United Nations


General Assembly

Distr. GENERAL  

10 August 1998


                                                      Original: English
General Assembly
Fifty-third session
Item 101 of the provisional agenda*
Implementation of the First United Nations 
  Decade for the Eradication
  of Poverty (1997-2006)

     * A/53/150.

           Role of microcredit in the eradication of poverty

                   Report of the Secretary-General


     The present report has been prepared in response to a request contained
in General Assembly resolution 52/194 of 18 December 1997. This is the first
time the Secretary-General has been requested to prepare a report on the
question of microcredit and the eradication of poverty. The prominence given
to the matter reflects the recent success of small-scale lending programmes
such as the Grameen Bank of Bangladesh. These rely on lending (usually a few
hundred dollars) to small enterprises in agriculture, distribution, crafts,
trading and similar activities. The participatory nature of these projects,
together with the emphasis on women entrepreneurs and employment creation,
have raised hopes of reducing poverty through this approach.

     The present report surveys current experience and highlights the
strengths and weaknesses of the microcredit approach, including the
administrative difficulties and limited linkages with other services for the
poor. The report also contains suggestions for strengthening operations, and
makes a particular plea for ensuring that microcredit projects are established
in a broader context of support to the small enterprise sector.
Responsibilities of donor countries in this regard are emphasized.

     Finally, the report highlights the activities of the United Nations
system and non-governmental organizations in support of microcredit, giving
special emphasis to the World Bank-led Consultative Group to Assist the

                                                     Paragraphs   Page

  I.  Introduction . . . . . . . . . . . . . . . . . .   1-3        3

 II.  Role of microcredit in poverty eradication . . .   4-40       3

      A.   Microcredit and poverty eradication . . . .   5-7        3

      B.   Characteristics and recent successes of 
           microcredit programmes. . . . . . . . . . .   8-25       4

      C.   Recent developments of international 
           institutions. . . . . . . . . . . . . . . .  26-31       7

      D.   Towards stronger support to small 
           enterprises . . . . . . . . . . . . . . . .  32-40       7

III.  International support to microcredit lending . .  41-61       8

      A.   United Nations. . . . . . . . . . . . . . .  42-52       8

      B.   United Nations funds and programmes . . . .  53-56      10

      C.   Specialized agencies of the United Nations.  57-61      12

        I.     Introduction

1.   The objective of the First United Nations Decade for
the Eradication of Poverty (1997 2006), proclaimed by the
General Assembly in its resolution 50/107 of 20 December
1995, is to achieve the goal of eradicating absolute poverty
through national action and international cooperation.
Progress on the anti-poverty front was last reported to the
General Assembly in the report of the Secretary-General
entitled "Observance of the International Year for the
Eradication of Poverty (1996) and recommendations for the
rest of the Decade" (A/52/573). An updated report on the
Decade has been prepared for the current session.

2.   The General Assembly, in its resolution 52/194 of 18
December 1997, noted that, in many countries microcredit
programmes have proved to be an effective tool in freeing
people from poverty and have helped to increase their
participation in the economic and political processes of
society. Among other provisions, the Assembly called upon
the relevant organs, organizations and bodies of the United
Nations system, in particular its funds and programmes and
the regional commissions, as well as relevant international
and regional financial institutions and donor agencies
involved in the eradication of poverty, to explore including
the microcredit approach in their programmes as a tool for
the eradication of poverty. The Assembly requested the
Secretary-General, in collaboration with relevant
organizations of the United Nations system, including funds
and programmes and the World Bank, to submit to it at its
fifty-third session a report on the role of microcredit in the
eradication of poverty.

3.   The World Summit for Social Development, held in
Copenhagen in March 1995, also underlined the importance
of improving access to credit for small rural or urban
producers, landless farmers and other people with low or
no income, with special attention to the needs of women and
disadvantaged and vulnerable groups. Governments were
called upon to review national legal, regulatory and
institutional frameworks that restrict the access of people
living in poverty, especially women, to credit on reasonable
terms; to promoting realistic targets for access to affordable
credit, providing incentives for improving access to and
strengthening the capacity of organized credit systems to
deliver credit and related services to people living in
poverty and vulnerable groups; and to expanding financial
networks, building on existing networks, promoting
attractive opportunities for savings and ensuring equitable
access to credit at the local level. 1/

       II.     Role of microcredit in poverty

4.   This is the first time that the Secretary-General has
been requested to report to the General Assembly on the
subject of microcredit. In the broader context of the
international fight against poverty, the paper highlights the
strengths and weaknesses of the microlending approach,
from which some conclusions about the future course of
action are drawn. The report, as requested by the General
Assembly, provides information from United Nations funds,
programmes and agencies on their actions, especially in the

        A.     Microcredit and poverty eradication

5.   Since the World Summit for Social Development the
priority given to poverty eradication has grown. As stated
in the previous report of the Secretary-General on the
eradication of poverty (A/52/573), it is now broadly
accepted that robust economic growth that is labour-intensive 
and equitable, combined with larger outlays of
social expenditures, especially directed towards the poor
(now estimated at 1.3 billion people), are a winning
combination in the fight against poverty.

