Microcredit for poverty alleviation and fostering environmentally sustainable development: a review of African case studies.
With the hastening of the global poverty crisis and the absence of an adequate social safety net for those marginalized and vulnerable sections of society in the less developed countries, a number of researchers have moved beyond the relentless pursuit of short-term toward long-term anti- poverty, environmentally sustainable paradigms to assist chronically poor sectors of society. Though a remarkably polarizing issue, in the last three decades microcredit programs have been made available to the chronically poor as a viable option to involve them in the formal economic sector. It is assumed that the disadvantaged groups will become productive members of society if they involve themselves in small businesses that may contribute to powerful changes within their lives. Based on anecdotal assessment of the impact of microcredit as a financial instrument, the United Nations declared 2005 as the International Year of Microcredit. Realizing that chronically poor people merit the greatest international attention, using the year 1990 as a baseline, the United Nations has advocated the reduction of both extreme poverty and hunger by half or more by the year 2015, those whose income is below US $1 per person/day.

A review of the existing literature which has burgeoned over the past decades indicates that it would be an over exaggeration to claim that microcredit programs have significantly helped to lift the poor out of poverty. The existing microcredit programs seem to be focusing on borrowers living above the poverty line rather than on the hard core poor. Based on few analyzed empirical case studies, it can be ascertained that the microcredit programs in Africa may not be effective in achieving sustainable development unless the projects are based on longitudinal studies that could: a) systematically address the cause of poverty, b) identify the poverty segments of the population, c) pay special attention to raising the awareness of the chronically poor, and d) train the participants to specialize in environmentally-sensitive new business ventures.

Keywords: Microcredit, Poverty, Poverty alleviation, Environmentally sustainable development, Environmentally sensitive business ventures, Micro-enterprise, Poverty Index

Article Type:
Banking industry (Economic aspects)
Financial markets (Laws, regulations and rules)
Poverty (Bangladesh)
Poverty (United Kingdom)
Poverty (Case studies)
Poverty (Economic aspects)
Small business (Bangladesh)
Small business (United Kingdom)
Small business (Economic aspects)
Sustainable development (Case studies)
Desta, Asayehgn
Pub Date:
Name: International Journal of Business Research Publisher: International Academy of Business and Economics Audience: Academic Format: Magazine/Journal Subject: Business, international Copyright: COPYRIGHT 2010 International Academy of Business and Economics ISSN: 1555-1296
Date: March, 2010 Source Volume: 10 Source Issue: 2
Event Code: 930 Government regulation; 940 Government regulation (cont); 980 Legal issues & crime Advertising Code: 94 Legal/Government Regulation Computer Subject: Banking industry; Small business; SOHO; Government regulation
Product Code: 9970000 Small Business SIC Code: 6021 National commercial banks; 6022 State commercial banks; 6029 Commercial banks, not elsewhere classified
Company Name: Grameen Bank Bhaban
Geographic Scope: Bangladesh; United Kingdom Geographic Code: 9BANG Bangladesh; 4EUUK United Kingdom
Accession Number:
Full Text:

In an era of unprecedented world-wide economic growth, it is interesting to note that the richest fifth of the world's people consume 86 percent of all goods and services while about a fifth of the world's poor population (1.2 billion people) still live on less than US $1 a day and almost half of the world's population live on less than US $2 a day (UNDP 2002, Gibson, 2009). Poverty is not simply having a very low income. It is a multifaceted phenomenon. In addition to low income, poor people also suffer from illiteracy, unsafe drinking water, and lack of access to basic health services. They live in remote, resource-poor areas, and atrocious slums. Frequently encountered with their vulnerability, the "chronically poor are unable to develop their personal capabilities or provide a good start in life for their children, and often die prematurely of preventable causes" (Alston and Shepherd, 2008-09).

With the hastening of the global poverty crisis and the absence of an adequate social safety net for those marginalized and vulnerable sections of society in the less developed countries, a number of researchers have moved beyond the relentless pursuit of short-term toward long-term anti- poverty, environmentally sustainable paradigms to assist chronically poor sectors of society. Though a remarkably polarizing issue, in the last three decades microcredit programs have been made available to the chronically poor as a viable option to involve them in the formal economic sector. It is assumed that the disadvantaged groups will become productive members of society if they involve themselves in small businesses that may contribute to powerful changes within their lives. (See Microcredit Summit, 1997, Fisher and Sriram, 2002.)

In formal financial markets, the poor are excluded from establishing their own small businesses because they are not recognized as being credit-worthy, i.e. unable to save, lacking verifiable credit history, and with no goods to offer as collateral to secure loans. This forces them to turn to traditional money lenders. (See for example, Zamperetti and Franca Dalla Costa, 2008.) Recognizing the needs, capacity, and the talents of the poor to repay the loans, micro lending programs are loans extended to group members rather than to individuals. In view of the contingent group loan approach, it is generally assumed that group members would have an incentive to monitor their progress and that this would lead to a greater rate of repayment of their loans since each borrower's creditworthiness would be a factor in the overall credit-worthiness of the group (Fisher and Sriram, 2002; Stiglitz, 1990; Varian, 1990; and Becker, 1991). In short, the success of group lending creates positive incentives for members to repay because in case of default, no member of the group will receive future loans. For prompt repayment, there is repeat lending to the group. In group lending, the probability of moral hazard is largely reduced because all borrowers are members of the group and subject to peer pressure, group dynamics, cohesiveness, and the ultimate success of every other member of the group (Ajit, A; Sunil, R; and Raman k. R, 2006).

In simple terms, microcredit refers to the process of lending small amounts of seed money to groups of jointly liable borrowers rather than to one person, without collateral, to help poor people to establish their own business. Microcredit, especially designed for eco-entrepreneurship, encourages innovation in rural and urban areas to produce environmentally friendly products for the marketplace. Thus, the philosophy of demand-led microcredit finance visualizes the poor not as objects of charity but as socially productive persons. The rationale and objective of advancing micro-loans to the ultra poor is to diminish their liquidity constraints, create employment opportunities, and induce sustainable incomes by engaging the poor in the reinvention of everything from the bottom-up, with limited top-down directives. Therefore, the loans accorded to the poor are not only bankable but it is assumed that micro- enterprise activities will eradicate poverty and foster sustainable development. As argued by Doocy et al., (2005), "Microfinance is a logical approach to development because it functions at the grassroots level, can be sustainable, is capable of involving large segments of the population, and builds both human and productive capacity." Stated differently, microcredit is an investment in people, the poor and their abilities, which sharpens entrepreneurial initiatives, and strengthens developing countries' economies. Microcredit is a grass-roots instrument, a tool for economic development because it enables the poor to build assets, increase income, and reach self-sufficiency. Thus, microcredit not only delivers macro benefits but creates a silent revolution in poverty-stricken rural areas (Sharma, 2005).

As a result, in the 1990s the commercialization of microcredit continued to gain force as one of the key tools of development. The World Bank, the U.N. Capital Development Fund, and the European Bank for Reconstruction and Development have created full-scale movements to promote the availability of microcredit programs to a number of developing countries. Based on anecdotal assessment of the impact of microcredit as a financial instrument, the United Nations declared 2005 as the International Year of Microcredit. Realizing that chronically poor people merit the greatest international attention, using the year 1990 as a baseline, the United Nations has advocated the reduction of both extreme poverty and hunger by half or more by the year 2015 of those whose income is below US $1 per person/day.

The Millennium Development Goals (MDGs) are seen by many as being overly modest. However, it needs to be mentioned in passing that this assessment omits or glosses over some of the greatest challenges to lowering the poverty rate. For example, one of the most serious issues omitted in the report is the fact that it failed to establish that it is the lack of access to land ownership (micro-landowning program) that has caused many people to remain in poverty, and that microcredit loans have accomplished very little in solving the land ownership systems in developing countries (Prosterman, R. April 2005). Instead, the promotion of microcredit ventures in developing countries have the potential to create private groups (cutthroat money-lenders), which have vested interests in perpetuating the prevailing poverty situation ( Elahi, K.Q. and Danopoulos , C. P., 2004). Microcredit participants end up borrowing more from other non-institutional sources (double-dipping) to reduce their indebtedness, which is a paradox. As it stands now, instead of reaching the core poor, microcredit improves incomes of the better-off poor. It is more beneficial to borrowers living above the poverty line than to borrowers

living below the poverty (Hume and Mosley, 1996). As succinctly argued by Kamani (2007), "...although microcredit yields some noneconomic benefits, it does not significantly alleviate poverty. Indeed, in some instances microcredit makes life at the bottom of the pyramid worse."

