private funding of microcredit schemes: much ado about nothing?

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Private funding of microcreditschemes: Much ado about nothing?Begoña Gutiérrez Nieto aa Department of Accountancy and Finance, College of Economicsand Business Studies , University of Zaragoza , Gran Vía 2, 50005,Zaragoza, Spain E-mail:Published online: 19 Jan 2007.

To cite this article: Begoña Gutiérrez Nieto (2005) Private funding of microcredit schemes: Muchado about nothing?, Development in Practice, 15:3-4, 490-501, DOI: 10.1080/09614520500076027

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Private funding of microcredit schemes:much ado about nothing?

Begona Gutierrez Nieto

Microcredit, defined as small loans to people who have no regular access to credit, is an inno-

vative strategy in the fight against poverty. Microcredit institutions can obtain funding from

private institutional investors (PIIs) that channel funds from donors, private lenders, and

socially responsible investors. Private financing of development aid is likely to become more

important and microcredit presents an investment opportunity within this context. Microcredit

institutions (MCIs) need to become more transparent, however, and require more incentive to

seek commercial funding rather than relying on subsidies. With better information about MCIs,

PIIs could achieve more impact with their investment.

Introduction

Awareness of microcredit1 grew in the 1970s as it expanded across different continents in

countries such as Brazil and Bangladesh. Today there are thousands of microcredit institutions

(MCIs) and, according to the Consultative Group to Assist the Poorest (CGAP), a consortium of

28 public and private development agencies sponsored by the World Bank, the industry granted

more than US$3 billion in loans in 2002, with an average loan of US$600. CGAP estimates that

20 per cent of the funds held by these MCIs comes from private sources, the remainder coming

from multilateral agencies and other organisations whose funds derive from tax proceeds.

Private-sector funding of microcredit schemes is one example of a wider question regarding

the involvement of private funds in official development aid. According to Daley-Harris

(2003:3), at the end of 2002 MCIs had a portfolio of more than 67 million clients, 41 million

of whom were among the world’s poorest when they received their first loan. The UN has

declared 2005 the International Year of Microcredit, during which the goal is to facilitate

loans to 100 million people living in extreme poverty.

This paper seeks to deepen our understanding of the nature of private funding for MCIs.

(Their clients’ private savings are not the subject of the analysis presented here, and some insti-

tutions are legally barred from attracting savings.) The funding studied in this paper is that

which seeks returns, whether economic, social, or a combination of the two. Most investors

are from Northern countries, and investors (shareholders or stakeholders), be they individuals

or organisations, generally channel their investments through entities that we call private

institutional investors (PIIs).

This article analyses PIIs: what they are, which MCIs they invest in and what demands they

make of them, who provides the funds to be invested in microfinance, where they invest, under

490 ISSN 0961-4524 Print=ISSN 1364-9213 Online 030490-12 # 2005 Oxfam GB

DOI: 10.1080=09614520500076027 Routledge Publishing

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what conditions, and in what currency, among other questions. In addition, we examine the type

of investor most suited for MCIs. We shall see that, despite great expectations, PIIs have chan-

nelled relatively little funding to the MCIs. This is in part because of the amount of inexpensive

financing available to MCIs that would otherwise be in a position to seek loans at market

conditions, a factor that undermines their transparency. Moreover, donors also participate in

PIIs, thus distorting the objectives of coherent private investment.

Private funding of microcredit schemes

Seeking loans on the market requires transparency and a solid financial structure, especially

with respect to obtaining a credit rating. In Latin America, the Inter-American Development

Bank (IDB) and the CGAP cover some 80 per cent of the costs incurred by MCIs in obtaining

a credit rating. The rating may refer to the organisation as such and/or its turnover. MCIs gen-

erally release twice-yearly financial information. Risk evaluation is generally rudimentary,

since the specialised microfinance agencies do not issue recognised ratings, and even the

best known among them are still inexperienced in microfinance markets (Pouliot 2002:2).