6.   Several factors have led to increased interest in
microcredit in promoting growth with greater equity. There
has been a growth in the recognition of the importance of
empowering all people by increasing their access to all the
factors of production, including credit. In addition, the
value of the role of non-governmental organizations in
development is receiving more attention.

7.   It is in that context that microcredit has recently
assumed a certain degree of prominence. It is based on the
recognition that the latent capacity of the poor for
entrepreneurship would be encouraged with the availability
of small-scale loans and would introduce them to the 
small-enterprise sector. This could allow them to be more 
self-reliant, create employment opportunities, and, not least,
engage women in economically productive activities.
Currently, there are estimated to be about 3,000
microfinance institutions in developing countries. These
institutions also help create deeper and more widespread
financial markets in those countries.

        B.     Characteristics and recent successes of
               microcredit programmes

8.   Informal and small-scale lending arrangements have
long existed in many parts of the world, especially in the
rural areas, and they still survive. Good examples are
schemes in Ghana, Kenya, Malawi and Nigeria ("merry-go-rounds", 
"esusus" etc.). They provide the rural population
with access to savings within the local area and with a
certain cushion against economic fluctuations, and they
encourage a cooperative and community feeling. The groups
formed provide joint collateral and serve as instruments for
spreading valuable information that is useful for economic
and social progress.

9.   All economies rely upon the financial intermediary
function to transfer resources from savers to investors. In
market economies, this function is performed by
commercial banks and the capital markets. More widespread
financial intermediation, as well as increasing depth and
variety, are a hallmark of advancing development. But in
many developing countries, capital markets are still at a
rudimentary stage, and commercial banks are reluctant to
lend to the poor largely because of the lack of collateral and
high transaction costs. The poor would borrow relatively
small amounts, and the processing and supervision of
lending to them would consume administrative costs that
would be disproportionate to the amount of lending. A study
by the International Fund for Agricultural Development
(IFAD) has confirmed that complicated loan procedures and
paperwork, combined with a lack of accounting experience,
limit poor people's access to formal sources of credit. Other
reports cite the fact that commercial lenders in rural areas
prefer to deal mainly with large-scale farmers.

10.  The absence of commercial banks has led to non-conventional 
forms of lending. The recent prominence given
to microcredit owes much to the success of a relatively few
microcredit programmes and their increasing scale. The
Grameen Bank of Bangladesh, the most prominent of the
successes, now reaches over 2 million people, with
cumulative lending of about $2.1 billion. Similar successful
examples are known in Latin America (e.g., Banco Solidario
in Bolivia), less so in Africa (the Kenya Rural Enterprise
Programme is a good example). Progress has also been
recorded in several transition economies, mixed in some
cases. Such institutions have not only achieved a degree of
success, but they have also managed to attract donor support
and press attention.

11.  These schemes are characterized by relatively small
loans, a few hundred dollars at most. The repayment period
is relatively short, about a year or so. Women are a major
beneficiary of their activities, and the destination of the
funds primarily includes agriculture, distribution, trading,
small craft and processing industries. The administrative
structure is generally light and the entire process is
participatory in nature. The impact of microcredit lending
varies widely between rural areas and urban areas.

12.  In many developing countries, overall interest rates
are relatively high to begin with, so that rates charged by
microlending schemes are quite high when the risk premium
is added. Many of these micro-institutions claim a high rate
of repayment. This is attributable to the informal
participatory structures, which create an atmosphere in
which debtors respect their obligations. While this
phenomenon is certainly true of the better-run institutions,
it is not possible to verify whether this is a universal feature.
There is little by way of "global" research in this area, even
though the literature on microcredit has proliferated in
recent years.

13.  It should be noted that although a large number of
studies undertaken so far on the impact of microcredit
programmes on household income show that participants
of such programmes usually have higher and more stable
incomes than they did before they joined the programmes,
some practitioners still have reservations about the findings
of those studies. Moreover, not many microcredit
programmes can afford to undertake impact assessments
because they are generally expensive and time-consuming.
There are serious disagreements among experts on the
validity of methodologies used in some of the published
studies. In some cases, even the more rigorous studies have
produced inconclusive results. Some studies show that there
are limits to the use of credit as an instrument for poverty
eradication, including difficulties in identifying the poor
and targeting credit to reach the poorest of the poor. Added
to this is the fact that many people, especially the poorest
of the poor, are usually not in a position to undertake an
economic activity, partly because they lack business skills
and even the motivation for business.