Contrary to the hype about microcredit being the best way to create jobs, increase workers' productivity, and eradicate poverty, Banerjee and Duflo (2006) argue that, "Although some microcredit clients have created visionary businesses, the vast majority are caught in subsistence activities. Participants have no specialized skills and so must compete with all the other self-employed poor in entry-level activities." In his critique of the newest financial technology of the Washington Consensus, Flynn (2007) argues that while the technologies are new, the rhetoric is familiar and suggests that we may be seeing a new form of green washing or "charity washing" in the making. The risk is that new microfinance technologies targeting people with low incomes will be mistaken as benevolence. Bankers are not in the business of charity. They galvanize their activities to the bottom line generating sufficient priorities to stay in business. In addition, Neff (1996) argues that microcredit models have been judged disproportionately from a lender's perspective (repayment rates, financial liability) and not from the borrower's. Therefore, according to Neff, microcredits have privatized public safety-net programs and stimulated governments to cut their budgets on education, public health, and the early livelihood needs of the poor.

Despite the provocative criticisms enumerated above, the idea of microcredit as a key to socio-economic transformation has taken a prominent place in the international sphere. A number of voluntary associations, non-government organizations, friendly societies, savings-and- credit cooperatives, national and regional government organizations, and commercial banking institutions have joined hands in providing financial services to the marginalized sectors of the world's developing countries for community growth and socioeconomic development. Since microcredit loans are focused on building a foundation for individual or small groups to develop products and services that will both enrich and increase the wellbeing of those involved as well as the surrounding community, it seems evident that these specialized loans integrate sustainability into the dynamics of the structure. (See for example, Gehlich-Shillabeer, 2008).

Therefore the central questions of the study include: a) are the participants of micro credit loans chronically poor, b) do microcredit programs alleviate poverty? c) do the beneficiaries of microcredit loans participate in environmentally sensitive projects? The purpose of this paper is therefore to review the existing literature which has burgeoned over the past decades and investigate the methodological issues. Specifically, the article is organized as follows: Section I examines the different methods used by microcredit ventures to measure poverty and target the beneficiaries. Section II presents an operational definition of environmentally sustainable Development. Using a number of case studies, section III attempts to examine whether or not the extended microloans in Africa contributed to environmentally sustainable development. Finally, results and conclusions are presented and policy implications are drawn for further research. Before we review how various studies target their clientele and assess the impact of microcredit programs on the lives of clients, a brief historical background of the Grameen (derived from a Banglai word for village) Bank in Bangladesh is in order.

2. The Grameen Bank of Bangladesh: A Brief Review

A number of waves of micro-enterprise lending were initiated in the United States of America in the 1950s to subsidize developmental credit programs in the rural areas. However, the incarnation of microfinancing actually started in 1974 after Bangladesh experienced drought and famine that contributed to the deaths of about 1.5 million people (Macfarlane, 2002). The program was conceived when Professor Mohammad Yunus noted that a number of poor women living near his university were trying to earn a living constructing bamboo stools, but they had no money to purchase materials. Realizing and being conscious of the problem, Professor Yunus and his students strategically designed an experimental credit program to assist the needy women. He provided the needy women with a small amount of credit (about $69 each) without normal bank collateral and at a reasonable rate, from his pocket for self-employment. (See Desta, 1998.) To his pleasant surprise, all the borrowers repaid the loans, in the process convincing him that this success could be replicated across Bangladesh (Mainsah, Heur, and Zhang, 2004). Following this, the Grameen Bank was initiated to be a full-fledged lending institution in Bangladesh. In 1983 the Grameen lending institutions were incorporated as a bank after the government had passed legislation allowing Grameen Bank to accept deposits.

The unique operating procedures of the Grameen Bank had four features that distinguished it from conventional banking practices. The Grammen bank started: a) offering collateral-free loans or seed money of less than one hundred dollars to rural-based poor women; b) creating income-generating activities through self-employment in particular ventures; c) requiring internal local savings (capital) as a pre-requisite for getting loans from Grameen financial enterprises; and d) converting borrowers into depositors and shareholders. The Grameen Bank system united all interested parties with its managers behind the common goal of creating sustainable poverty-alleviation programs (Elahi and Danopoulos, 2004; Mainsah, Heur, and Zhang, 2004).

Through self-selected lending groups of five to forty members, the women whose family's assets fell below the bank's threshold were navigated through the microcredit system. As stated by Mainsah, Heur, and Zhang (2004), Yunus devised a typically unorthodox solution for the issue of the poorest of the poor. He decided to prove that Grameen was indeed a banker to the poor by requiring that the bank make every effort to lend to those whom it considered the poorest.

In the beginning, the poverty status of the women who borrowed funds from the Grammen Bank were subjectively determined. That is, poor women who lacked the funds to begin their own businesses were considered eligible to borrow funds from the Grammen Bank. However, as Grammen Bank developed over the years, women whose family assets fell below the bank's threshold were also selected to participate in the program. After the clientele were selected they were required to: a) recite the Grameen's guiding principles that included, discipline, unity, courage, and hard work through the building of family prosperity every day; b) indulge in repairing and improving houses; c) drink water from wells; d) participate in growing vegetables year-round; e) plant seedlings each year; f) build, repair, and use pitlatrines; g) introduce physical exercise in centers; h) stand against the practice of accepting or giving a dowry; i) insist on self-reliance; j) liberate themselves from victim mentality; and k) take responsibility so that the whole community (of 8 -10) not to fall behind (Mainsah, Heur, and Zhang, 2004). To assess whether or not the borrowers passed the poverty line, each year, each borrower was required to pass tests that included: a) having a roof overhead; b) sleeping in a bed; c) having access to safe drinking water; d) having access to warm clothing; and e) enrolling all children of school-age in schools (Yunus, M. 2003).

Over the years, the microcredit programs in Bangladesh have championed a paradigm shift in lending. To be effective, nonetheless, micro financing policies need to: a) systematically address the causes of poverty; b) identify segments of the population living in poverty; c) pay special attention to raising the awareness of the chronically poor; and d) train the poor to specialize in particular skills so that they may compete with other self-employed people in entry-level of ventures.

3. Operational Definition of Poverty and Targeting the Poor for Microfinance Programs

As referred to earlier, microcredit programs generally refer to the process of lending small amounts of money, without collateral, to help the chronically poor people and the most vulnerable segment of the population, to enable them to be very productive business entrepreneurs. However, since poverty is a complex socio-economic problem, the above statement seems to prescribe the medicine for poverty before the malady is known (Oyen, 1996). Since poverty is an international social problem, to effectively conquer and assess its remedies, the concept of poverty needs to be operationally defined and the chronically poor people need to be targeted in order for micro finance programs to be viable. To help decision-makers to efficiently target poverty and use microcredit programs as remedial strategies, analysts need to operationally define poverty and identify the marginalized segments of the population. Effectively targeting the poor for microcredit projects necessitates careful consideration of the following factors: a) determining the types of participants and how chronically poor they are; b) identifying the sectors in which the participants are going to be engaged; c) researching the availability of resources needed for the implementation of the micro-enterprises; d) verifying the availability of infrastructures needed for the implementation of the micro-enterprises; and e) exploring the impact of the enterprises on the sustainable poverty alleviation programs. More specifically, before providing micro loans for micro enterprises, the concept of poverty needs to be operationalized. As the foregoing review shows, most researchers have developed the following indicators to measure the dimensions of poverty. They are 1) having low income, 2) lacking capabilities 3) Human Development Index 4) lacking socially perceived necessities, 5) subjectively feeling that they are poor, and 6) suffering from a combination or cumulative aspects of poverty.

3.1 Income-based Approach

The income approach method of measuring poverty has been dominant for a number of years in most countries and internationally (Bradshaw and Finch 2003). From a conventional economist's standpoint, the measurement of poverty depends upon the median level of national income and the degree of income distribution. Economists typically measure poverty by income or consumption levels at the aggregate level. Being relative to the norm in a particular country, a person is considered poor if either income or spending falls below the median poverty line that represents basic needs. When measuring poverty, economists generally make a distinction between absolute and relative poverty. Absolute poverty measures set a poverty line at a certain income amount or consumption amount per year, based on the estimated value of a 'basket of goods' (food, shelter, water, etc) necessary for proper living. Using absolute poverty, the World Bank defines extreme poverty as living on less than $1 per day US (adjusted for Purchasing Power Parity). "Those with incomes below the poverty line are the poor. Poverty begins below and ends above the poverty line in question" (Njeru, 2004). Though there are variations of diets, shelter, etc., depending on the diversity of cultures and modes of production, the major weakness of the concept of absolute poverty as identified by the World Bank is based on the assumption that there are minimum basic needs uniformly applicable to all social and economic categories in all societies (Njeru, 2004).

In contrast to absolute poverty, relative poverty makes a distinction of the standards in both time and place in the assessment of poverty. More precisely, relative poverty measurements would compare the bottom 20% of the poorest population with the total wealth of the richest 10% of the population in individual countries. Thus, the notion of relative poverty is elastic and receptive to rapid changes (Njeru 2004).

