provided (113, 116 and
135 per 1,000 live births respectively);
- the average number of child deaths from
diarrhoea was reduced by 33 per cent in the
areas where credit alone was provided and
by 37 per cent where credit was combined
with basic social service interventions;
- immunization coverage for BCG
(tuberculosis), DPT3 (diphtheria, pertussis,
tetanus), polio and measles was higher in
areas of combined credit and social
development interventions than in areas
where credit alone was extended or where no
programme was operating at all (83 per cent,
71 per cent and 61 per cent respectively);
- more women of reproductive age were
immunized against tetanus and had greater
knowledge of nutritional needs in areas where
credit and basic social services were
combined;
- the proportion of households with latrines
was twice as high in areas where credit and
basic social services were linked, compared
with the areas where SFDP was not
operating. In areas where UNICEF gave
support, 70 per cent of households built
latrines after receiving SFDP credit compared
with only 45 per cent where only SFDP
provided assistance;
- the percentage of households using tap water
doubled (from 19 per cent to 38 per cent of
households) in areas where SFDP extended
only credit, but it rose by a factor of four
when credit was linked with basic social
services (from 9 per cent to 36 per cent).
Nepal: Production Credit for Rural Women
"We women do not own anything and PCRW offers
us credit with out our having to use property as
collateral." -- woman borrower
"Our entire family has benefited from the project...
my daughter has attended literacy classes, my
children have all been inoculated." -- husband of
PCRW member
The Production Credit for Rural Women (PCRW)
programme began with UNICEF support in 1982 in
five districts of Nepal and now operates in 24. In
1989, a basic social services component was
added, along the lines of the successful experiences
of the Grameen Bank in Bangladesh and the Self
Employed Women's Association in India. The
scheme targets women with household incomes
below NRs2,500 per annum, and the loans offered
vary from NRs500 initially up to NRs10,000 in the
most successful cases. The repayment rate is 70 per
cent.
Viet Nam: Microcredit and savings
UNICEF has supported a microcredit and savings
programme since 1989 in Viet Nam. Implemented
by the Viet Nam Women's Union, the programme
has provided credit to 33,584 borrowers in 16
provinces. Borrowers form groups of between 10
and 15 members, and loans are made on a
group-collateral basis. All the loans are to women.
Recovery rates are high. UNICEF has combined
the credit programme with health messages,
primarily through the booklet Facts for Life. Many
social indicators have shown improvement:
- 97 per cent of the daughters of the borrowers
attend school compared with 73 per cent of
daughters of non-borrowers;
- a survey showed that 73 per cent of the
non-borrower house holds faced food
shortages of three months or more compared
with 12 per cent of the households that had
borrowed money. Borrower households no
longer attribute food shortages to a lack of
land and capital; they attribute them instead to
reduced time for food production because of
the need to care for small children;
- the project has also increased animal
husbandry as a source of income, with 36 per
cent of the borrowers considering this as their
main occupation compared to 16 per cent of
the non-borrowers. In another
UNICEF-supported scheme in Viet Nam,
9,600 women have benefited from a
microcredit programme combined with
literacy and education. Loans go to groups of
women comprised of 20 to 30 members each
in four provinces. Evaluation shows that:
a vast majority of the borrowers (97 per
cent) have significantly increased their
household production since the project began
in 1994;
- prior to receiving credit, 86 per cent of the
borrower households faced a food shortage
of more than one month. After the scheme
was introduced, only 33 per cent of
borrowerhouseholds experienced food
shortages compared to 77 per cent of the
non-borrower households;
- although credit has increased household
production, it is not clear whether it has
enhanced borrowers' confidence and their
capacity for decision-making. The
empowerment of women, from this
perspective, is still to be assessed;
- there is a high demand by non-borrowers to
join the scheme E93 per cent of
non-borrowers interviewed wanted access to
project loans.
Viet Nam: One woman's experience
Mrs. Nguyen Thi Phu, whose arm was amputated in
1984 as a result of a fall, has three children. She had
on occasion borrowed from a moneylender at a
monthly interest rate of 30 per cent but at one time,
when she could not repay her loan, the moneylender
took some of her belongings. Since then, she has not
borrowed from the moneylender, and the family has
lived with food shortages. In 1994, Mrs. Phu
borrowed D300,000 (currently $1 = 11,130 dongs)
from funds provided by UNICEF with which she
bought two piglets. She sold one pig for D720,000
and with the proceeds repaid half the loan. The rest
of the money was used to cover daily expenses and
her children's schooling. She sold the second pig for
D1,200,000, out of which she repaid the loan in full
and bought two more piglets. She then borrowed
for a second time, and this time her family is
experimenting with orange trees while at the same
time rearing pigs. Since Mrs. Phu received the loan,
her family has been eating much better and her
children are in school. Mrs. Phu is also in charge of
money management in her house, and her
self-esteem has increased greatly.