14.  Furthermore, it is not clear if the extent to which
microcredit has spread, or can potentially spread, can make
a major dent in global poverty. The actual use of this kind
of lending, so far at least, is rather modest: the overall
portfolio of the World Bank, for example, is only $218
million. In recent international meetings, it has been stated
that a target to reach 100 million families by the year 2005
would require an additional annual outlay of about $2.5
billion. This should be compared to the total gross domestic
product (GDP) of all developing countries, which is now
about $6 trillion. A certain sense of proportion regarding
microcredit would seem to be in order.

15.  In addition, the administrative structures governing
these institutions are commonly either fragile or
rudimentary, and often involve large transaction costs. A
study by the Organisation for Economic Cooperation and
Development (OECD), for example, found that many
specialized agricultural institutions were not designed to
serve as financial intermediaries. The success of financial
intermediation at any time depends significantly on how
efficiently the transaction is completed. If the transaction
costs, combined with high interest rates, require that the
operation in question generate profit margins of the order
of 30 to 50 per cent, it is not clear that this would be
economically beneficial. It is not surprising that in many
microlending operations, trading activity   with quick
turnover and large profit margins   dominates.

16.  In many cases, microcredit programmes have been
stand-alone operations. There is now considerable
consensus that lending to the poor can succeed provided it
is accompanied by other services, especially training,
information and access to land. An OECD study, for
example, emphasized that credit needs to be supplemented
with access to land and appropriate technology. But such
activities require strong support from the public sector. In
some of the lowest-income countries, lack of access to land
is the most critical single cause of rural poverty, which
dominates the poverty situation in those countries. Yet, few
countries have substantial land reform programmes.

17.  Moreover, in the proliferation of microlending
institutions, non-governmental organizations and foreign
donors have played an increasing role. Non-governmental
organizations vary in quality and strength. The best results
are produced, research shows, when developing country
Governments and non-governmental organizations work
hand in hand. While donor participation can be positive, it
should be noted that total official development assistance
(ODA) has declined in recent years.

          Recent developments

18.  Over the past decade, microfinance institutions have
adopted innovative ways of providing credit and savings
services to the entrepreneurial poor. Two approaches have
been advocated on the role of credit in poverty reduction.
While supporters of the income-generation approach
maintain that credit should be provided mainly to the
entrepreneurial poor to enable them to finance specific
private income-generating activities to increase their
revenues, proponents of the so-called new minimalist
approach argue that credit programmes would still be
helping the poor fight poverty by giving credit to any poor
person who is able to repay a loan without dictating to that
person how and on what the loan should be used. Some
studies have pointed out that the problem of the non-productive 
use of credit, as advocated by the minimalist
approach, lies in the fact that by consuming rather than
investing their loans, the actions of such borrowers, if
imitated by other poor people, could produce a negative
impact on the future growth of microcredit.

19.  Several microfinance institutions have succeeded in
reaching the poorest of the poor by devising innovative
strategies. These include the provision of small loans to
poor people, especially in rural areas, at full-cost interest
rates, without collateral, that are repayable in frequent
instalments. Borrowers are organized into groups, which
reduces the risk of default. These are also effective
mechanisms through which to disseminate valuable
information on ways to improve the health, legal rights,
sanitation and other relevant concerns of the poor. Above
all, many microcredit programmes have targeted one of the
most vulnerable groups in society   women who live in
households that own little or no assets. By providing
opportunities for self-employment, many studies have
concluded that these programmes have significantly
increased women's security, autonomy, self-confidence and
status within the household.


20.  Microlending has progressed to the greatest extent in
the Asian region. An innovative approach that has been used
successfully by Grameen Bank's credit-delivery system is
"peer-group monitoring" to reduce lending risk, although
some studies have suggested that the reason for the Grameen
Bank's high repayment rates is also partly due to the
practice of weekly public meetings   at which attendance
is compulsory   for the repayment of loan instalments and
the collection of savings. It is reported that the meetings
reinforce a culture of discipline, routine repayments and
staff accountability. Not all microfinance institutions use
peer-group monitoring. Other institutions such as the Bank
Rakyat of Indonesia, which serves 2.5 million clients and
12 million small savers, rely on character references and
locally recruited lending agents in place of physical

21.  Thailand's Bank of Agriculture and Agricultural
Cooperatives serves approximately 1 million micro-borrowers 
and 3.6 million micro-savers. Newcomers such
as the Association for Social Advancement of Bangladesh,
with half a million clients, and the People's Credit Funds
of Viet Nam, with more than 200,000 members or clients,
are other examples of the potential for growth in the
industry. Other institutions such as the Association of
Cambodia Local Economic Development Agencies, Buro-Tangail of 
Bangladesh, the Self-Employed Women's
Association Bank of India, and Amanah Ikhtiar Malaysia
are also reported to be making good progress.