Within the microcredit industry in general there is some preference for working with the

large ratings agencies because they lend credibility. As we shall see below, however, not all

PIIs require credit ratings when they decide to invest in MCIs. For instance, only two of the

23 PIIs analysed in our survey required credit ratings before lending funds.

Some experts criticise the so-called commercialisation of microcredit, arguing that the profit

motive tends to undermine social development objectives. Nancy Barry, president of the

Women’s World Bank (WWB)2 (Vasconcellos 2003:27–28), maintains that the presence of

private investment banks in the microcredit industry can be positive as long as the banks

make some commitment to issues related to social development. But the impact of investment

banks can be damaging if they enter the market solely to take advantage of subsidies and then

leave. Robin Ratcliffe, vice-president of Accion International,3 argues that if there is excessive

pressure to turn a profit, the MCI can find itself trapped. But if commercialisation means taking

into consideration principles such as sustainability, quality of service, and obtaining funds on

the market, this is a different matter, and if the investors in MCIs were to encourage these

trends then that would be a positive development (Vasconcellos 2003:28–29).

Pouliot (2002:1–2) makes the interesting point that although the MCIs seem to offer very

attractive investment opportunities, fewer than a dozen private and social investors provide

funds to MCIs in Latin America. By comparison to the hundreds of thousands of dollars

granted by multilateral and national donors for such purposes, private capital is indeed

scarce. In relation to the need for capital, many MCIs would prefer to stop depending on

donations and subsidised credit, and participate fully in local and international financial

markets. But it is difficult for any institution to escape the seductive power of cheap donated

funds, which often continue to be available even to those MCIs that could quite readily pay

commercial interest rates. Certainly, unless public agencies adopt a more rational approach,

it is difficult to see how a reliable capital market for MCIs can develop. Donors should

concentrate on the weaker MCIs rather than continuing to invest in institutions that are

already sufficiently mature and profitable to borrow from commercial sources.

In practice, because of their image of financial fragility, MCIs still belong to the family of

speculative investment. Yet some authors affirm that MCIs in fact offer average-level profitabil-

ity that can pay much better rates and offer higher returns to investors than their risk level would

otherwise warrant. In addition, the lack of standard MCI investment instruments leads to

unnecessarily high transaction costs and makes it impossible to work together across the

sector. Transparency, too, is less than desirable. High transaction costs and the presence of

Development in Practice, Volume 15, Numbers 3 & 4, June 2005 491


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subsidised donor funding distort the price of loans for MCIs, and little profit is left for investors,

especially if country risk and foreign-currency risk are factored in. Indeed, there is little

possibility for increasing the trickle of private capital to MCIs without improvements in relation

to profitability, costs, and risks (Pouliot 2002:3–4). It is important to underline, however, that

socially responsible investors have their own objectives and can, despite the problems, ‘afford’

to invest in MCIs, since they seek not only profits but also social returns.

Goodman (2003:19) argues for the introduction of tax benefits for investments in MCIs, in

the same way that Dutch legislation offers tax advantages for some socially responsible invest-

ments. Mistry (2002:107) even proposes increasing total private capital flows to emerging

markets by means of tax benefits similar to those used to encourage philanthropy or investment

in regenerating depressed areas in industrialised countries.

Lastly, there are signs of growing interest in investing in MCIs. For example, the recently

created Commercial Microfinance Index, promoted by the US-based NGO MicroCapital Insti-

tute, seeks to measure evolution in capital flows to commercially viable MCIs. As information

becomes available, a new index to show the profitability of such investments will also be

established.

Analysis of PIIs in microfinance

Microfinance Information eXchange (MIX), a private non-profit organisation based in the USA,

was founded in 2002. MIX provides two services: Mixmarket, a web-based information

tool which seeks to promote transparency, facilitate exchanges and investment flows, and

improve information standards within the microfinance industry; and the MicroBanking

Bulletin (MBB), an MCI benchmarking publication. Data on the 23 PIIs presented in

Table 1 are from Mixmarket. There are several categories of financial sources: second-tier

institutions,4 banks, donors, private investors, and public investors. All PIIs are private legal

entities, though there are differences between them regarding the types of MCIs they invest

in, their shareholders, conditionalities, their overall assets, and the percentage of assets

channelled to MCIs.

