Microcredit

Microloans are very small loans from a € up to several thousand euros to small businesses primarily in developing countries. They are next to micro- insurance and micro savings a substantial microfinance services. The loans are usually usually awarded by specialized financial service providers and non-governmental organizations to promote development.

History

Microcredit is a tool of development policy and are frequently cited as successful examples in the context of the management concept of " Base of the Pyramid ". However, they are not a new invention. Already developed by Friedrich Wilhelm Raiffeisen 150 years ago co-operative model is based on the self-help and solidarity principle by which to work today, many micro-lenders in developing countries. In 1976 there were in Bangladesh such a program, which was initiated by Muhammad Yunus, and from the 1983 Grameen Bank emerged. In 2006, Yunus and the Grameen Bank received for these efforts to "economic and social development from below " the Nobel Peace Prize.

After Europe, this idea came back in the early 1990 's, when there was a growing funding gap for the ever increasing number of start-ups out of unemployment. In the Netherlands, the model Tante Agathe was to enable private capital for start-ups. In France, was founded in 1989, the nonprofit Adie, which is now (March 2007) has around 100 branches and annually awards more than 10 000 micro- loans to unemployed and welfare recipients. In Germany, the federal government has the GLS Bank in charge of the construction of the micro-credit fund Germany in early 2010.

In 1995, the World Bank, the Consultative Group to Assist the Poor ( CGAP, " Advisory Group for the relief of the poor ") with the aim of mobilizing 200 million U.S. dollars for microcredit. A first peak of development was the Microcredit Summit in 1997.

See the United Nations in microfinance is an important tool for achieving the Millennium Development Goals for poverty reduction. The year 2005 was proclaimed by the United Nations International Year of Microcredit.

Since 2006 there is the possibility to give microloans directly to a self- selected borrowers in a developing country on the nonprofit company Kiva on the internet. Other organizations now offer this possibility.

Data

The number of people receiving microcredit is estimated at 150 to 200 million worldwide. The global volume of financing is estimated at about 70 billion U.S. dollars.

Worldwide, the number of micro-lenders is estimated at over 70,000. Two organizations that are mainly involved in the field of micro- credit, are the German Microfinance Institute and FINCA International (USA). Recently developed increasingly private, increasingly commercially oriented providers such Smava the field.

The centers of microfinance are in India and Bangladesh. In the world's largest market, India, the number of microcredit is currently about 75 million, bearing in mind that many borrowers obtain several loans at the same time.

Operation

The repayments are to be made possible in a socially acceptable manner, there are special credit technologies:

• It is promised a follow-up loan.
• Group formation: Five to six borrowers receive a loan and vouch for each other alternately.
• Customer contact: The micro Bank is the business model of the borrower thoroughly and adjust the repayment intervals and rates the cash flow of the company to ( weekly or monthly repayment).
• Focus on women: Many microfinance organizations provide loans only to women, because they are perceived as creditworthy and reliable.

Amount of interest

The annual interest rate for microcredit is well above the classical loans, often more than 20 % p. a This is justified by the higher cost and the need for intensive counseling that cause micro- loans. A study by the Asian Development Bank means interest rates between 30 and 70 % p. a than usual. However, the credit terms and interest rates of developmental Micro Lenders are usually much cheaper and more predictable than those of conventional lenders.

One of the initiators of the Microfinance, the Grameen Bank has now shifted to award three types of loans: business loans at an interest rate of 20%, housing loans at 8% interest and education loans for higher education of the children of Grameen families ( interest rate: 5 percent). Interest in many microcredit programs simple interest ( salvage value ) and no compound interest.

Repayment rate

By adhering to the above rules - group formation, customer contact and focusing on women - as well as growing professionalization many micro-lenders often achieve repayment rates of 95 to 100 percent. However, the repayment rate of Grameen Bank applies only to Erstkredite. According to the Bangladeshi economist Anu Muhammad, the repayment rate for microcredit in Bangladesh is in spite of peer pressure only 65 %. The high rate of repayment would come about through debt restructuring.