22.  Various institutions are involved in the delivery of
microfinance services. They include formal commercial
banks, rural banks, cooperative institutions, credit unions
and non-governmental organizations. Their methods of
doing business range from Grameen Bank-style solidarity
groups and institutions dealing with individual clients to
self-managed self-help groups. Reports indicate that some
institutions have gone beyond credit to offer insurance and
other financial services. Both the Grameen Bank and the
Bangladesh Rural Advancement Committee offer non-financial 
services, such as retail outlet facilities for products
of their clients.

          Latin America

23.  In Latin America, Accio'n Internacional, a non-profit
development agency, and its affiliates was reported to have
disbursed in the past five years $1 billion in loans to poor
microentrepreneurs. Its first-time loans are between $100
and $200, and the overall repayment rate is above 98 per
cent. Its network of 19 affiliates in Latin America and North
America provides $300 million a year in loans to poor
entrepreneurs (56 per cent of whom are women). Since
1987, Accio'n's network has grown from 13,000 to more
than 285,000 active borrower clients. The six largest
affiliates now provide $1 million per month in loans. Banco
Solidario of Bolivia, which has grown from a credit-providing 
non-governmental organization to a fully licensed
commercial bank, provides financial services to 67,000
people, more than one half of the total number of clients in
the entire Bolivian banking system. The Association for the
Development of Micro-Enterprises of the Dominican
Republic and Accio'n Comunitaria del Peru are reported to
have achieved sustainability.


24.  In West Africa, where microfinance institutions are
still in their infancy, a World Bank case study of nine
microfinance programmes -- the Pride, Cre'dit rural and
Cre'dit mutuel de Guine'e; Cre'dit mutuel du Se'negal and
Village Banks Nganda of Senegal; Re'seau des caisses
populaires and Sahel Action Project de promotion du petit
cre'dit rural of Burkina Faso; and Caisses villageoises du
pays dogon and Kafo Jiginew of Mali -- concluded that all
nine of these programmes are very much in the mainstream
of best practice in the field of microfinance. In terms of
sustainable lending to microentrepreneurs, the study gave
high marks to the programmes on the following basis: all
nine programmes are located near their clients and in the
largest catchment areas possible; they use lending
technologies that are simple, well-tailored to the cultural
environment and inexpensive for both lender and client;
they have employed effective techniques for obtaining high
repayment rates; most include savings, which meet a critical
need of many people, and they price their loans far above
commercial lending rates, though not at full cost recovery.

25.  A recent study of 11 major microenterprise finance
programmes -- Agence de credit pour l'enterprise privee of
Senegal, Asociacio'n Dominicana para el Desarrollo de la
Mujer of the Dominican Republic, Banco Solidario of
Bolivia, Badan Kredit Desa, Bank Rakyat Indonesia and
Lembaga Perkreditan Desas of Indonesia, Bankin Raya
Karkara of the Niger, Corporacio'n de Accio'n Solidaria of
Colombia, Fondacio'n Integral Campesina of Costa Rica,
Grameen Bank of Bangladesh, and the Kenya Rural
Enterprise Programme -- showed that 10 of the programmes
were operationally efficient. Five institutions were fully
profitable, generating inflation-adjusted positive returns on
assets. It was reported that, in 1993, the Agence de credit
pour l'enterprises privee of Senegal, Banco Solidario of
Bolivia and Lembaga Perkreditan Desas of Indonesia had
covered 100, 103 and 137 per cent of their costs,
respectively. In view of the growing popularity of
microfinance institutions, some of which now explore the
possibility of deposit mobilization or leverage commercial
capital, it is reported that bank regulators in such countries
as Bolivia, Ghana, Kenya and Peru, and other countries, are
creating laws or special regulations for this new breed of
institutions. In Bolivia, it is reported that Banco Solidario,
a private commercial microenterprise bank, is regulated by
the Superintendency of Banks, with the same financial and
reporting requirements as traditional banks, but with simpler
loan documentation and risk classification rules. In the case
of Bolivia, which seeks to encourage new microfinancial
institutions, it is reported that the Government has begun
licensing a new class of intermediaries, known as private
financial funds, subject to the same solvency and reserve
requirements as banks, but with lower minimal capital

        C.     Recent developments of
               international institutions

26.   One of the outcomes of recent discussion has indicated
that a more coordinated and concerted international effort
is required if microcredit is to spread and succeed on the
scale that expectations now require. It is with that
perspective in mind that the World Bank has led the process
of international coordination primarily by establishing the
Consultative Group to Assist the Poorest (CGAP), which
brings together a number of western donor countries and
international agencies. The Group has ancillary structures
which ensure that non-governmental organizations and
borrowers in general are consulted.