Shareholders

Certain organisations that use donor funds to invest in microcredit are not, strictly speaking,

PIIs (i.e. Accion, AfriCap, CORDAID, IGF, Partnership Fund, and SIDI), while other organis-

ations do not make full disclosures of the sources of their funds or where these are invested.

Surprisingly, with the exception of Dexia, these PIIs do not disclose profits.5 This may be

because Mixmarket is designed specifically for the MCIs themselves rather than for potential

investors. In fact, Goodman (2003:20) states that share value is not revealed because this

information is probably restricted to shareholders. However, this makes it impossible to

judge profitability. Thus, the MCIs’ lack of transparency when accounting to investors or

donors is transferred to and maintained by these PIIs.

Stakeholders interested in granting funds to PIIs are classified as commercial, socially

responsible, donors, and guarantors. Commercial and socially responsible investors may be

either private or corporate, but Mixmarket does not provide a breakdown of the figures.

What is interesting is the profitability sought by each type of investor. Commercial investors

seek economic returns and wish to maximise profits. Donors look for social returns and there-

fore do not, in principle, seek economic profitability and are willing to forego the reimburse-

ment of their funds. Socially responsible investors seek a mix of social and economic returns

and are willing to receive less economic profitability provided the social returns are acceptable.

492 Development in Practice, Volume 15, Numbers 3 & 4, June 2005


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Table 1: Private investment institutions in microcredit

Name Location Destination of investment� Shareholders Loan conditions

Portfolio invested

in MCIs (US$)

and %

Accion Gateway Fund

LLC

USA Cooperatives (70%) and non-banking

finance institutions (NBFIs) (30%).

Financially sustainable.

CGAP and USAID Subsidised (less than

LIBOR). Close to

market

(LIBORþ partial

costsþ partial risks).

$4,800,000

96%

AfriCap Microfinance

Fund

Senegal Banks, NBFIs, and NGOs that

demonstrate commercial viability and

with potential for attending the financially

excluded.

Non-profit organisations,

development agencies, and

international financiers.

N/A $13,303,000

100%

Alterfin Belgium Banks, NBFIs, cooperatives, NGOs, and

fair trade producers. MCIs must comply

with social and financial criteria.

Commercial (28%) and socially

responsible (SR) (72%). Acquire

stocks of Alterfin.

Close to market $3,000,000

54.55%

Calvert Foundation USA Banks, NBFIs, rural banks, cooperatives,

and NGOs. Profitable organisations with

at least three years’ experience and US$1

million in assets.

SR Close to market $10,153,000

15.25%

Catholic Organisation

for Relief and

Development AID

(CORDAID)

Netherlands Banks, NBFIs, cooperatives, and NGOs. Dutch government, EU, and

private donors.


100%

Credito Sud Italy NBFIs, NGOs, cooperatives, and fair

trade producers. Portfolio of MCIs

.US$500,000.

Commercial (50%) and SR

(50%)

Market rate

(LIBORþ total

costþ total risk) 9.5%

annual.

$1,500,000

100%

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Table 1: Continued


Portfolio invested

in MCIs (US$)

and %

Dexia Microcredit

Fund

Switzerland Banks (28.46%), NBFIs (34.91%),

cooperatives (3.8%), and NGOs (32.83%).

Minimum three years in existence,

profitable, subject to audit, operationally

and financially sustainable.

Commercial Market rate $30,000,000

75%

Fonds International de

Garantie (FIG)

Switzerland Banks, NBFIs, cooperatives and NGOs.

Must be members of International

Guarantee Fund (IGF) and economically

viable.

SR (20%), donors (10%), and

guarantors (70%)

Does not seek loans, but

guarantees: close to

market, covering 25–

50% of the loan.

