Comments on Microcredit for the Poor

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This short paper identifies one of the problems of micro credit – that of repayment. The author points out that many development banks and projects failed because they could not secure repayment of credit that clients had received. He connects this to a failure of the “essential triangle of production” which suggests that unless each side of the triangle – representing credit, input supply and marketing – is completed, repayment will be difficult. The author points out that traditional money-lenders can usually ensure repayment as they often provide one or even both of the other sides of the triangle, whereas financial institutions, occupying only one side, cannot.

The paper argues that co-operatives can overcome this problem, so long as they retain the classic co-operative principles. A member-owned cooperative can provide the three elements of the triangle in the best interests of the members. The author then focuses on savings and credit cooperatives and argues that unless they follow correct methods of calculation on interest to be paid on member deposits and charged on member loans, the members are not receiving the best possible service and, in consequence, may fail. He believes member education is, therefore, crucial.

Finally this paper addresses the issue of rural development and microcredit and suggests that raising the productivity of farmers is insufficient to redress rural poverty. The creation of non-agricultural employment is also important and credit is needed for non-farm enterprises.

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