27.   CGAP, which comprises 25 members, including
United Nations bodies, is a multi-donor effort to address the
problems facing microfinancing. The most important of
these are lack of access to information, the measurement of
loan delinquency, setting of interest rates, designing lending
procedures and developing business projects. The objective
of CGAP is to foster good donor practices, including
performance standards.

28.   With regard to the level of funding to microcredit
institutions, in its first two-and-a-half years, CGAP
provided about $18 million in grants to microfinance
institutions and also committed $400 million in the past
three years to microfinance activities. These are relatively
modest amounts. Grants have been made directly to
institutions and networks of practitioners. Eligibility criteria
have included the following: (a) institutions must serve
more than 3,000 very poor clients, of which at least 50 per
cent must be women; (b) institutions must be operationally
self-sufficient and on the path to financial self-sufficiency;
and (c) institutions must be on the path to mobilizing
domestic commercial resources.
29.   An important positive development from the CGAP
process is that success stories and their characteristics are
now much better known. To spread these best microcredit
practices to different parts of the world   often under vastly
varying conditions   is now the central challenge facing the
international community and the developing countries.

30.   Within the international community, many United
Nations organs have now started to support microcredits,
especially under the leadership of the United Nations
Development Programme (UNDP). The provision of actual
financial resources is rather limited; instead, United Nations
bodies have emphasized capacity-building and institutional
strengthening, training and consultations to spread best
practices. Under the provisions of General Assembly
resolution 52/194, all United Nations organs were requested
to provide information on their activities; this information
is contained in chapter III below.

31.   It should be borne in mind that total world ODA is
diminishing, and resources for United Nations bodies are
under special strain. Therefore, a better use of the available
resources has become a more pressing imperative. It is
important that resources are channelled to sectors that have
potential, especially agriculture, infrastructure and
education. It would be a pity if experimentation with new
forms of development activities were to lead to a
squandering of aid.

        D.     Towards stronger support to small

32.   The discussion above suggests that if microcredit is
to play a strong role in development, certain requirements
need to be fulfilled. The most crucial requirement is to
perceive microcredit lending as part of a comprehensive
programme of support to the small enterprise sector.
According to CGAP estimates, the sector already employs
500 million of the poor; it constitutes an active base for
strengthening the private sector in a large number of
developing countries. This would entail Governments of
developing countries formulating plans and programmes to
support small enterprises in general, of which microcredit
should be an integral part. Furthermore, the regulatory
framework should be receptive to small enterprises. Many
micro-borrowers have complained of this particular
shortcoming in developing countries.

33.   There are many examples of successful interventions
in the OECD countries in favour of small enterprises, the
foremost among them being the United States Small
Business Administration. The Small Business
Administration is a rather remarkable organization that is
fully backed by the Government, operates through the
private sector and provides the small business sector with
a wide array of support services, including information and
training. (Of course, commercial rates of interest prevail in
the programme.)

34.   Developing countries could benefit by instituting
similar comprehensive programmes, eventually involving
the private sector and, where applicable, efficient 
non-governmental organizations. The United Nations could
provide more robust technical assistance programmes in that
direction. There is a delicate balance to be struck between
getting the poor eventually into the market economy and
commercial lending rates on the one hand, and the
importance of providing low-cost assistance to them at the
initial stage of their entrepreneurship.

35.  Targeting is a particularly thorny topic. There have
been allegations that in fact the very poor are so weak as not
to benefit from microlending, and that it is the "better off
poor" that benefit. While all the poor need to be included
in the programmes, the shortage of funds impels organizers
to make special efforts to reach the less well-off among the
poor. Microcredit should be viewed as complementary to
the provision of basic services like education, housing,
health and nutrition. The latter are indispensable in the fight
against poverty.

36.   A crucial part of any future effort should be to
strengthen the administrative structures of existing
microcredit institutions, rather than letting multiple and
competing institutions proliferate. It is possible that
economies of scale are important in microlending. Dynamic
leadership and paid management staff are probably crucial.
The provision of information on available services to the
poor is particularly essential. This is not at present the case,
even in some advanced developing countries. Information
on services for the poor is rarely made readily available.

