by Jeffrey Erfe - Key Players -

MICROCAPITAL EXCERPT: Selected Microfinance Articles from the Journal of Microfinance Published by Brigham Young University’s Economic Self-Reliance Center

‘In God We Trust’: A Qualitative Study of Church-Sponsored Microfinance at the Margins in Nicaragua
by Michael J. Pisani

A qualitative study of CARITAS Matagalpa was undertaken in May 2003. CARITAS Matagalpa is a large, self-sustaining microfinance institution that is located in central Nicaragua and affiliated with Catholic Relief Services. In-depth interviews with 36 microentrepreneurs, all clients of CARITAS Matagalpa, reveal that access to microfinance has enabled these entrepreneurs to start, expand, and develop their enterprises. These interviews also reveal that access to microfinance has also enhanced the life chances of the microentrepreneurs’ households. Additionally, multivariate statistical tests suggest the following: (1) Loan size is directly related to urban location and length of repayment period. (2) The degree of firm-level informality diminishes in urban areas and increases relative to the work experience of the microentrepreneur. (3) Income for self-employed microentrepreneurs is influenced by business sales volume, work experience, number of employees, and loan size. 

Microentrepreneurship and Job Creation
by James O. Bates

This multiple-case study explores local government’s use of HUDfunded microenterprise development assistance for job creation and selfemployment of low-to-moderate-income individuals. Respondent information was reviewed and then supplemented with document analysis and interview materials from earlier research on HUD microenterprise development assistance programs in upstate New York. Because the number of local government respondents who self-identified as providers of microenterprise development assistance was small, it was not possible to generalize research findings to the overall public microenterprise development sector. However, the study of this phenomenon, although limited, does have implications for government microfinance instrumentalities and intermediaries and for future research on publicsector microenterprise development efforts. Based on the participants’ self-report, it appears that both urban and rural HUD-sponsored microenterprise development assistance programs create jobs and self-employment opportunities for low-to-moderate-income persons using a myriad of strategies.

Data Standards for Connecting to Commercial Sources of Capital
by James Dailey

The importance of data interchange between commercial sources of capital and the microfinance sector is generally acknowledged, if not well detailed. But microfinance institutions (MFIs) and commercial sources of capital often need a different depth and breadth of information. As the industry grows and accesses more commercial capital, there is a need to enable standardized reporting from multiple MFIs to multiple sources of capital, rather than a proliferation of one-to-one re porting relationships. IT professionals and managers of microfinance institutions need to recognize this need and push vendors and industry associations to agree on specific standards of data elements, quality, and transmission protocols. This paper aims to provide the reader with a grasp of the issues involved and to recommend a sample set of data standards for MFIs to use in communicating with commercial sources of capital.

Nurturing Joint Forest Management Through Microfinance
by K. K. Kaushal and J. C. Kala

India has embarked upon a community involvement process to restock the state-owned forests through a recent approach called Joint Forest Management. But the success of the Joint Forest Management program lies in the provision of alternative livelihoods to woodcutters and grazers. This article presents how the forest department of a southern state of India devised a potent tool of microfinance promotion for weaning those who are dependent on the forest by implementing a massive externally aided Joint Forest Management Project. Based on a study of 27 program villages in the Tamilnadu state, this paper proves that the success of Joint Forest Management is dependent on and directly linked to the provision of microfinance to villagers through a people’s representative body—the Village Forest Council. The forest department was successful in this unusual task of promoting microfinance even in villages where formal microfinance institutions have failed, which corroborates an earlier finding that microfinance is more workable and successful if it is properly packaged in a locally suitable development program.

Building Economic Self-Reliance
by Jan Maes and Malika Basu

The Trickle Up Program is a US-based organization engaged in microenterprise development for very poor households in 14 core countries, including India. Because it targets the most vulnerable sections of the population, such as the rural landless, women-led households, people with disabilities, and economically disadvantaged minorities, TUP employs a seed capital grant strategy to facilitate its clients’ movement from absolute poverty toward economic self-reliance. TUP clients cannot risk taking a loan because they have no spare income to make payments if their enterprises do not generate an immediate profit. A conditional grant, in contrast to credit, exposes its recipients to less risk and allows them to grow a business with a longer payback period. This paper draws from a recent study of the Alternative for Rural Movement, one of TUP’s partner agencies in rural Orissa, India, and shows that its TUP clients moved successfully from a position of extreme vulnerability to one of significantly improved economic self-reliance.

Microfinance and Rural Development
by Henk A. J. Moll

The long-term perspective on microfinance starts with a discussion of three central issues: first, views and policies, with two opposing views: “credit for target group” and “pushing the financial frontier”; second, the performance of microfinance institutions measured via two objectives: outreach and financial sustainability; third, microfinance and rural development. This latter issue is approached through analyses of the effects of financial services on rural households and analyses of long term national financial development. Both micro and macro studies show positive effects of an expansion of savings and lending services, financial deepening. The negative side of financial deepening, the apparently unavoidable occurrence of bank insolvancies, is also reviewed. The concluding section argues that the microfinance sector should be guided by “stability and expansion”: stability to withstand shocks and to maintain the relationships established between rural households and microfinance institutions, and expansion to include more people within the financial frontier.

Book Review
by Richard Norton

The Private Sector in Development: Entrepreneurship, Regulation, and Competitive Disciplines, by Michael U. Klein and Bita Hadjimichael.

Today’s microfinance industry is stepping beyond charitable subsidies toward commercialization, from dependency towards self-reliance. To speed and systemize the eradication of poverty, private capital has become more crucial for microfinance institutions (MFIs). In their book, The Private Sector in Development: Entrepreneurship, Regulation, and Competitive Disciplines, Michael U. Klein and Bita Hadjimichael encourage practitioners and policy makers to enhance the private sector’s role in a broad range of areas that impact development.

Commercializing Microfinance and Deepening Outreach
by Francisco Olivares-Polanco

Does commercialization mean mission drift? Christen (2001) argues that commercialization, which is characterized by profitability, competition, and regulation, does not have any effect on large differences in loan size between regulated and nonregulated MFIs. I used data from 28 Latin American MFIs to conduct a multiple regression analysis to test for some of Christen’s conclusions, as well as for other factors that, according to the literature on microfinance, may affect loan size. The results of the regression indicate first that the type of institution, in terms of NGO versus financial institution, regardless of being regulated or not, has no effect on loan size. Second, the age of the institution predicts loan size in a direction contrary to that suggested by Christen. Third, competition turned out to be significant, in contradiction to Christen’s conclusion; it appears that more competition may lead to larger loan sizes and less depth of outreach. Finally, the models confirm an old belief in microfinance: there is a trade-off between depth and sustainability.

Microfinance Institutions in Transition
by Michael Tucker and Winston Tellis

Microfinance institutions (MFIs) established to provide the poor with access to capital have typically operated outside of their countries’ regulated banking environments. Many have relied on donor grants and low-interest funds to support loan portfolios and social programs. As MFIs mature they aspire to become more efficient and attain economic sustainability because they understand that greater numbers of the poor can be serviced by economically sustainable institutions. Many MFIs collect savings deposits but are often barred from using them for loans by their countries’ laws. Fonkoze, an MFI in Haiti, has sought regulated status, which would provide access to deposit assets and enable Fonkoze to better compete with other MFIs, some of which are regulated subsidiaries of commercial banks. In the midst of political and economic turmoil, Haiti’s Central Bank has delayed Fonkoze’s transformation. A different solution is now moving forward, with Fonkoze becoming two entities, Fonkoze Financial Services and Fonkoze Foundation.

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