Funding and subsidization

The funds for microcredit come from the international banks of grants and low -interest loans under the state aid, ethical investments, from private donations and from savings of the local population ( then there are genuine micro-lenders ). Banks securitize receivables from micro-credit in the form of securities that are placed on the capital markets. For example, Citibank and the German Reconstruction Loan 2006 Loans and the non-governmental organization BRAC from Bangladesh have been securitized. This securitization has a total of 150 million euros.

In 1983, the Grameen Bank was fully financed by debt and is still dependent on foreign aid today. A government subsidization of microfinance service providers has become common in other countries. But are reversed many non-governmental organizations (NGOs ), passed into Bangladesh to instead donate the interest of the microcredit fund. This microcredit NGOs have become so large that they should be regarded as a further addition to the traditional financial market.

International capital for microcredit are eg:

• The World Bank subsidiary International Finance Corporation ( IFC)
• European Bank for Reconstruction and Development (EBRD )
• Soros Economic Development Fund ( SEDF )
• KfW Banking Group
• Opportunity International Germany - a non-profit organization that uses its donations for the construction of Micro Lenders in developing countries
• The Ecumenical Development Cooperative Oikocredit 80 % of their loans to microfinance institutions; Private investors can participate through the purchase of cooperative shares.
• The Invest in Vision Microfinance Fund, a scheme established microfinance funds in Germany, the capital lends to micro-lenders in developing and emerging countries.
• The European Fund for Southeast Europe (EFSE ) is the world's largest microfinance funds and is based on a Public Private Partnership. Investors are, inter alia, the European Commission, the Federal Ministry for Economic Cooperation and Development, the Bank for Reconstruction and Oppenheim.
• ResponsAbility Global Microfinance Fund is a Luxembourg in DOMICILED, private investors fund accessible by a composite mainly Swiss banks: Credit Suisse Group, Raiffeisen banks, Baumann & Cie, Alternative Bank Switzerland, Swiss- Re, Andromeda Fund ( Netherlands).
• Vision Microfinance is a scheme established in Luxembourg microfinance funds managed by Absolute Portfolio Management in Vienna and mainly contains fixed -income investments, mostly in the form of loans to micro-lenders.
• ProCredit Holding AG (formerly IMI AG) refinanced the ProCredit group; Private investors can participate by purchasing a bearer bond; the KfW banking group is involved in the ProCredit Holding AG.
• Micro-credit fund Germany

Poverty reduction

Financially weak small businesses usually have no access to conventional bank loans because they can not provide any collateral security and the cost per credit classic banks seems too high. As a result, they often remain in the informal sector and dependent on credit intermediaries or even " loan sharks ", usually with extremely high interest rates.

Through micro loans poor populations in developing and emerging countries should be given the opportunity to borrow at economically acceptable conditions. For small businesses, which are the main target group of microfinance, so to improve the possibility of investing in the industry or are created in the first place. This in turn is the economic activity of customers and thus indirectly also the standard of living increased. Panacea Microlending is, however, not because they presuppose a certain degree of autonomy and thus the poorest of the poor usually can not reach.

Also, microcredit is only a first step. In most cases, micro- credit customers even after years of not being able to open regular savings accounts at commercial banks and so economical to secure the achievements of micro-loans. Institutions that provide the sense of a broader microfinance approach also savings (micro savings ) and other financial services, go one step further here.

Increasingly, the concept of micro-credit is also transferred to industrialized countries. So Hillary Clinton suggested the Microcredit Summit 1997 to use microcredit also to reduce poverty in the slums of U.S. cities.

Criticism

The poorest of the poor would come as a borrower no longer in question, since there was a lack them of opportunities to earn income and repay loans. The focus on the pure lending without addition of a savings opportunity often would also lead to a debt trap from which women are the main target group is difficult to get out. Moreover, the microcredit do not change the economic macrostructures and promote no transformative framework.