37.   In that context, the long-term financial sustainability
of microcredit operations deserves particular attention. In
the more successful schemes, repayment rates are high, but
this is not so with many operations that do not have a high
profile. In the absence of long-term sustainability,
microcredit operations become a welfare or charity
operation. While the latter have their own place in
development in some circumstances, they should not
characterize microcredit institutions.

38.   Probably the single most important element in
ensuring long-term sustainability of these operations is to
include in them the savings mobilization function. This is
not always the case at the present time. The operation that
lends to the poor should also cater to their savings needs.
In many developing countries, savings habits are quite
widespread, but the institutional structures do not fully cater
to them. The possibility of combining savings and lending
operations in some form of credit union organization should
always be explored. Once again, the credit union
movements in the OECD countries could be emulated by
developing countries. International organizations could
provide technical assistance in the setting up of frameworks
for credit unions and in strengthening their management.

39.   Donor countries have a special responsibility to ensure
that financial intermediation programmes are soundly based,
operate through solid local entities and  involve the public
sector and that monitoring is an important part of the
process. To some extent, the recent prominence given to
those operations is donor-driven; the responsibility on the
donors is subsequently heavy. It is particularly important
that donor funds, whether grants or loans, not be perceived
in recipient countries as simple transfers.

40.   Coordination among the donor countries has in fact
been perceived to be weak in many settings, thus giving rise
to duplicative projects and fragmentation of available
institutional capability in the developing countries. The
CGAP process should be greatly strengthened and directed
to better donor coordination. The United Nations system can
help in that process, especially at the field level. The United
Nations system also needs to spread a more realistic notion
of the potential of microcredit approaches, and to put them
in the broader perspective of the fight to eradicate poverty.

       III. International support to microcredit lending

41.  The present section contains a summary of activities
of the United Nations system.

        A.     United Nations

42.  In the United Nations Secretariat, the responsibility
for assisting in the implementation of the follow-up to the
World Summit for Social Development and the servicing
of the intergovernmental bodies involved rests with the
Department of Economic and Social Affairs. The
Department is also the focal point for the First United
Nations Decade for the Eradication of Poverty. Given its
mandate, special attention is given to Africa and to the
advancement of women.

43.  A one-day forum, entitled "Africa Advocacy Forum:
Microcredit and Poverty Eradication", was organized on 6
February 1997 by the Office of the Special Coordinator for
Africa and the Least Developed Countries and co-sponsored
by the former Department for Policy Coordination and
Sustainable Development and Department for Development
Support and Management Services and several United
Nations agencies. The agenda of the forum focused on five
topics related to important aspects of a strategy for poverty
eradication. These included the impact of microcredit on
food security; women's economic empowerment; the
provision of basic social services; employment/self-employment; 
and traditional banking systems.

44.  In July 1997, the Office of the Special Coordinator for
Africa and the Least Developed Countries, together with the
Governments of Japan and Thailand and UNDP, organized
the Asia-Africa Forum on the Economic Empowerment of
Women, which was held at Bangkok. The forum adopted
a framework for action, which includes a recommendation
for the promotion of women's economic empowerment
through improved access to credit and finance, and through
the promotion of microfinancing schemes, including group
financing without collateral, and savings and credit

45.  The Office of the Special Coordinator for Africa and
the Least Developed Countries also participated in the Sixth
International Women Entrepreneurs Conference, held at
Accra from 16 to 19 September 1997. The theme of the
conference was "Technology and communication: impact
on women entrepreneurs in the global economy". The Office
will also be participating in the Second Tokyo International
Conference on African Development, which will deal with
the issue of rationalizing the microcredit concept in Africa
and developing a model that could be applied throughout
the African region. With regard to publications, the Office
carried out a study on poverty eradication in 14 selected
countries, describing experiences of innovative efforts in
addressing poverty and underdevelopment. The study
showed how microcredit schemes can improve community

46.  Another study on microfinance is being undertaken
by the Division of Public Economics and Public
Administration. The study will explore various facets of
microfinance institutions, including issues related to the
financial dynamics of microenterprises and what
distinguishes microfinance from commercial finance.