$600,000

29.13%

Geisse Foundation USA NBFIs and NGOs. N/A N/A $300,000

2.14%

Hivos-Triodos Fund Netherlands Banks, NBFIs, cooperatives, and NGOs.

Regulated MCIs that combine commercial

objectives and social values, operationally

and financially sustainable. Good-quality

loan portfolio. Capital investment requires

participation in MCIs’ board of directors.

SR, principally private Market rate. Loans in

local currency must be

charged sufficient

interest to cover

potential devaluations

against the euro, plus

coverage of 8% for

minimum costs.

$12,500,000

100%

Idyll Development

Foundation

USA Banks (5.9%), NBFIs (12.1%),

cooperatives (16.2%), NGOs (3.3%), and

small businesses (57.5%). No minimum

criteria to request funding.

Commercial (93%) and SR (7%) Subsidised $1,755,064

85.16%

Internationale Micro

Investionen AG (IMI)

Germany Banks (50%) and NBFIs (50%). New

start-ups.

Commercial No loans offered $15,650,000

100%

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La Fayette

Participations, Horus

Banque et Finance

France Banks, cooperatives, and NBFIs.

Financially sustainable and previous

experience with MCIs. Seeks to introduce

culture of financial investment to MCIs.

Financed with Horus’ own

funds. Eventually wishes to open

up to foreign investors.

No loans offered $372,000

75.61%

Latin America Bridge

Fund

USA Banks (68.30%), NBFIs (10.93%), and

NGOs (20.77%) with acceptable credit

analysis.

SR No loans offered $6,200,000

86.11%

Microvest I USA Banks, cooperatives, NBFIs, and NGOs.

Extensively audited during at least three

years, minimum portfolio US$5 million.

SR, funding NGOs, other NGOs,

and US foundations

Close to market and

preferably market

determined

NA

Oikocredit Netherlands Banks (33%), cooperatives (32%), NBFIs

(15%), and NGOs (20%). Externally

audited, although start-up projects can be

financed. Economically viable.

SR Close to market $31,010,000

20%

Partners for the

Common Good (PCG)

USA Banks, cooperatives, NBFIs, and NGOs

that promote community development

and/or work with the poor.

SR (mainly religious

congregations)


20%

Partnership Fund and

FONIDI Fund

Canada Banks, cooperatives, NBFIs, rural banks,

and non-traded NGOs.

Donors Close to market or

market determined

$10,000,000

100%

ProFund International Costa Rica Banks (80%), NBFIs (20%). Financially

stable.

SR Market determined $21,900,000

96.78%

Sarona Global

Investment Fund

USA Banks (30%), cooperatives (9%), NBFIs

(56%), others (1%). Profitable and better if

a credit rating exists.

Commercial (79%) and SR

(21%)


51.92%

Societe

d’Investissement et de

Developpement

International (SIDI)

France Banks (20%), cooperatives (20%), NBFIs

(20%), and NGOs (20%). No special

conditions. Ability to return loans.

SR (83%), donors (14%), other

(3%)

N/A $2,785,000

100%

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Table 1: Continued


Portfolio invested

in MCIs (US$)

and %

Triodos Fair Share

Fund

Netherlands Financially profitable organisations over

two to three years.

SR, principally private Market determined.

Loans in local currency

must be charged

sufficient interest to

cover potential

devaluations against the

euro, plus coverage of

8% for minimum costs.

$1,600,000

100%

Triodos-Doen

Foundation

Netherlands Banks, NBFIs, cooperatives, and NGOs.

Regulated MCIs that combine commercial

objectives with social values. Financially

sustainable. Good-quality loan portfolio.

If capital is invested, participation in

MCI’s board of directors is required.

Doen Foundation Market determined.

Loans in local currency

must be charged

sufficient interest to

cover potential

devaluations against the

euro, plus coverage of

8% for minimum costs.

$16,800,000

67.2%

� Percentages supplied by the organisations involved and may not total 100 per cent.