Historically, in the 1970s, developmental economists took a major step to distinguish the poor from the non-poor by establishing an international poverty line which is sufficient to provide a minimum acceptable level of consumption. "In theory, a consumption-based poverty line can be thought of as comprising two elements: firstly, an objective measure of expenditure necessary to buy a minimum level of nutrition, and secondly, a subjective additional amount that varies from country to country reflecting the cost of individuals participating in the everyday life of society" (Thirlwall, 1995). More specifically, the income or consumption based measure of poverty was generally based on: a) headcount ratio b) poverty gap, and c) the severity of poverty index.

The headcount ratio of poverty measures the prevalence of poverty and captures the number of people who fall below the poverty line in any population. Compared to the total population, the headcount estimates the ratio of people living below the poverty line. Though the headcount gives a quick and simple way of assessing the incidence of poverty, it fails to ascertain the location of the poor and the distribution of income of those situated below the poverty line. Therefore when analyzed at a conceptual level, it would have made sense to focus on the household as the unit of account instead of adopting an individual methodological perspective to assess the incidence of poverty in developing countries. (See for example, Shimeles and Thoenen, 2005.)

The poverty gap index as the magnitude of poverty is generally expressed as a measure of ".the transfer of income required to bring the income of every poor person up to the poverty line" (Thirlwall, 1995). In simple terms, the poverty index assesses the characteristic of the poor and the average deprivation of poverty in society. Nonetheless, it needs to be underlined that the poverty index is insensitive to assessing the extent of inequality amongst the poor. "For example, if income is transferred from a poor person to someone who is even poorer, neither of the measures changes, but poverty will be more evenly spread ..." (Thirlwall, 1995).

Unlike the head count index and poverty index, the severity of poverty index seems to be very comprehensive. It measures the incidence of poverty, the depth of poverty, and income distributional effects of the group of people living below the poverty line. As pointed out by Shimeles and Thoenen (2005), if income is redistributed from the poorer to the less poor (without anybody being lifted above the poverty line), neither the headcount index nor the poverty gap index will reflect this change. The severity of the poverty index, on the other hand will show an increase of poverty indicating that the poorest have become more severely impoverished. Though very instructive, the severity poverty index masks poverty dynamics--changes in wellbeing experienced by individuals and households over time. For example, many chronically poor (those who are below the poverty line) households may experience improvements and declines in their poverty status without exiting poverty. Thus, panel data that track the same households at multiple points in time need to be used to measure dynamics. To understand poverty, therefore, a longitudinal (panel), of qualitative (semi-structured interviews, direct or participatory observation and so on) and quantitative data seems to be very fruitful. (See, Alston and Shepherd, 200809).

To develop efficient methods to fight poverty, a number of researchers have focused on analyzing poverty in terms of vulnerability rather than on the problem of levels of income. Vulnerability or the movement in and out of poverty is related to differential capacities to access to resources necessary for survival (Sen, 1981, 1992). Vulnerability, a more dynamic concept reflects the risk of exposure of people below the poverty line due to a combination of political, natural, or health-related disasters. The three different levels of vulnerability are: a) transiently poor, usually above the poverty line, but sometimes fallen under it; b) chronically impoverished, persisting for a lifetime, or for generations below the poverty line; and c) persistently poor who are always below the poverty line (Thinkquest.org). According to Sen (1983), however, any poverty index worthy of consideration should be able to provide three basic details of information on poverty: a) identify who the poor are, b) capture the average deprivation of poverty, and c) estimate the relative deprivation among the poor. The three types of poverty index discussed above, however, seem to be based on income and barely meet the basic needs.

As narrated by Hulme and McKay:

Based on the above analysis, there seem to be three important points to note about contemporary literature on chronic poverty: 1) it is dominated by economists and econometricians using panel data set to distinguish chronic poverty from transient or transitory poverty; 2) virtually all of the empirical data have been analyzed using income or consumption measures of poverty as its main variable; and 3) the variables were almost entirely quantitative and findings were, at best, only partially contextualized (Hulme and McKay, 2005).

3.2 Capability Deprivation

Unlike income or consumption which is the standard criterion of identification of poverty and the 'basic needs' approach which emphasizes on the poor to have access to basic needs and services, Sen (1983) succinctly argues that deprivation of individual choices or their capabilities needs to be taken into consideration while addressing poverty. According to Sen, unlike low income, which is only instrumentally significant, the capabilities approach concentrates on deprivations that are intrinsically important. In addition, Sen argues that though the instrumental relation between low income and low capability is variable between different communities and even between different families and different individuals, the impact of income on capabilities is contingent and conditional. Given that material goods are not an end in themselves, Sen (1983) suggests that the most essential components of the capability index for a good life include adequate nourishment, leading a long and healthy life, literacy, shelter and political and civil rights. Though Sen freshly looks at the whole concept of poverty from the perspective of the ability to produce an end use of goods and services, the measurement of the capability space is problematic (Harkness, 2004). Similarly, Shimeles and Thoenen (2005) also argue that serious theoretical and operational problems of the capabilities approach make it difficult for empirical research.

3.3 Human Development Index

To capture capabilities, most researchers use an expanded set of indices representing well-being like UNDP's Human Development Index (2005). The HDI ranks countries according to their progress toward the maximum attainable values for life expectancy, literacy and weighted real GDP indicators. "These factors are combined to provide a composite of diverse data. It is assumed that nutritional status and child mortality are reflected in life expectancy, and employment rates are reflected in real income" (UNEP, 1995). Nonetheless, the HDI Index has been criticized as conceptually weak and the choice of components and weights attached to the components of the HDI Index are value laden. As questioned by Harkness (2004), "How for example should a change in the index be interpreted if it rises because one indicator has gone up and another down?" Therefore, if Sen's capabilities approach and the Human Development Index fail to fully address the nature of poverty in developing countries, it might be worth a look at an asset-based approach to assess the incidence of poverty.

3.4 Asset-based Approach

Assets capture longer term dynamics much better than a measure of income at one or two points in time. For this reason Hulme and McKay (2005) argue that ".having longitudinal data may be crucial. In addition, assets can in principle be considered in a range of different dimensions including social capital in developing countries." To analyze the status of poverty in developing countries, the asset-based approach uses assets extensively, such as natural capital, physical capital, human capital, social capital, and financial capital (Carney 1998; Scoones 1998; Ellis 2000). However, since poverty is multidimensional, some researchers go one step further to gauge poverty by asking individuals whether or not they feel poor.

3.5 The Perception of Poverty

Subjectively the "felt need" approach to poverty entails asking people whether they feel poor or deprived. The purpose is to see, through the eyes of the poor themselves, how they perceive their situation. It is believed that through their participation, the poor are the ones most able to find adequate solutions to their poverty. Lamarre and Miller (2003, p. 11) argue that to listen to the poor "... is a demonstration of respect, because it takes into account their life experience instead of imposing on them an a priori definition of poverty." In their research for example, Bradshaw and Finch (2003) asked the respondents: "how many pounds a week, ..., do you think are necessary to keep a household such as the one you live in, out of poverty?"

Because the poverty index incorporates subjective and objective deprivation and cannot meet all the desirable properties simultaneously, some researchers use a cumulative dimension to measure chronic poverty. For instance, Chowdhury, Gosh, and Wright (2005, p.303) used a combination of the objective poverty line (i.e., the cost associated with obtaining a minimum daily requirements of 2112 calories, including 58 grams of protein) and the subjective poverty line (i.e., defined as being poor if the household head answered 'yes' to the following question: Do you consider your family poor based on your current yearly income?

3.6 The Cumulative or Multi-dimensional Approach

This method of assessing poverty assumes that a person who is poor according to objective and normative dimensions is more likely to be poor than someone who is poor on only one of the dimensions (Bradshaw and Finch, 2003). On the other hand, others seem to be inclined to select the poverty index based on properties consistent with their policy objectives and ask the community or local government to identify

the real poor people in their locality. Given this, "Future studies of poverty and the extent to which poverty is being relieved should present results using a combination of measures" (Bradshaw and Finch, 2003).

To summarize, based on a review of the literature, it can be ascertained that assessment of the chronic components of poverty is an unsettled issue. The tentative conclusion that can be reached from the above review of the definitions of poverty is that it depends upon the way someone or some group of people perceives it to be. Generally, poverty is defined in terms of the lack of income, power, capacities, freedoms, or deprivations of basic needs, and so on. As stated by Lamarre (2000, p.26), "So an individual; a research worker; a charity organization; the World Bank; the United Nations Development Program (UNDP); the various national governments, to give a few examples, do not tackle poverty in the same way." Therefore, the effectiveness of any policy of poverty needs to be articulated around the definition of poverty which could allow an evaluation of the number of poor, and design an intervention program that could alleviate poverty and foster long run sustainable development.