          Regional commissions

47.  As a follow-up to the World Summit for Social
Development, and in response to General Assembly
resolution 52/194 on the role of microcredit in the
eradication of poverty, the regional commissions are
undertaking a number of initiatives in the area of
microfinance. In the case of the Economic Commission for
Africa (ECA), the main objective of its microfinance work
programme is to promote microfinancing as a strategic tool
for sustaining the operations of microenterprises, including
the informal sector, by creating awareness on its role to
private development and advising member States on how
to articulate policies, strategies and mechanisms for
encouraging microcredit and required financial
intermediation. In this regard, in 1997, ECA carried out a
study on reconciling indigenous informal and formal
microfinancing systems and practices in Africa, with
recommendations to Governments, financial institutions,
non-governmental organizations, the private sector and
grass-roots organizations. The work programme for
1998 1999 also includes a study on the role of
microfinancing on the sustainable development of small and
medium-sized enterprises. Since 1992, the Commission has
been implementing a pilot project in Ethiopia and Zambia
on the promotion of the informal sector on the economic
development of Africa. It is expected that the project will
next be implemented in Co^te d'Ivoire and Ghana. ECA
plans in the coming years to disseminate the results of the
pilot project among other African countries by publishing
a manual on the tested participatory approach, holding
subregional workshops, and reinforcing advisory services
to ECA member States. In this regard, ECA also intends to
take measures to strengthen cooperation with bilateral and
multilateral partners.

48.  Like other regional commissions, the Economic and
Social Commission for Asia and the Pacific (ESCAP)
provides a mechanism for exchange of experience on
microcredit facilities among interested countries and a way
of drawing up best practices and modalities of assessment
and of proposing new approaches. In preparation for a
regional consultation on strengthening of rural financial
institutions, ESCAP undertook five country studies (Bhutan,
Indonesia, Nepal, Philippines and Viet Nam) during the
second half of 1997. The objective of the studies and
consultations was to examine critically the efficiency of
non-formal credit organizations in providing credit to the
rural poor, for microfinance activities, and to suggest policy
alternatives for reaching the large numbers of credit-needy
rural poor households within the next decade.

49.  A multi-year project on enhancing the access of
women to formal credit and financial institutions in the least
developed countries has been completed. The project
involved a series of country case studies and national
workshops, a regional seminar and two publications on
improving the access of women to formal credit and
financial institutions. The intention of the project was to
evaluate the potential of the major constraints faced by
women in obtaining credit from formal financial institutions
such as banks, to identify special features of successful
formal credit programmes and to formulate
recommendations. As a result of the project, there is now
much more awareness among central banks and major
financial institutions in the six least developed countries of
the Asian region to the problems faced by women.

50.  The Economic Commission for Latin America and the
Caribbean (ECLAC) carried out a project on small and
medium-sized enterprise financing in seven countries
(Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador and
Mexico). The project showed that current approaches to
small business finance were based on the experience of
previous policies that focused on credit subsidies and had
meagre results. New approaches to small-scale enterprises
were part of market-oriented policies. These approaches
have frequently proposed ambitious goals regarding access
of smaller businesses to financing technical training and
technical and financial assistance. However, actual
implementation of those measures is still at an experimental

51.  The Economic and Social Commission for Western
Asia (ESCWA) has a number of activities for promoting
entrepreneurship in small enterprises, including the
provision of assistance to countries and institutions of the
region. One of its major activities is providing support to
start up business and building national training capabilities.
A number of "start your own business" courses for potential
entrepreneurs, and potential trainers, in cooperation with
local institutions, have been conducted since 1990. To that
effect, ESCWA produced a trainers manual in Arabic on
starting your own business. An understanding was reached
early in 1996 between ESCWA and the United Nations
Development Fund for Women (UNIFEM), in which
ESCWA provided technical assistance to a UNIFEM project
entitled "Strengthening institutions for the development of
women enterprises" in Jordan, Lebanon, the Syrian Arab
Republic and the Palestinian territories. ESCWA assistance
to the UNIFEM project was in the areas of entrepreneurship
training and business counselling, information and business
incubators. ESCWA, in cooperation with UNIFEM and the
Development Employment Fund of Jordan, organized the
simulation exercises and learning laboratories development
camp at Amman from 6 to 11 December 1997. One of the
major objectives of the camp was to upgrade trainers' skills
in adapting existing training materials and designing new
ones to meet the needs of various target groups in urban and
rural areas, with emphasis on the poor. Particular
consideration was given to the development of
microbusinesses. In the programme of work for 1998 1999,
ESCWA is expanding its activities on microcredit under the
subprogramme on improvement of the quality of life. Focus
is given in that subprogramme to the eradication of poverty,
with microcredit as one possible tool. The following areas
will be covered: the role of income-generating activities in
eradicating poverty and improving the standard of living in
local communities; the role of the informal sector in
community development; the social impact of structural
adjustment, with special emphasis on unemployment; and
operational microcredit lending facilities to poor women in
rural and urban areas.