Egypt: Combating child labour through
microcredit
Since 1993, UNICEF has supported a number of
microcredit schemes in poorer regions of Lower
Egypt and in some urban slum areas. In Alexandria,
a microcredit scheme run by a local NGO combines
cred it for women with efforts to combat child
labour. Each borrowers' group comprises five
women, two of whom have working children. The
condition for the women's loans is that all the
children should go to school. This scheme, in an
area with adequate access to basic edu cation, has
proved that microcredit can reduce child labour and
improve school attendance while at the same time
improving the income levels of the participating
families. It also shows that parents are willing to
send their children to school once the economic
condi tion of the family improves.
Egypt: Three experiences
Sabiha Mohamed is a widow with three sons and
one daughter. She has taken three loans of ŁE1000
each (currently $1 = ŁE3.37). The first time, she
purchased a water buffalo for ŁE800 and fodder for
ŁE200. After six months, she sold the water buffalo
for ŁE1200 and repaid ŁE500 as a first instalment.
With the rest, she bought another buffalo and sold it
for ŁE1300, giving her the money to repay the
balance of her loan and interest. With the net profit,
she bought a connection from the water supply
authority for her home for ŁE250. Mrs. Mohamed
has since taken out two more loans and now owns a
cow and a buffalo. All her children go to school, and
she is determined that they will continue their
education.
Badra Ali Khalifa is a 55-year-old widow, disabled
as a result of a fall and responsible for a grandchild
after the death of one of her daughters. On joining
the Family Development Fund project supported by
UNICEF, Mrs. Khalifa took out a first loan of
ŁE500 and purchased a small quantity of palm
branches out of which she made containers for
vegetables and fruits, selling them fromher home.
She made three to four pieces a day and earned
ŁE6 per day, repaying her first loan and taking a
second loan of ŁE1,000 with which she purchased
palm branches in bulk at a lower price. She has
diversified her activities and now makes beds and
other food containers. She says, "This project has
given me hope Ea new meaning in life. I have a
reason to live. I am not a burden on anyone. My
granddaughter will never be in need EI will send
her to school."
Bakhita Togan has one son and four daughters.
With her first loan of ŁE500, she started a grocery
shop. Making a good profit, she repaid her first loan
fully and purchased a gas cooker. She took out
another loan of ŁE1,000 and spent ŁE500 on her
shop, adding fertil izer and other commodities to her
inventory. Mrs. Togan purchased four goats and
two sheep with the remaining ŁE500 and earned
more profit. Before receiving credit, she was able to
afford to send only her son to school, but now all of
her five children are in school.
India: Credit and saving schemes in Andhra
Pradesh
In two districts of Andhra Pradesh, thousands of
women come togeth er in small groups. They each
save 1 rupee a day (currently $1 = 35.5 Indian
rupees), pool their savings and rotate the sum
among them selves for production and day-to-day
needs and as a source of capital for
micro-enterprises. The Development of Women and
Children in Rural Areas (DWCRA) scheme,
supported by the Government and UNICEF, then
extends further credit to the women once they have
demonstrated their ability to form groups and save.
Women are proud to display their passbooks and
speak of their experiences.
In one village in Nellore District, for example,
women have acquired land titles in their names and
taken Rs180,000 as loans towards construction of
their houses. They have said that they will not
tolerate wife-beating and have forced their husbands
to stop drinking alcohol. The longest-standing group
in the village has rotated the revolving fund 25 times
and also has a savings deposit of Rs30,000 in the
bank. In another village, a group has saved
Rs800,000. In total, the women of the district have
mobilized savings of Rs60 million.
The women have used the revolving funds for
productive activities, emergency consumption, health
needs, marriages and children's education. The Total
Literacy Campaign launched in the district in 1991
has brought education and information, with the
savings groups becoming important centres for
disseminating information on health, education,
water and sanitation. There are visible changes in the
health and nutrition of women and their children.
Women have identified sanitation as a major
problem and are exploring possibilities of financing
sanitation improvements, with matching funds from
the Government. Women in the credit groups have a
positive self-image, recognize their own health needs
better and find themselves consulted by men, who
realize that credit and information can be accessed
through the women's savings groups.
In 1992, in Anantapur district, 1.2 million families
were destitute and another 1.3 million lived just
above the poverty line. In this area, a women's
savings group, which initially handled Rs500,
developed its creditworthiness and capacity to
handle Rs18,000 in just 18 months. There are now
around 6,000 groups, 3,500 of which are
functioning well. With minimal training, the women
began managing their own money and after six to
eight months had built up a small amount of savings
and rotated the fund among themselves.