Note: this table was created by the author based on data from www.mixmarket.org

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It might be considered somewhat unusual to regard donors as investors, given that their grants

respond to interests that are quite distinct from those of any other investor. But within the micro-

credit industry, donors can also demand reimbursement, albeit on more flexible terms; hence

their inclusion is justified.

Our sample includes more socially responsible than commercial investors, but the presence

of donors does not necessarily imply more lenient investment decisions in relation to MCIs; nor

do PIIs with a majority of socially responsible investors appear to have softer loan conditions.

Conversely, despite a majority presence of commercial investors in PIIs, loans are at times

offered below market conditions.

Base and area of investment

The PIIs are based mainly in Western Europe and North America, primarily in the Netherlands

and the USA. There are only two PIIs in other areas of the world, namely, Costa Rica and

Senegal. Most investment is in Latin America and the Caribbean, where, according to Miller

(2003), some of the most experienced and developed MCIs can be found. Further, the Latin

American MCIs are now having relatively greater recourse to commercial financing.

Use of investment

PIIs specify the type of MCI they prefer to fund: cooperatives, non-banking financial

institutions (NBFIs), credit cooperatives, and rural banks. Some, in keeping with their share-

holders’ interests, also offer solidarity-based financing for other activities, such as fair trade.

Surprisingly, Idyll offers direct financing to small businesses, directly acting as an MCI. PIIs

tend to place conditions upon the MCIs in which they invest, ranging from financing new

start-ups (IMI, Oikocredit) to requiring some experience before funding is approved

(Calvert, Dexia, La Fayette, Microvest, and Triodos Fair Share). The most common require-

ment is for viability (AfriCap, IGF, and Oikocredit), an abstract term because there are no

indicators against which to measure it. Sustainability is also required, especially in financial

terms, which at least can be measured (Accion, Dexisa, Hivos-Triodos, La Fayette, and

Triodos-Doen). Others require conditions, such as profitability (Calvert, Sarona, and Triodos

Fair Share), or fulfilling financial criteria (Alterfin), or having the capacity to return the loan

(SIDI). Some require minimum portfolio figures, or assets and audits, or credit ratings. Other

PIIs, however, focus on social objectives, such as serving the poor or promoting community

development (AfriCap, Alterfin, and PCG). Some, such as Geisse or Idyll, impose no

minimum criteria. We would argue, however, that these intermediary organisations should

make their criteria clear, since the transparency required of theMCIs should also apply to the PIIs.

Types of PIIs

There are basically two types of PII, commercial (for-profit) and non-profit, which are fairly

evenly distributed. The former include mercantile companies and collective investment

institutions, such as investment funds and investment societies. Non-profit PIIs are mostly

cooperatives and foundations.

Investment instruments and loan conditions

PIIs offer a range of investment mechanisms including capital, loans, fixed-income bonds, and

guarantees, the latter mainly for loans to MCIs from local banks. It is surprising to see that some



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organisations (AfriCap, Alterfin, CCORDAID, La Fayette) mention technical assistance under

this heading (what type of investment is that?), even if, like Alterfin, they have no donor

involvement. The most common investment is through loans or fixed-income bonds; only

two of the PIIs listed have predominantly capital investments in the MCI sector.

In the case of loans, conditions may be market-determined; close to market rates, i.e. London

Interbank Offered Rate (LIBOR) plus partial mark-up for costs and risks; or subsidised

(less than LIBOR). Most non-profit organisations charge near-market rates (Alterfin,

Calvert, CORDAID, Oikocredit, PCG, Sarona); one subsidises (Idyll), and two charge

market rates (ProFund and Triodos Fair Share). For-profit PIIs, on the other hand, generally

charge market rates, with the exception of Accion (all of whose shareholders are donors),

which charges subsidised rates. Two of the Triodos organisations (Hivos-Triodos and

Triodos-Doen) make capital investments provided they have a seat on the MCI’s board of

directors.

The actual number of MCIs in which PIIs have investments is relatively low. Some PII

(e.g. AfriCap) finance only one, while others, such as Oikocredit, offer grants to 75 MCIs.