Given that the operational definition of poverty is not systematically designed, it is very difficult to assess how borrowers would have succeeded without micro loans. It is fair to say that the microcredit programs in Bangladesh have shown respectable performance in terms of their impact on the performance of its clientele. Nonetheless, when Khandker (2003) looked at the impact of microcredit programs through the loan-issuing process, he asserted that it would be an over exaggeration to pronounce that it significantly helped to lift the poor out of poverty and he further asserted that microcredit institutions had minimum positive spillover effects on the local community. In fact Khandker criticized the microcredit institutions in Bangladesh for not being able to reach the very poorest members of their constituency because they are too costly to identify. Also, he found that microcredit institutions that reach the poorest are not financially self-sufficient because of higher program costs, and a number of the institutions rely on public funds and private donors. More specifically, after studying three leading microfinance institutions in Bangladesh, for the period 1990-2003, Khandker stated that the results are resounding:

The microcredit programs in Bangladesh have championed a paradigm shift in lending. The lending programs have shown respectable results in terms of their impact on the performance of their clientele. What is surprising is, the various programs operating in Bangladesh under the microcredit programs seem to be focusing on borrowers living above the poverty line (or moderately poor women with relatively more education and also bestowed with entrepreneurial spirits) rather than identifying the hard core poor. In places where micro-enterprises are established, the poorest participants may be "hit hard and quickly by common surprises like crop failures, illness or deaths in the family, or natural disasters. This vulnerability can make micro-enterprises, which are quite individualistic in character, unattractive to lenders" (Vargas, 2000, p. 19).

The Microcredit Summit Campaign (MSC) of 1997, astutely aligned its goals with the UN Millennium Development Goals (MDG), which has a microcredit initiative aimed at reducing absolute poverty in the world by half (600 million people) by 2015_(Mainsah et al., 2004, p. 17). Though innovative, the MCI conference adhered to using the World Bank's narrow terms of income deprivation of less than $1 a day adjusted for purchasing power parity as the operational definition of poverty. It should have been vital to consider identifying the chronic poor and democratically empowering them to have access to microcredit programs. As stated by Lamarre and Miller (2003), it is by collective deliberation on the causes of their own situation that the poor learn by practice, by doing, how to work together to fight it. For the poor people of a community, the task consists in identifying the principal characteristics of the typical poor person, and the assets to be exploited locally that will contribute to self- actualization and the acceleration of local economic development.

For example, unlike the micro-loan programs in Bangladesh, the women-centered microcredit centers in the Kudumbashree, Kerala, India, used a combination of indicators to identify the poor women for microcredit programs in Kudumbashree, Kerala state of India. Rather than judging poverty using income or the consumption level of a family, they used a multi-dimensional approach (under the pilot of the Urban Basic Services Program in Alleppey town) to isolate the participants. As described by Ajit, Sunil, and Raman (Ajit, D., Sunil, R., Raman, K.R. 2006, p. 18), the Alleppyey methodology is believed to be superior to the conventional head count ratio as it captures the multi- dimensional characteristics of poverty (beyond the simple income approach) and leads to the identification of the most vulnerable families. To identify the poor, Kudumbashree carried out a baseline survey with the help of local government. Women constrained to having access to credit, restricted from having access to the wage labor market, and being restrained from an equitable share of power in household decision making processes, were identified using four or more of the following nine non-monetary psychosocial indicators. The nine indicators included families with: a) no land; b) no house, or a dilapidated house; c) no access to sanitary latrines; d) no access to safe water (within 300 meters); e) a woman head of household, the presence of a widow, a divorced or abandoned woman, or unwed mother; f) no regularly employed person g) a physically, mentally, or chronically ill member, h) socially disadvantaged groups like Scheduled Cast or Scheduled Tribe or and with an illiterate adult member.

In addition, using the 500 Self Help Group (SHG), with 15 persons per SHG (of whom the majority were women from the poorest castes and tribes), there was launched a pilot program in India in 1992, formed to represent the 'felt need' of group members. With minimum documentation and without any tangible security, a small number of micro-loans were extended to the members of SHG by Indian banks. The SHG program and its linkage with banks has been a significant instrument of microcredit promotion framed in India. In short, microcredit institutions in the rural areas of India have been acting as an intermediary between banks and rural borrowers. Infusing SHG with conventional bank funds has provided a means to provide services to landless and marginal rural farmers in India.

As stated by Sharma (2005), though less than 5 percent of India's rural poor as compared to 65 percent in Bangladesh have access to microcredit, ". the extraordinary success of the SHG Bank Linage is attributable to its alignment with Indian history and circumstances and capitalization on the country's elaborate network of rural bank branches; availability of good policy, committed leadership; implementation of a hands-off regulatory policy for SHG Bank Linkage and the emphasis on quality during the early phase of SHG Bank Linkage." To assess the outcome of the World Vision microfinance affiliates in Ethiopia (known as WISDOM), established in 1999, Shannon Doocy, et al., used a cross-sectional design based on the socioeconomic status of participants. The socioeconomic indicators included, monthly household income, per capita monthly household income, household asset and livestock value, and household asset and livestock index score.

4. The Effects of Microfinance Programs on Sustainable Development

In 1968, Garrett Hardin argued that a society that permits perfect freedom of action in activities that adversely influence common properties was eventually doomed to failure. Spurred by the Club of Rome's popular report on the projection of trends in resource use, the United Nations' 1972 Conference on the Human Environment in Stockholm somehow attempted to establish a comprehensive framework on environmental degradation.

In late 1983, the Norwegian Prime Minister Gro Harlem Brundtland was asked to chair ".an independent commission on how to deal with the tensions that had arisen in Stockholm. Her commission's mandate was to determine not just how to protect the environment but also how to eliminate poverty and promote general progress on a limited and already abused planet" (Gibson, et al., 2007, p.48).

In 1987, the concern for the environment shifted to sustainable development as a result of the United Nations World Commission on Environment and Development report entitled Our Common Future (also referred to as the Brundtland Report). Sustainable development was defined as "the development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs" (United Nations World Commission on Environment and Development, 1987, p. 43). In addition, the prologue urges that the changes in attitudes, in social values, and in aspirations, depend on vast campaigns of education, debate, and public participation.

Since the definition of sustainable development addressed the environment and development together, it received a large boost and obtained a widely accepted agenda for capacity building in the 21st century. As stated by Gibson et al. (2007, p. 49), sustainability became the featured objective of government pronouncements on development initiatives, domestic program agendas, and international aid targets. Major corporations and business associations also claimed adherence. Shelves of academic treatises, consulting reports and policy documents were prepared. Sustainability became a household term.

The Brundtland Report paved the way for the UN's Earth Summit, held in Rio de Janeiro, Brazil, in 1992. Under the auspices of the United Nations Conference on Environment and Development (UNCED), also known as the Earth Summit, more than 180 nations, development agencies, non- government Organizations (NGOs), transnational corporations, educators, and the world media, met in Rio de Janeiro, Brazil and developed a program of action (known as Agenda 21) to chart future actions of sustainable development worldwide. After it was found that there was a wide gap between the rhetoric of the 1992 Summit and the reality observed over the following ten years, at the UN conference on sustainable development held in Johannesburg, the concept of sustainable development was specifically operationalized to simultaneously achieve sets of objectives of sustainable development in the areas of economic (growth, equity, and efficiency), social (empowerment, participation, social mobility, social cohesion, cultural identity and institutional development), and ecological well- being (ecosystem integrity, carrying capacity, biodiversity, and protection of global commons). (Vargas, Feb, 2008, p. 11.) In addition, the United Nations General Assembly declared 2005-2014 a Decade for Education for Sustainable Development (DESD). To reduce both extreme poverty and hunger by half or more by the year 2015 of those whose income is below US $1 per person/day, the United Nations has strongly advocated, micro finance as one of the tools that could be used to contribute to sustainable development in the 21st century. According to the World Bank, sustainability policies need to cover the simultaneous achievements of three separate sets of objectives: Economic growth (equity and efficiency); social objectives (empowerment, participation, social mobility, social cohesion, cultural identity, and institutional development); and ecological objectives (ecosystem integrity, carrying capacity, biodiversity, and protection of global commons). Though economic, social, and environmental objectives can to a certain degree develop synergies, by integrating the three dimensions, Pearce and Warford (1993) define sustainable development as development that secures increases in the welfare of the current generation provided that welfare does not decrease in the future.