DWCRA funds were then made available to the
successful groups. Almost all the children of the
borrowers receiving DWCRA support attend
school. As water is a major problem in this region,
almost 6,000 dams and percolation tanks were
planned, with the objective of harvesting rainwater.
Efforts were integrated into the credit scheme to
empower communities to safeguard their own
environment.
Kenya: From housemaid to hotel-keeper
Emily, at age 26, is the sole supporter of her two
sons in Baringo District in Kenya. Not educated
beyond the third grade, Emily, then a housemaid,
joined a UNICEF-supported credit scheme in 1992
and received her first credit of KSh1,500 (currently
$1 = 54.8 Kenyan shillings), which she used to start
a small business selling maize and beans in a section
of a local shop. This did well, and Emily also started
a hairdressing business, using part of a local salon,
for which she paid KSh200 in rent. Realizing that
this could not be successful in a rural setting, she
teamed up with a friend to sell second-hand clothes
that they bought from Nairobi. Because even this
was eating into her savings, Emily opened a small
hotel from which she started to make a little profit.
When she received her loan, she was given 10
months to repay but the momentum in her business
enabled her to repay it in 5 months with a 5 per cent
interest rate. She then applied for a KSh10,000 loan
to expand. She now owns two acres of land with
title in her name and has ambitious plans for further
expansion. She earns KSh2,000 profit even in a bad
month and twice that amount in a good month. She
is determined to educate her children and pays for
private tuition for herself for one hour during her
workday.
Kenya: From school drop-out to
micro-entrepreneur
Biumbe dropped out of secondary school when she
became pregnant and got married. She subsequently
trained as a preschool teacher and found work for
KSh800 per month in a nursery school. In 1989,
Biumbe bought a sewing-machine to supplement her
income by making dresses, and in 1992 she
borrowed KSh5,000 from Tototo Home Industries,
from funds provided by UNICEF, to invest in her
sewing business. In 1993, she took out a second
loan of KSh20,000, some of which she invested in
her business, using the balance to start a private
nursery school. She initially had 11 pupils, and the
number soon rose to 40. Biumbe charged KSh70
per month per child for tuition, and KSh60 per
month for a food service she introduced to improve
the children's nutritional status. Biumbe also became
the chairperson of the local women's saving club.
Sustaining and supporting microcredit
initiatives
Grants for establishing loan capital and covering
initial administrative costs are necessary to launch a
microcredit scheme. These funds usually come from
donors, United Nations agencies, international
financial institutions and governments. Experience
has shown that some groups can also generate these
funds through their own savings.
Microcredit programmes must sustain themselves by
charging interest rates that are above market rates to
recover the operating costs associated with
extending small amounts of credit. A major concern
to the poor is their limited access to credit, not the
relative cost of credit.
A successful microcredit scheme requires a
long-term commitment from government
authori-ties, donors and NGOs because time and
effort are needed to establish the infrastructure and
to build the necessary capacities. It takes even
longer to develop the trust, group confidence and
financial discipline on the part of borrowers to make
such schemes sustainable. Partnerships between
NGOs, financial institutions, donors and UN
agencies are also time consuming but are essential
for developing sustainable schemes. Such
partnerships allow for greater outreach, as well as
better identification of, and support to, the most
appropriate local NGOs to manage the schemes.
Systems for monitoring and evaluating the schemes'
performance are also important, and borrowers
must be helped to graduate to other systems of
credit.
The nature and extent of UNICEF support for
microcredit is determined at the country level
through the country programme process. The
lessons learned from many experiences suggest that
in view of limited resources and capacity,
UNICEF's role in microcredit is primarily to be
supportive of national schemes, with a view to
maximizing their outreach and impact.
In certain countries, UNICEF plays a catalytic role
in microcredit by working with governments to
stimulate national efforts through NGOs and socially
conscious financial institutions. Where UNICEF
provides direct financial support, it covers areas
such as creating a core capital fund for lending,
building national capacities, and monitoring and
evaluating activities to learn from experi-ence and
adapt the schemes to the specific situation at local
and national levels. Management of the schemes is
most often in the hands of a partner organization. All
microcredit schemes that are supported by
UNICEF primarily target poor women. In almost all
countries, UNICEF advocates for basic social
services and social communication to be linked with
microcredit schemes in order to maximize the impact
on the survival, protection and development of
children and the empowerment of women.
Source: Copyright UNICEF.
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Hari Srinivas - hsrinivas@gdrc.org
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