Indeed, Oikocredit has the most capital invested in MCIs—US$31 million—despite the fact

that this represents only 20 per cent of the organisation’s assets. In terms of assets invested

per MCI, AfriCap heads the list, with more than US$13 million, while IGF invests an

average of US$30,000 (the lowest). Many organisations invest between US$100,000 and

US$1 million, while conventional investment-fund managers consider US$20–30 million to

be the minimum needed for sustainability—only six of our sample reached this level, while

smaller funds are bound to need some type of subsidy (Goodman 2003:15). It remains

unclear why some PIIs do not channel all of their assets to MCIs. It may be due to a lack of

investment opportunities (suggesting the weakness of these instruments), or it might be that

assets find outlets other than investment. If the latter is the case, then there is clearly something

wrong, given that these are intended to be investment funds.

Investment risks

The risk profile of investments needs to be borne in mind: a capital investment is generally a

greater risk than a loan or a debt purchase. There is no evidence that one type of PII or share-

holder assumes greater or lesser risk levels, since almost all invest in loans or fixed-income

bonds (except Accion, AfriCap, IFG, IMI, La Fayette, and Latin America Bridge Fund).

The currency used and possible exchange-rate risks also have to be considered. Most loans

are fixed in US dollars, suggesting that PIIs transfer any exchange risk to MCIs. Only three

PIIs, Accion, Microvest, and ProFund, all of which are for-profit entities, generally favour

the local currency. Investing in a relatively inexperienced MCI also seems riskier, and

should be the domain of donor agencies. The available data, however, show that the presence

of donors does not necessarily mean greater investment in new start-ups.

Goodman (2003:18) states that the greatest growth potential comes from socially responsible

investors, since this type of investment is not yet ready to operate in strictly commercial

markets. In addition, European legislation permits only certain types of investment by funds

in which the general public has been offered shares.

Summary and conclusions

Microcredit is an innovative tool within development to combat poverty, providing loans

without the usual guarantees or collateral to people who would not otherwise be able to

obtain commercial credit. High levels of donor funding make it difficult to evaluate the



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impact of microcredit, though the financial evaluation of MCIs could be substantially improved.

PII can create incentives for increasing transparency within MCIs, which remains a main

weakness in such institutions.

With the decline in official development assistance (ODA) and increasing donor fatigue,

microcredit, properly used and evaluated, can assist in addressing poverty. Obviously not all

poor people can start a business, and not all MCIs can receive external private investment.

In such cases, donor assistance remains necessary. However, private financing, especially

from socially responsible investors, can represent a source of new development funding; and

in view of its combined social and economic returns, microcredit might offer the greatest

likelihood of success in tackling poverty.

Financing for MCIs comes from three sources: client savings, non-reimbursable grants, and

investment funds that require a return. Investment can be through capital, loans, or fixed-income

bonds. Interest rates can be either set by the market or below prevailing market rates, the latter

representing an implicit subsidy. Most PIIs based in the West include corporate investors,

socially responsible investors, and donors who expect a combination of economic and social

returns on their investments. Some make their investments conditional upon specific criteria,

though the ambiguity inherent in some of the financial conditions weakens the incentive for

MCIs to become more transparent.

Some donors and most investors require their funds to be reimbursed, though not necessarily

at market rates. The investor’s overall objectives will influence the choice of MCI and the con-

ditions placed upon it. The presence of donors within a PII does not necessarily mean that

investment will be made predominantly in new or relatively inexperienced MCIs, though in

our view it behoves donors to give preference to start-up support. Nor is there any evidence

that PIIs with a majority of socially responsible investors offer loans on better terms than

those with a majority of commercial investors. Commercial investors seek exclusively econ-

omic returns and it is appropriate that their conditions should be set by the market. Socially

responsible investors, however, seek social and economic returns and their requirements

should therefore be more lenient. The apparent lack of ‘match’ between particular types of

investors and MCIs may have to do with the novelty of the microcredit environment; but

some degree of specialisation by PIIs is necessary to avoid sending confusing signals to the

market and to MCIs, e.g. that non-profit PIIs should offer soft loans, while for-profit organis-

ations should charge the going market rate.