As shown above, sustainable development has broad appeal because it is multi- dimensional (involves economic, ecological, human well being, and other social considerations). It also emphasizes ethics in relation to future generations (rather than mechanical calculation), and involves a precautionary principle. Though intuitively appealing, the concept of sustainable development can not easily be translated into practices, because it projects different meanings for different groups. For instance, it fails to address how intermediate and long-run decisions on resources management can affect equity between people of different generations or inter-generational equity. Moreover, it generates debate on a society's specific values and how those values can be transferred to future generations. For example, it is very difficult to predict how the capital stocks of today will be viewed as economically optimal for sustaining future generations. Unless the current distribution of resources is altered, it is difficult to maintain intragenerational equity between people of the same generation. Finally, unless different socialization strategies are implemented, it might not be possible to convince the present generation to leave the same amount of natural resources per capita for the future generation. Due to persistent ambiguities in definitions, and the plurality of purposes in characterization and measurement, there cannot be constant set indicators backed by universally acceptable theoretical framework associated with sustainable development. As stated by Parris and Kates (2003), the oxymoron-like character of sustainable development may help us to identify what is to be sustained, but cannot help us to reconcile the real conflicts between economy and environment and between the present and the future.

However, the idea of environmentally sustainable development "... is the persistence of certain necessary and desired characteristics of people, their communities and organization, and the surrounding ecosystem over a very long period of time." (Hardi and Zdan, 1997.) Therefore, if microcredit programs are supposed to integrate sustainability, the pertinent questions that could be posed at this juncture are: a) Are the chronically poor segment of the population involved in microcredit programs? b) If so, how are the beneficiaries affecting the ecosystem? c) Would the beneficiaries of microcredit contribute to environmental sustainability in their business activities?

Given the ambiguity of sustainable development as a concept, it is challenging to evaluate and map out the progress made by the beneficiaries of microcredit towards sustainability so that decision makers can be able to monitor and evaluate the effectiveness of the program and adjusting it as necessary. The central evaluating and monitoring requirements are to track systematically the key variables and processes over time to see how they change as a result of strategic activities (Hardi and Zdan, 1997). Therefore, to measure whether a developing country has achieved or is in the process of achieving sustainable development, it might be necessary to use the standardized 2015 Millennium Development goals that encompasses economic, social and environmental goals.

The Copenhagen Conference (1996) states that to achieve economic well-being the proportion of people living in extreme poverty in developing countries should be reduced by at least half by 2015. The social and human development goals enunciated in Cairo, Copenhagen and Beijing conclude: a) There should be universal primary education in all countries by 2015; b) progress towards gender equality and empowerment of women should be demonstrated by eliminating gender disparity in primary and secondary education by 2015; c) death rates for infants and children under 5 years should be reduced in each developing country by two-thirds of the 1990 level by 2015; d) rates of maternal mortality should be reduced by three-quarters between 1990 and 2015; e) access should be available through the primary health care system to reproductive health services for all individuals of appropriate ages no later than 2015; f) access to improved water sources; g) access to improved sanitation, and access to secure tenure. To ensure sustainability, reverse, and regenerate the loss of environmental resources, the following indicators were suggested: a) proportion of land area covered by forest; b) land area protected to maintain biological diversity; c) GDP per unit of energy (as a proxy for energy efficiency); and d) per capita carbon dioxide emission (International Institute of Environment and Development, 2002, pp. 2425).

5. A Review of African Case Studies

The area of sustainability that appears to be receiving the most attention from microcredit lenders is the reduction in land degradation and the development of healthier, more permanent and less destructive farming practices in Rwanda's Eastern Province, Kigali city Northern Provinces, and Huye District in the Southern Province. According to the Rwandan Red Cross- RRC (2009, p.1), "The Rwandan economy is based on the largely rain-fed agricultural production of small, semi subsistence and increasingly fragmented farms. It has few natural resources to exploit, and a small uncompetitive industrial sector. Food security is threatened by a decline in soil fertility and poor crop management, pests, diseases, poor storage, ..., scarcity of farm land, poor agricultural practices and population density." The RRC also indicates that over the past five years, chronic childhood malnutrition rates in the country have increased from 43 percent to 45 percent, and that "Rwandan households are exposed to some vulnerability in access to or consumption of food while 28 per cent of households suffer from malnutrition" (2009, p. 1).

The aim of the microcredit projects spearheaded by the RRC is to improve communities' livelihoods by contributing to effective poverty reduction and complimentary economic development activities for sustainable food security. As stated by RRC, the overall objectives is to provide a venue for income-generating activities through a rotating microcredit scheme which is aimed at a number of sectors including in-kind agricultural inputs, livestock, commerce, retail, and carpentry. As stated by RRC (2009, p. 1), Examples of projects developed from this microcredit program include preparing agro-forestry and forestry nurseries for cooperatives and associations involved in the program, and the distribution of proper tools, seeds, and fertilizers.

A snapshot of some of the benefits reaped from the microcredit initiatives in Rwanda include:

1. Increased agricultural production and other incomes

2. Improved household nutritional status

3. Boosted communities' capacity to manage their rotating funds

4. Provided the means for small shops and stock in the community

5. Enhanced knowledge and skills in families to resolve problems, manage projects, and participate in cooperative organizations and group works

6. Replicated new practices in other areas so that more associations and vulnerable communities are being served

7. Improved RRC staff and volunteers' capacity to plan, monitor, and evaluate their projects

In short, the lessons learned from the microcredit projects in Rwanda are that, ".the fact that in order for projects activities to be sustained there must be a concordant level of understanding between all stakeholders. Additionally, it is imperative that vulnerable groups are encouraged to participate in the steering committees and working groups. It is imperative that assessments of the associations be conducted with all members and that the information is then disseminated to others involved in the same line of activities" (RRC, 2009, p. 2).

Another case study which shows an example of the association between sustainable development and microcredit took place in Machakos in east central Kenya. As stated by Duran (2002 , p. 1), "In the last decade alone, drought periods in 91/92, 95/96, and 98/2000, and the devastating floods in 1997/98, and again in 2002 in different parts of the country have been recorded. These phenomena have had the cumulative effects of reducing household food availability, purchasing power, and coping capacity, impoverishing the rural population"

In 2001, a year after a devastating drought that left 4 million people in dire need of food, the International Federation, in conjunction with the Kenya Red Cross Society (KRCS), developed a program in the Machakos district of Kenya that would deal with the impact of drought and famine before problems developed. As documented by Duran (2004, p. 1), more than 50 per cent of the residents of Machakos were categorized as the absolute poor (i.e. those who cannot afford to meet the basic minimum food requirement even after spending all their total incomes on food only).

The International Federation of Red Cross initiated a bilateral cooperation with the Kenya Red Cross Society, contributed microcredit funds and designed a Drought Preparedness program for the Machakos District. More specifically, the Machakos program focused on "... developing branch capacities through training to enable the Machakos branch to mobilize volunteers, and through training to work closely with and from within rural communities. The three-year project, implemented by the KRCS--Machakos branch with technical support from the International Federation , aims at strengthening the local and district capacities, through local and innovative mechanisms to predict , cope with and recover from recurrent drought impacts" (2002, 2).

In addition, the microcredit projects implemented in the Machakos District included agriculture that focused on farming drought-resistant crops, education on storing and developing seed banks on a community level, development of small-scale water systems that were built with community assistance, and the formation of water committees that would provide stable water management practices. Kenya experienced another drought in 2004. The Machakos district, which was most affected by the 2001 drought, was able to work with the conditions in 2004 and was ultimately unaffected by the drought. In Duran's words, "Developing all these activities through microcredits we were able to mobilize the community, to reinforce the social tissues, and support their initiatives for their own development" (2004, p. 4).

For the last five years, with microcredits disbursed for food production in Gambia, Mozambique, Nigeria, and Tanzania, farmers increased their output and attained food security (Tsogde, 2002). For example, in Tanzania, after the Tanzanian Government approved a national microfinance policy in May 2000, the International Fund for Agricultural Development (IFAD), a specialized agency of the United Nations dedicated to eradicating rural Poverty in developing countries, helped mobilize savings and disbursed funds as credits to the agricultural sector. As a result, the poor, including women as user-owners were empowered. And the country's substantially improved in food security and income. Thus microcredits have become a formidable economic tools for agricultural policy makers (2002). In Gambia, the IFAD contributed to a rapid increase of rice growers with increases in different villages ranging from 50% to 200%. In Nigeria, the Cassava multiplication Program increased cassava production in the country, from less than 14 million tons in 1987 to over 30 million tons in 1998, becoming the world's largest producer of cassava. In Mozambique, microcredits improved the level of income, employment, and food security of fishermen and their families, through the provision of fishing inputs and credit. As summarized by Tsogbe (2002, p. 22), the examples taken from the four case studies show that microcredit can be a catalyst for reaching the goal of increasing agricultural production by creating both backward and forward linkages.