52.  In assessing the role of microcredit in the economies
in transition, the Economic Commission for Europe (ECE)
underlined the fact that, although many countries, including
the Czech Republic, Hungary, Poland, Slovakia and
Slovenia, have recognized the need to develop
microenterprises, particularly in areas facing high
unemployment rates, entrepreneurs have limited access to
sources of finance. The reasons include the following:
(a) financial institutions consider it risky to lend to micro
and small businesses because of the high failure rate,
economic uncertainties and lack of collateral;
(b) commercial and credit banks have no experience in
dealing with microenterprises, and the high administrative
costs involved in processing small loans; (c) lack of
transparency in evaluating loans and lack of skills of
financial institutions in dealing with microenterprises; (d) in
almost all countries of the region, the national clearing
systems are poor and outdated and, consequently, the
majority of the transactions are made in cash because of
uncertainties and delays encountered by the electronic
money transfer systems; and (e) lack of reliable data
regarding markets. To help overcome these problems, ECE
is supporting the following: (a) favourable national policies
on microenterprises and microcredit organizations;
(b) evaluation of current experiences through surveys and
workshops; (c) elaboration of medium-term and long-term
capacity-building programmes to create cost-effective and
self-sustaining microcredit organizations; and (d) creation
of long-term national and international grants and funds to
implement national programmes.

        B.     United Nations funds and programmes

        1.     United Nations Capital Development Fund

53.  Since its creation in 1966, as a capital funding window
under the UNDP umbrella, the United Nations Capital
Development Fund (UNCDF) has been the channel for
UNDP to fund microfinance interventions. It has so far
approved more than US$ 100 million of investment credit
activities, the majority being microfinance related, with the
balance to small and medium-sized enterprises. At the
present time, UNCDF has an active microfinance portfolio
of about $40 million, of which 70 per cent is in Africa, 20
per cent in Asia and 10 per cent in Latin America. UNCDF
has implemented microfinance projects through a variety
of partners, ranging from state-owned financial institutions
to credit unions and non-governmental organizations. It has
also used several financial mechanisms in support of those
projects, including grants to fund start-up costs and
operational expenses, provision of capital for lending, and
guarantee facilities that have been used as incentives for
banks to refinance "retailing" microfinance institutions. In
1996, UNCDF published a policy paper entitled
"Microfinance and poverty strategies" that underlines both
the policy and instruments used by UNCDF in helping
restore basic financial intermediation through the provision
of credit and savings services, especially in rural areas. In
preparation of the Fund's 1999 evaluation by its donors,
UNCDF has commissioned a mid-term assessment of its
programmes, including local development funds, economic
development projects and the microfinance portfolio.
Started in November 1997, the portfolio's assessment has
been carried out in close cooperation with CGAP. It focuses
on seven microfinance projects selected from UNCDF
major interventions, of which four are in Africa (Lesotho,
Madagascar, Malawi and a regional project in West Africa),
two are in Asia (Bhutan and Laos) and one in Latin America

54.  UNCDF has been actively supported by the Special
Unit for Microfinance, which was created in September
1997 and given the task of building synergy between the
established UNCDF experience in microfinance and the
growing demands from the global network of UNDP country
offices. The Unit also provides quality technical support to
the MicroStart programme, which was launched in February
1997 at the Microcredit Summit held in Washington, D. C.,
and given the task of helping start-up and fledgling
initiatives. The Unit has initiated or supported project
formulation exercises in Haiti, Madagascar, Mali,
Mauritania and Mozambique, and in the Palestinian
territories. It also helped re-engineer the regional
microfinance project with the West African Development
Bank to improve its impact and sustainability. The Unit also
provided key support to the preparation of the portfolio
evaluation with CGAP. Finally, it has helped UNCDF with
the identification of expertise, the elaboration of standard
terms of reference for audit and evaluations and the
definition of standard monitoring and impact evaluation
tools that will also be used by the MicroStart unit, thereby
helping to improve and streamline microfinance practices
within UNDP. 

        2.     United Nations Children's Fund

55.  The United Nations Children's Fund (UNICEF)
integrates microcredit into its programmes in countries
where lack of access to small loans is identified as an
obstacle to the improvement of the situation of women and
children. In those countries, UNICEF works with
communities, non-governmental organizations and
Governments to (a) stimulate national efforts to expand
microcredit for women; (b) strengthen national and local
capacities to deliver small loans and basic social services;
and (c) monitor and evaluate its support to microcredit to
improve its effectiveness and efficiency and contribute to
the dissemination of best practices with a view to ensuring
sustainable reduction in poverty. In this connection,
UNICEF has supported microcredit programmes in such
countries as Bangladesh, Benin, Brazil, Cambodia, China,
Egypt, Ghana, Guatemala, India, