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Contributions from
the Column
Facts and trends
Results of renewables 2004
The security threat of climate change
Growth engine micro finance
G7 split on debt relief
Kenya: accusations of corruption
USA authorises generic AIDS drugs
GDI course for university graduates
Arab Human Development Report
ACP countries and EU sugar-regime reform
03/2005
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[ Financial sector ]
Growth engine micro-credit
Rather than operating commercially, nine out of ten micro-finance institutions worldwide are publicly subsidised. Because of this fact, Helen Alexander, managing director of ProCredit AG, doubts that the projects they fund are sustainable in the long run. According to her, development success depends on commercial success and only clients with successful businesses can create jobs for others. Therefore, ProCredit affiliates do not focus on women or deprived groups. ProCredit is a network of 18 micro-finance banks that operate for profit. They are predominantly located in Eastern Europe and Latin America and target people with entrepreneurial skills. Alexander made her case at a public discussion organised by the KfW development bank in Berlin in late January. KfW is one of ProCredit’s shareholders.
Eva Terberger, who teaches economics at Heidelberg University, similarly argues that small scale lending should not be seen as a social measure and should bring about growth. For that purpose, micro finance institutions in developing countries should become integrated into stable, self-sufficient banking sectors. For this to happen, governments should provide favourable conditions. In the view of Sylvia Wisniwski of Bankadademie, credit culture is unlikely to thrive without an adequate legal framework to promote saving, and in lack of loans people become used to subsidies, provided they have access.
Azerbaijan can serve as an example. According to Thomas Engelhardt, almost everything is paid for in cash here. The manager of the Micro Finance Bank in Baku, the capital city, says that people have no confidence in the banks. In spite of eight million inhabitants, the country’s financial sector only moves an annual sum of one billion Euro – an amount banks turn over in a small German town. Engelhardt stresses that the bank, which is supported by the World Bank, KfW and others, serves as a role model. When taking out their first loan, many recipients still asked whom they should pay the bribe. Local banks can learn from his bank how to check the credit status of customers they do not know personally.
Not all development agents, however, are in favour of the profit model. Gerd van Maanen of Oikocredit, a development cooperative run by churches, defends his institution’s charitable approach. At Oikocredit, the members of the cooperative in rich countries purchase shares, which are used to finance small loans in developing countries. Since Oikocredit is a non-profit operation, the members receive dividends of at most two percent. In the long run, argues ProCredit’s Helen Alexander, the commercial approach is more efficient.
Sabine Grund
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