To test their hypothesis that the success of micro-finance institutions is measured according to the extent of their outreach to the poor and their financial viability or sustainability, Adams et al. (2002) studied four case sites on microfinance initiatives in South Africa. The case studies included the following sites: Mathabatha village) Limpopo Province), Kgautswane village (Limpopo Province), Oudtshoorn (Western Cape) and Mtshabe (Eastern cape). The finding of the research indicates that the village banks do not charge interest rates to cover costs. But, the informal group (i.e., credit unions, moneylenders, money keepers, families, relatives and friends, etc) charged minimum interest rates. Since microcredit financial institutions in the studied regions depend on external funds, Adams et al, proposes that microfinancial institutions need to incorporate interest rates in order to enhance self- sustainability of village banks and other group-based credit arrangements. In their own words, Adams and his group (2002) suggest that "Micro-finance institutions in South Africa therefore need to encourage clients and support the pooling of material resources. Nonetheless, since the objective of moneylenders is based on interest-seeking activities and not on altruism, there is a need for appropriate regulation by government" (p.125).

The main findings of the South African case studies included :

1) In Oudtshoorn, most of microcredit lending operations deepen the poverty levels of the poor.

2) Among the microfinancing institutions' services and operations, there are common aims and objectives, to serve the poor and help them develop sustainability by achieving financial and food security.

3) The microfinancing institutions need to cover the costs they incur. For that, they should charge high interest rates to cover these costs and grow.

4) Except for the Mathabatha Bank the other three microfinancial institutions are highly dependent on outside funding. Thus, the other banks need to begin weaning themselves away from their dependence on external subsidies.

5) Since funding does not mean money only, the case study village banks need educational advice on how to follow their savings' progress to determine whether or not they are really valuable to the community

6) Since women are diligent savers at the village bank and are always members of the village savings club, the empowerment of women should receive a lot of attention in the process of development.

7) Since most rural areas are led by traditional chiefs and follow strict cultural rules and formalities, village banks need to work in cooperation with village authorities to ensure the smooth operation of development programs.

8) Incentives should be provided to community-based savings schemes to encourage saving and investment. For example, the model of savings used by the school in Oudtshoorn could be adapted for use by schools and communities.

9) Despite an adequate supply of consumer credit in Oudtshoorn, the research findings concluded that credit was needed for productive purposes in short supply for those with no conventional collateral.

10) The village banks need to improve their marketing/promotion/outreach activities and reengineering delivery systems.

The South African case studies were very extensive. Although the analysis was based at the village level, the case studies fail to address the status of poverty level of the client or households. The focus of the case studies seem to be more on the sustainability of the microcredit village banks and their financiers rather than on the effect that the sustainability-focused microcredits can have on the participants, the community, and the environment.

Since the issuance of Proclamations No. 40/1996, a number of finance (MFI) institutions were established in Ethiopia as share companies in accordance with the Commercial Code of Ethiopia. The ownership of Ethiopia's MFIs is based on the country's administrative structure. For example, in 2002, six out of 20 MFIs were largely owned by regional governments and non-profit organizations in the regional states. In other MFIs, the equity structures were sponsored by foreign donors who have contributed the initial capital for required registration. Seventy eight percent of the clients are from rural households and 41 percent of the clients are women (Al-Bagdadi and Bruntrup, 2002).

To minimize recurring costs and improve operational efficiency, and in order for clients to effectively invest microcredit funds into productive income-generating initiatives, almost all microcredit institutions in Ethiopia have established training formats for their clients. Though a survey conducted by Amha et al., indicates that business development services (BDS) " had very limited vocational and technical training (before starting business), received few short-term training, extension and counseling, and marketing services" (2006), the African Village Academy's claims to provide the following seven step training methods. These are:

Step one introduces various types of financial institutions and tools. Step two encourages participants to discuss and examine themselves and their markets to identify potential microenterprise activities, which they then research individuals. In step three, participants discuss in detail their market findings (i.e. materials, transportation, and market costs), and then re asked to form groups of typically four or five people. Step four elaborates the purpose of group formation in creating support and collateral for individuals, as well as developing specific business plans and budget planning. In step five, participants meet each other's groups in units of up to ten groups, and discuss specific credit arrangements and requirements of Savings and Credit for enterprise Development program .In step six, group members present their basic plans for final approval of the unit, and in step seven all steps are reviewed to reinforce understanding of the program. (Un/OSCAL Model, 2002, p. 80-81).

To assess the outcomes of an Ethiopian Microfinance program (which was established in Ethiopia, as an affiliate of the World Vision microfinance-WISDOM) on the livelihoods of poor populations , a survey studied 819 rural households in Southern Ethiopia (i.e., Adama, located in the East Shewa Zone of the Oromiya Regional State and Sodo branches, located in Wolayita, in the State of Southern Nations, Nationalities , and peoples region). The indicators used to asses the socioeconomic status of the respondents were a) monthly households income, b) per capita monthly household income, c) household assets and livestock value, d) household asset, and e) livestock index score. In addition to assess the food security status of the respondents were assessed using household diet, child nutrition status, and food aid receipt. As stated by Doocy et al., (2005) in its methodological design:

As pointed out by the researchers the two case studies are based on a cross- sectional design, thus it was very difficult for the researchers to ascertain whether the clients in the two regions have moved towards sustainability or away from it. However, the aggregate findings of the questionnaire-based interviews indicate that "While the majority of WISDOM clients reported an increase in asset value since enrolling in the lending program, differences in household asset data between clients and community controls were statically insignificant. Findings from this study also indicate that participation in the WISDOM microfinance program did not result in increased household wealth" (Doocy, 2005, p. 87). In terms of wealth, "No significant correlations were observed between length of program participation (time in months or loan cycles) and either measure of change in asset value suggesting that participation in the lending program is not associated with an increase in client wealth" (Doocy et al., 2005, p. 88). Similarly, it was ascertained that there was no association between participation in the program and monthly household income. Nonetheless, in their conclusion, Doocy (2005) and his group showed that the WISDOM microfinance programs (i.e. in Adam and Sodo, Ethiopia,) improved client retention, increased savings, and increased the active participation of women.

Another study conducted in the Wereda of Atsbi-wemberta in the Tigray Regional State, northern Ethiopia in 2002 analyzed the impact of formal and informal credit on households' livelihoods. As reported by Vilei and Chisholm (2002), the results of a survey in 97 households and 5 group discussions showed that the interviewed households perceived that having access to credit had a positive impact. It contributed to enhancing the self-esteem of the beneficiaries by becoming less dependent on food aid. However, several of the interviewed households indicated that the local microfinance institutions such as the Dedebit Saving and Credit Institution (DESCI) lent higher sums of money but they imposed inflexible repayment conditions and lacked the skills to monitor successfully the invested loans. Many clients used the credits for food consumption and eventually the beneficiaries were forced to sell their livestock in order to repay their loans on time. Also it was reported that though informal credit from money lenders at interest rates of up to 60 percent are generally very small sums when compared with formal microcredits, they are widely used to cover food consumption or pay for additional social events such as marriage and funeral services.

As shown in Table 2, it is very important to note that the efforts made by the case studies presented above show that the various microcredit projects initiated in a number of African countries have attempted to minimize the degree of poverty of the participants. However, since the core concept of poverty and sustainability development are not fully operationally defined and the case studies were based on cross-sectional rather than on longitudinal designs, they lagged to help their readers realize how Microcredit be made to minimize poverty and foster sustainable development in the long run.


The United Nations declared 2005 the international Year of Microcredit. Microcredit is a provision for very small loans and deposit services to predominantly poor, under-served, rural borrowers, who are excluded from the financial system. It has achieved a preponderant place as a lending instrument in the sphere of international finance in the last three decades (Jain, 2003). Microcredit or microfinance programs have become a popular approach, especially to reach those with low income, who would normally be excluded from formal lending institutions because they lack the collateral and credit history, necessary to borrow and establish their own businesses and become innovative entrepreneurs.

Though microcredit is not seen as a panacea for poverty and development, but rather as an important tool in the mission of poverty eradication (UN/OSCAL MODEL, 2002), it has captured the imagination of policy-makers and development practitioners. In addition, Africa's policy-makers fully understand that there no blueprint for microcredit initiatives and each program must adjust to the specific socio-cultural and economic setting in which it operates. Realizing this, a number of African countries have introduced microcredit programs to replicate the delivery system of Grameen Bank of Bangladesh as a strategy for poverty alleviation in rural areas (where a large portion of Africa's population lives), and as a means for fostering environmentally sustainable development goals for the 21st Century.

Given the ambiguity of poverty and sustainable development as concepts, it is challenging to evaluate and map out the progress made by the beneficiaries of microcredit towards sustainability so that decision makers can be able to monitor and evaluate the effectiveness of the program and adjust it as necessary. In simple terms, the effectiveness of any policy of poverty needs to be articulated around the definition of poverty in order to evaluate the number of poor and design a microcredit program of intervention to alleviate poverty and foster sustainable development in the long run. To be effective, the idea of environmentally sustainable development "...is the persistence of certain necessary and desired characteristics of people, their communities and organization, and the surrounding ecosystem over a very long period of time" (Hardi and Zdan, 1997).

