1. INTRODUCTION
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.
6. CONCLUSIONS, POLICY AND RESEARCH IMPLICATIONS
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
AUTHOR PROFILE:
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
study
* Income-based: * The World Bank * Income below USS $1
Absolute Income * Projects in per person/day
Relative Bangladesh * Basket goods and
Services:
* Food
* Shelter
* water
* Headcount ratio
* Poverty gap
* Severity of
poverty index
* Vulnerability
Index
Capabilities Sen (1983) * Adequate nourishment
Deprivation * Healthy life
* Literacy
* Shelter
* Political and civic
rights
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
score
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
poverty.
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
etc.
Capabilities Problematic to
Deprivation operational
define and apply
to empirical
research
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
Poverty
Multi-dimensional It selects poverty
index based on
policy objective
rather than
standardized
measures.
Table 2: Microcredit programs for Sustainability in selected African
countries
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),
2002
Gambia IFAD (2002) An increase in rice
growing in different
villages
Nigeria IFAD (2002) To increase the
production of
Cassava
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
households
Case Examples of Findings
projects
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
systems
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
200%
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
cassava
Mozambique Microcredits for Microcredits
fishing inputs improved the level
and credit of income,
employment and food
security of
fishermen and
families
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
attention.
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.
receipt
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
implementation
process.
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
women
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
clients.
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
environmental
degradation was not
attempted.
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
sustainability-
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
environmentally-
friendly approaches
in their productive
activities.
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
Achievement
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
need
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
family
j) Children going to school
k) Access to primary health care
facilities
l) Adult literacy rate
Eco-system a) Activities impact on land
wellbeing ** b) Activities impact on water
quantity
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
Biodiversity
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).