What is social microfinance ?Social microfinance is one of the most revolutionary instruments for the eradication of poverty. It refers mainly to microcredit and microsavings services. Microfinance refers to programmes that extend small loans to very poor people for self-employment projects either by starting a micro-enterprise (a small business) or by expanding an existing micro-enterprise. Loans in Africa can be of the order of 50-500 euro and are addressed to poor borrowers that do not have access to classical banking systems as they lack assets to provide as collateral or other types of guarantees. Microcredit helps borrowers become financially self-sufficient and is a great empowerment tool. The concept and practice of microcrédit was developed in the 1970s, by Mohammad Yunus and the Grameen bank , which started extending small loans to the poorest of the poor in rural Bangladesh and became a model for similar programmes all over the world. Thanks to this original initiative that started in Bangladesh, about 100 million people benefit today from microfinance throughout the world.
Microcredit is now hailed as one of the most cost effective and efficient tools in the combat against poverty as well as one of the best tools for the empowerment of social groups that are traditionally kept outside the “classical” economic and financial markets. Another key advantage of microcredit is that it helps the poor help themselves, instead of offering free assistance that leads to the creation of dependency. Microcredit is the most common microfinance service applied today. Other Microfinance services are loans, insurances, pensions, etc.
What is the link between social microfinance, poverty reduction and biodiversity conservation?Around many protected areas in the world, rural communities are trying to etch a living from land, through activities such as agriculture, hunting and fishing. For many of those communities, the establishment of protected areas in their vicinity has offered significant benefits such as micro-climate regulation, increase in the abundance of pray species in the off reserve areas, increase of tourism-related revenues, control against erosion, etc. However, it has also implied a limitation in the access to natural resources. As a result they have seen their incomes dwindle and their economic and livelihood activities significantly affected. In order to counterbalance those side-effects and to ensure that fringe communities maintain their support of the protected areas, various strategies are being implemented. Social microfinance is one of them, and it aims at the promotion of alternative and sustainable livelihoods through the support of micro-enterprises.
How does a microcredit programme work?A microcredit programme can be administered directly by an NGO or most commonly by a MicroFinance Institution (MFI). Following an initial control of eligibility by the microcredit staff (the loan officers), interested borrowers are invited to form groups of 10-20 people. The loan officer of the NGO or the MFI assesses the applications of the interested borrowers, and those whose application is approved are accepted into the group. These groups meet regularly with the loan officer of the microcredit program, and each member is liable for all debts incurred by all other members. If a particular borrower cannot repay his/her loan, then the other members of the group are required to make up the amount in default. Borrowers are encouraged to monitor the behaviour of one another to make sure that no one is in danger of default. Once a group has paid off its entire loan (capital + interest) then its members are again eligible to apply for a second loan, if they so wish. This process, established by the Grameen bank has led to extremely low rates of default, which do not exceed 5% of loans. The viability of a microcredit programme depends on its good management. A key parameter for that is the number of loan beneficiaries: the higher the number of beneficiaries, the higher is the chance of covering the incurred expenses (staff, transportation, etc.). The interests charged to the initial loans aim exactly at that: covering the incurred expenses.