The central evaluating and monitoring requirements need to be seen as the association between microcredit programs as a strategy, and sustainability as an outcome, so that they can be tracked systematically over time (Hardi and Zdan, 1997). More specifically, if microcredit programs are to act as a foundation for the hard core poor to develop products and services to increase their wellbeing while integrating sustainability, the pertinent questions that need to be addressed for Africa should include: a) Are the chronically poor segments of the population involved in microcredit programs? If so, b) How are the beneficiaries affecting the ecosystem? and c) Do the activities of the microcredit beneficiaries contribute to environmental sustainability?

As shown in Table 2, the African case studies conducted by the microcredit researchers rightly show that the various microcredit projects were designed to tackle poverty in the rural setting of Africa (where majority of the Southern African population lives and subsistence farming is the main stay of the economy). With the exception of the Ethiopian case studies conducted by Doocy et al., (2005), and Vilel and Chisholm (2002), which operationally measured poverty income using the beneficiaries' income and assets of households, the other case studies did not specifically identify the poverty status of the microcredit clients. In general, based on the notion that the existence of a 'poverty-environment trap' in Africa could be minimized by the implementation of micro credit programs most researchers targeted their microcredit research to focus on all rural people regardless whether or not they were supposed to be beneficiaries of micro credit programs. In other words, with their sampling techniques, the case studies failed to identify that the actual beneficiaries of the microcredit programs in Africa were indeed hard core poor.

In addition, as the Asian studies briefly mentioned before, the microcredit programs in Africa didn't seem to help significantly to lift the poor out of poverty. The case studies did not attempt to show whether or not the micro studies yielded an income effect or manifested positive/negative spillover effects on the local communities. That is, the researchers presented above seem to be focusing mainly on borrowers living above the poverty line rather than the hard core poor. In addition, most of the case studies conducted in Africa were based on cross-sectional rather than on longitudinal data. So the studies did not effectively demonstrate that the various microcredit activities of the participants could be environmentally sustainable. Household-level impacts in rural Africa should have been incorporated in their studies when new enterprises began, to determine if the identified microcredit programs ever increased the amounts spent on durable assets and if the beneficiaries ever used environmentally- sensitive inputs in their various activities.

Though worthwhile, the African case studies reviewed above should have tracked systematically the activities of the chronically poor people in the sample to determine if they had positively or negatively affected the ecosystem, and to ascertain if the various microcredit activities are environmentally beneficial. As stated by Armendariz and Morduch (2007), "... there is no study yet that has achieved wide consensus as to its reliability; and this reflects the inherent difficulty in evaluating programs in which participation is voluntary and different customers use the services with varying degree of intensity" (p. 222).

As shown in Table 3, to better serve policy decision-making needs in evaluating the impact of microcredit access and participation on sustainability, the three standardized core themes of a) the human-well being, b) eco-system well-being, and c) environmental index, incorporate the 2015 UN Development Goals suggested to evaluate microcredit programs in the long run in developing countries. More specifically, as suggested by Armendariz and Morduch (2007), to calculate the impacts of microcredit on poverty alleviation and sustainable development any study however, needs to have a Treatment group, poor individuals who get access to microcredit measured in T1 (year 0) and then measured in T2 (after 4 years) to measure the microcredit impact. For the Control group, hard core poor individuals from an area without access to microcredit, measured in time CT0 and CT2 could be used. The difference between T2 and T1 captures the microfinance impact. However, since it might reflect broader economic and social changes that occur between year 0 and year 4, that are independent of microfinance, it is worthwhile to compare T2 and CT2 to address biases due to the broadly felt economic and social changes. Thus, isolating the true microfinance impact requires comparing the difference between T2-T1 with the difference between CT2-CT1 which is a so-called difference-in- difference approach . ". the difference-in-difference approach is adequate to deliver accurate measures of microfinance impacts. But in reality, these characteristics may change over time (perhaps a borrower gets more education or strengthens his/her social networks, for reasons unrelated to microfinance" (Armendariz and Morduch, 2007, p. 205).

The conclusion that can be derived from an analysis of the African case studies presented above is that in order to be useful for policy makers, the core concept of poverty and sustainability development need to be operationally defined. In addition, if microcredit programs are expected to minimize poverty and foster sustainable development in the studied countries, to measure the impact of the microcredit programs, the participants need to be systematically sampled and the framework of the studies need to be based on longitudinal design.


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Asayehgn Desta, Dominican University of California, San Rafael, USA


Dr. Asayehgn Desta earned his Ph. D. at Sanford University in International Development with emphasis in Economics of Education. Currently, he is the Sarlo Distinguished Professor of Business Economics at the Dominican University of California, San Rafael. Dr. Desta has authored several articles and books.
Existing work on chronic poverty, and poverty dynamics in general,
   has been so far been conceptualized in very narrow terms, and this
   has created important limitations in our understanding. In
   particular, chronic poverty has been studied almost exclusively in
   relation to income or consumption poverty, and using household
   panel survey data. Further, much of the focus has been on the
   identification of chronic poverty and finding correlates, without
   developing an understanding of the underlying processes by which
   some people are trapped in persistent poverty while others escape
   (June 2005).

Micro-finance matters a lot for very poor borrowers and also for
   the local economy. In particular, micro-finance programs matter a
   lot to the poor in raising per capita consumption, mainly on
   nonfood, as well as household non-land assets. This increases the
   probability that the program participants may be able to lift
   themselves out of poverty. The welfare impact of micro-finance is
   also positive for all households, including non-participants,
   indicating that microfinance programs are helping the poor beyond
   income redistribution with contribution to local income growth.
   Programs have spillover effects to local economies, thereby
   increasing local village welfare. In particular, we find that
   micro-finance helps reduce extreme poverty more than moderate
   poverty at the village level. Yet the aggregate poverty reduction
   effects are not substantial enough to make a large dent in
   aggregate poverty at the national level. This concern brings to the
   fore the effectiveness of micro-finance as an instrument to solve
   the problem of poverty in Bangladesh (2003).

The study compared two groups of clients that received loans
   (incoming clients who had completed one loan cycle or less and had
   been participating in the program for no more than ten months, and
   established clients who had completed two or more loan cycle) and
   one group of community controls who were eligible to participate in
   the WISDOM lending program but had not received a loan within the
   past year and were not seeking a loan. A total of 408 established
   clients, 205 incoming clients, and 206 community controls
   participated in the survey. The sample was stratified by survey
   site and clients sex, participants were systematically selected
   from client lists of the microfinance institutions. (p.82)

Table 1: The Dimensions and Methods of Estimating Poverty

Index                  Reference & case       Specific indicators

* Income-based:        * The World Bank       * Income below USS $1
Absolute Income        * Projects in            per person/day
Relative               Bangladesh             * Basket goods and
                                                  * Food
                                                  * Shelter
                                                  * water
                                                  * Headcount ratio
                                                  * Poverty gap
                                                  * Severity of
                                                    poverty index
                                                  * Vulnerability

Capabilities           Sen (1983)             * Adequate nourishment
Deprivation                                   * Healthy life
                                              * Literacy
                                              * Shelter
                                              * Political and civic

Human Development      UNDP                   * Life Expectancy
Index (HDI)                                   * Literacy rate
                                              * Weighted Real GDP

Assets-based           * Carney (1998),       * Natural capital
Approach                 Scoones (1998),        Physical capital
                         Ellis (2005)           Human capital
                       * Projects in Kerala     Social capital
                         (India) Projects     * monthly household
                       * WISDOM Projects        income,
                         (Ethiopia)           * per capita monthly
                                                household income
                                              * household asset
                                              * livestock value
                                              * household asset
                                              * livestock index

Perception of          Lamarre and Miller     * subjectively felt
Poverty                (2003)                   need
                                              * See poverty
                                                through the eyes of
                                                the poor themselves
                                                instead of imposing
                                                prior definition of

Multi-dimensional      Bradshaw and Finch     * a combination of
                       (2003)                   subjective and
                                                objective dimensions

Index                  comment

* Income-based:        Assumes that there
Absolute Income        are minimum basic
Relative               needs applicable to
                       all societies.

                       Reflects the risk of
                       exposure of people
                       below the poverty
                       line due to a'
                       combination of
                       political, natural,
                       or heath factors

Capabilities           Problematic to
Deprivation            operational
                       define and apply
                       to empirical

Human Development      It is conceptually
Index (HDI)            weak in the choices
                       of components and
                       weights attached to
                       the components of
                       the HDI.

Assets-based           Though useful as an
Approach               indicator to measure
                       poverty in specific
                       regions or
                       community, it can
                       not be standardized
                       and uniformly
                       applied to measure
                       poverty at a
                       national or
                       international level.