In the fall of 2010, at least 54 micro- borrowers took in the Indian state of Andhra Pradesh within two months of life. In this context, it was reported that the micro-credit sector where more and more the same loan sharks, of which he once wanted to redeem the poor.

Mohamed Yunus himself, the founder of Grameen Bank, fears a growing impoverishment and indebtedness of borrowers, since some lenders of their own profit much more in the foreground than development aid. He therefore calls for a standardization of interest rates. Otherwise there is a danger of a new financial bubble.

Another point of criticism is that in many countries continues to be a funding gap between micro-credit of up to approximately U.S. $ 1,000 and bank loans from about 10,000 - is $ 15,000. So there is in Senegal, according to Central Bank data, about 1 million members of credit unions operating mostly informal, but the average loan amount is only up to $ 400.

Microcredit in Germany

Microcredit microcredit fund Germany

In Germany, the federal government set for the expansion of microfinance bid in early 2010 to a micro-credit fund Germany. On the base of the GLS Bank grants in cooperation with the German Microfinance Institute loans to micro-enterprises and start-ups. Its mandate was to represent the end of 2010 a comprehensive offering in the Federal Republic, which it did with the accreditation of 40 microfinance institutions (MFIs).

The micro- lending of micro-credit fund Germany exclusively via microfinance institutions that must pass an elaborate accreditation and review process prior to recognition as a microfinance institution. The MFI close after accreditation with the GLS bank (or another bank cooperation ) and the German Microfinance Institute signed a cooperation agreement for micro lending from before they can act.

These microfinance institutions ( MFIs ) are different both in different organizational forms operate as well as the regional, state or federal registration of the offer here. Each MFI can have its own credit programs, target groups, allocation processes and care facilities to develop and offer on the market, as long as the core requirements of the micro-credit fund Germany as target groups, interest rate, limits, terms and purpose of the loan and the framework of the cooperation agreement are complied with.

The MFIs take on its own against the loan requests of their clients and customers. You check and decide at their own discretion on lending. In case of positive decision redirect the request to the credit cooperative bank on, which can then in turn created the credit agreement and sign on the MFIs by the clientele. The MFI is for the entire execution and supervision thereby responsible, which, moreover, in the context of priority first loss liability assumes the risk for the loan repayment. During the entire term of the loan, the MFI remain the contact for the support of micro- credit customers.

Term first-loss liability applies in the cooperation agreement between the micro-credit fund in Germany, the GLS Bank and the microfinance institutions ( MFIs ) that offer microcredit loans to small businesses or entrepreneurs.

In the microcredit microcredit fund Germany the microfinance organization against liability to the Bank and the Fund take priority. This type of liability is referred to as first loss liability ( MFI " loses as First "). The micro- finance assumes losses from the micro lending priority to a stipulated percentage, zz 18%. As ceiling while the highest of the originated loan amount of all microloans of the respective MFI of the respective year is used as basis for calculation as a basis. Only when this threshold is exceeded, the micro-credit fund enters the liability to the bank.

Previously, this threshold was ( calculated across all MFIs ) are not exceeded, since the failure rate moves in the microcredit between 4% and 5%.

Microcredit other providers

In some states, the state banks also offer micro-credit programs or microloan similar programs. For the region of Berlin offers the Investment Bank Berlin within a normal program of support for establishing a component of " micro- loans" to. In Bremen, the Bremen Bank for Economic Expansion offers an appropriate micro -credit program in Saxony, the Saxon Development Bank, in Mecklenburg- Western Pomerania, the Society of structural and labor market development, in North Rhine- Westphalia, NRW Bank.

The programs differ considerably, especially in the hurdles in accessing these microcredit programs, but also in the loan amount and maturities, grace periods, interest rates and security requirements of the applicant. For these programs, the usual bank decision-making and allocation procedure be applied to customers who are already bankable and have an appropriate credit history.