Most investments take the form of loans and fixed-income bonds, and most loans are to MCIs

in Latin America and the Caribbean. The most common currency for investments is the US

dollar, so the exchange-rate risk is carried mostly by MCIs. Only PIIs in the sample had

assets of over US$20 million, the critical size for profitability.

In conclusion, private participation in funding microcredit programmes has so far generated

more noise than substance. The overall volume and percentage of private investment remain

disappointing. Although MCIs have been criticised for their lack of transparency, our survey

shows that the same criticism could also be levelled against PIIs. It may be that the supposed

lack of transparency among MCIs stems from the fact that they provide inadequate information.

If that is the case, then it is vital that they improve their current practices, as otherwise they risk

losing investors. The presence of private investors should stimulate greater transparency, but

the fact that only 2 of the 23 PIIs require MCIs to have a credit rating does little to encourage

this. Another reason for the scarcity of private funding of microfinance is the ease with which

MCIs obtain subsidised or free funds, thus weakening incentives to seek private sources of

funding. Another weakness lies in the fact that shareholders or stakeholders in the PIIs

are not always private investors, but donors and development agencies. This has the dual

effect of discouraging the drive for greater transparency and offering low-cost financing.



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Improvement in these respects is the first step to ensuring that promises become reality and that

better quality results are achieved in the future.

To conclude, the socially responsible investor appears the most appropriate type of PII to

fund MCIs, given the close match between the social and economic returns that both organis-

ations seek. Of course, the MCIs whose work focuses on the very poorest will continue to need

development assistance; however, the MCIs whose work is primarily with the less poor should

seek commercial funding. What is to be avoided above all is the situation described in this

article whereby donated funds are persistently available to MCIs when they are not needed,

while MCIs that are working with the very poorest and are therefore least likely to return a

profit are forced to seek funds from commercial sources.

Acknowledgements

This paper was written under the auspices of the Research Projects of the Government of Aragon, No.

PO57/2000, and No. UZ00-SOC-03 of the University of Zaragoza. An anonymous referee made very valu-

able comments and substantially improved the original draft.

Notes

1 There is no clear consensus on the concept of microcredit, but according to the definition adopted at the

1997 Microcredit Summit, its role is to provide small loans to very poor people for self-employment and

income-generating projects. An extensive bibliography on microfinance includes such well-known

works as Adams and Von Pischke (1992), Goetz and Gupta (1996), Hashemi et al. (1996), Hulme

and Mosley (1996), Johnson and Rogaly (1997), Ledgerwood (1999), Morduch (1999), and Yaron

(1992), among others.

2 WWB is a global network that seeks to improve women’s economic situation through access to credit.

3 Accion International is a US-based microlending organisation working in Latin America, where it sup-

ports a network of MCIs. Its first microcredit programme was in Recife (NE Brazil) in 1973. For more

information, see www.accion.org/default.asp

4 These are institutions used mainly by donors to grant funding and technical assistance to countries or

regions in which the MCIs are too small or too numerous to support directly.

5 Dexia has had an accumulated profitability of 13.9 per cent since 2003.

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Adams, Dale and J. D. Von Pischke (1992) ‘Microenterprise credit programmes: deja vu’, World

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Hashemi, Syed M., Sidney Ruth Schuler, and Ann P. Riley (1996) ‘Rural credit programmes and

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Hulme, David and Paul Mosley (1996) Finance against Poverty, London: Routledge.

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The author

Begona Gutierrez Nieto lectures at the College of Economic and Business Studies at the University of

Zaragoza and teaches at the College of Business, Catalonia Open University, from which she holds a PhD

on microcredit in Spain. Contact details: Department of Accountancy and Finance, College of Economics

and Business Studies, University of Zaragoza, Gran Vıa 2, 50005 Zaragoza, Spain. <[email protected]>



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private funding of microcredit schemes: much ado about nothing?

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