Perception of

Multi-dimensional      It selects poverty
                       index based on
                       policy objective
                       rather than

Table 2: Microcredit programs for Sustainability in selected African

Case                   Author                 Purpose

Rwanda's Eastern       Rwanda Red Cross       Reduce in land
Province, Kigali       (2009)                 degradation and the
city Northern                                 development of less
Provinces and Huye                            destructive farming
District in the                               practices
Southern Province.

Machakos District      Duran,                 To tackle the impact
of Kenya               International          of drought and
                       Federation of Red      famine before
                       Cross (2001)           problems developed

Tanzania               International Fund     Eradicate rural
                       for Agricultural       poverty
                       Development (IFAD),

Gambia                 IFAD (2002)            An increase in rice
                                              growing in different

Nigeria                IFAD (2002)            To increase the
                                              production of

Mozambique             IFAD (2002)            Increase food
                                              security of
                                              fishermen and
                                              their families

Mathabatha,            Adams et al (2002)     Investigate the
Kgautswane,                                   outreach of
oudtshoorn                                    micro-finance
and Mtshabe                                   institutions
villages in                                   reach the poor
South africa

Adama, Oromiya         Doocy etal (2005)      To assess the
Regional state and                            outcome of an micro
Sodo, State of                                finance program on
Southern nations                              the livelihoods of
..., Ethiopia                                 poor population

Atsbi-wemberta,        Sonja Vilei and Nick   To assess the impact
Tigray Regional        Chisholm February-     of formal and
State                  March 2002             informal credit on

Case                   Examples of            Findings

Rwanda's Eastern       Preparing agro-        Improved
Province, Kigali       forestry; forestry     agricultural
city Northern          nurseries for          production; improved
Provinces and Huye     cooperatives;          household nutrition;
District in the        distribution of        small shops and
Southern Province.     proper tools, seeds    stock available in
                       and fertilizers        the community

Machakos District      Farming drought-       Microcredit helped
of Kenya               resistant crops,       to mobilize the
                       education on storing   community and
                       and developing seed    support the local
                       banks on a community   initiatives
                       level, development
                       of small-scale water

Tanzania               Mobilize savings and   Microcredits
                       disbursed as credits   resulted food
                       to poor women and      security and
                       the poor               empowerment of
                                              women as users

Gambia                 Rice growing           Microcredits
                                              contributed to a
                                              rapid increase of
                                              rice growers with
                                              the increase in
                                              different villages
                                              ranging from 50% to

Nigeria                The cassava            Cassava production
                       Multiplication         in the country
                       Program                increased from 14
                                              million tons in 1987
                                              to over 30 million
                                              tons in 1998, as a
                                              result Nigeria
                                              became the world's
                                              largest producer of

Mozambique             Microcredits for       Microcredits
                       fishing inputs         improved the level
                       and credit             of income,
                                              employment and food
                                              security of
                                              fishermen and

Mathabatha,            Most of Microcredit
Kgautswane,            lending operation
oudtshoorn             (Oudtshoorn village)
and Mtshabe            deepen the poverty
villages in            level of the poor.
South africa           The women
                       participants did not
                       get enough

Adama, Oromiya         The indicators used    As a result of the
Regional state and     to assess the          WIDOM micro credit:
Sodo, State of         socioeconomic status   1) the majority
Southern nations       of the respondents     reported that their
..., Ethiopia          in the sample were:    assets the market
                       1) Monthly             value of the
                       households income      participants
                       2) per capita          increased.
                       monthly household      2) No significant
                       income                 correlations was
                       3) household           observed between
                       assets and livestock   length of program
                       value                  participation
                       4) household asset     3) No association
                       5) livestock index     was ascertained
                       score                  between
                       6) household diet      participation in the
                       7)child nutrition      microcredit program
                       status                 and monthly
                       8) food aid            household income.

Atsbi-wemberta,        65 male headed and     The results of a
Tigray Regional        32 female-headed       survey in 97
State                  households whose age   households and 5
                       ranged from 18-65.     group discussions
                       The survey covered     showed that the
                       about respondents'     interviewed
                       assets, livelihoods,   households perceived
                       size and use of        that having access
                       credit.                to credit had
                                              positive impact. It
                                              contributed to
                                              enhancing the
                                              self-esteem of the
                                              beneficiaries to be
                                              less dependent on
                                              food aid.

Case                   Observation

Rwanda's Eastern       The study showed
Province, Kigali       that for
city Northern          sustainability to be
Provinces and Huye     achieved stock
District in the        holders need to
Southern Province.     participate in the
                       planning and

Machakos District      The case study
of Kenya               identified that 50
                       percent of the
                       district were
                       absolute poor and
                       could not afford to
                       meet basic minimum
                       food requirements.

Tanzania               The study was not
                       conducted to show
                       how micro credit
                       empowered the poor

Gambia                 The case study
                       failed to
                       demonstrate if the
                       poor benefited from
                       an Increase in rice
                       production and did
                       not ascertain the
                       impact on resource
                       utilization on the

Nigeria                The case study might
                       have contribute both
                       backwards and
                       forward linkages.
                       But it has failed to
                       show the
                       beneficiaries of the
                       increase in cassava
                       production. In
                       addition, an
                       analysis of the
                       impact of
                       fertilizers on the
                       degradation was not

Mozambique             The fish project in
                       Mozambique seems to
                       be focused on mostly
                       on those whose
                       income is above the
                       poverty line.

Mathabatha,            Though extensive,
Kgautswane,            the study failed to
oudtshoorn             demonstrate the
and Mtshabe            extent of poverty
villages in            level of the clients
South africa           on the studied
                       households. The
                       focus of the case
                       studies seems to be
                       more on the
                       sustainability of
                       microcredit village
                       banks rather the
                       effects of
                       focused microcredit
                       on the participants
                       and the community.

Adama, Oromiya         1) The Adama and
Regional state and     Sodo case studies
Sodo, State of         were well-designed
Southern nations       and very
..., Ethiopia          instructive. As
                       admitted by the
                       researchers since
                       the case studies are
                       based on cross-
                       sectional design ,
                       the researchers seem
                       to have difficulty
                       to ascertain whether
                       the clients in the
                       two regions have
                       ever moved toward
                       sustainability or
                       away from it.
                       2) The case studies
                       did not attempt to
                       demonstrate if the
                       participants were/
                       or not pursuing
                       friendly approaches
                       in their productive

Atsbi-wemberta,        The study identified
Tigray Regional        the participants in
State                  the study based on
                       household assets
                       indicator. The study
                       indicates that
                       formal credits were
                       used for the
                       purchase of oxen,
                       cows, cereal trade,
                       basket making and
                       home-made beer.
                       However, since the
                       study was conducted
                       in about six months,
                       it failed to address
                       the environmental
                       impact of the
                       various activities
                       on the region.

Table3: The Composite Core theme and indicators of Human--well being,
Economic, social and Environmental well-being Sustainability Index

Core Theme         Indicator                                  in years

                                                              T1    T4

Human wellbeing    a) Living below poverty line (earning
Index *               US $1 per day)
                   b) Subjective assessment of felt
                   c) Access to land
                   d) Nutritional status of children
                   e) Mortality rate under 5 years old
                   f) Access to housing facilities/ floor
                      area per person
                   g) Access to sanitary latrine
                   h) Access to safe drinking water
                   i) Regularly employed person in the
                   j) Children going to school
                   k) Access to primary health care
                   l) Adult literacy rate

Eco-system             a) Activities impact on land
wellbeing **           b) Activities impact on water
                       c) Activities on water quality
                       d) Activities impact on Air quality
                       e) Activities on energy use
                       f) Activities on water use
                       g) Activities impact on species
                       h) Activities impact on genes
                       a) Activities impact on
                       i) Resource use

Environmentally    1) Environmental systems:
Sustainability         a) deforestation
Index **               b) Carbon emissions
                       c) Sulfur emissions
                       d) Toxic waste
                   2) Reducing environmental stress:
                       a) Air pollution
                       b) Water stresses
                       c) Ecosystem stress
                       d) Waste
                       e) Consumption pressures
                       f) Population growth
                   3) Reducing human vulnerability:
                       a) Basic human sustenance
                       b) Environmental health

                   4) Social and institutional capacity:
                       a) Environmental governance
                       b) Eco-efficiency
                       c) Economic and Human loss
                          due to natural disaster

Source: * V.P. Raghavan, "Likelihoods and Empowerment: The
Kudumbashree Projects in Kerala, India- A New Paradigm of
Participatory Economy. International Association for the Economics of
Participation, July 13-15, 2006.

** Thomas M. Parris and Robert W. Kates, "Characterizing and Measuring
Sustainable Development." Annual Review of Economic Resources (2003).
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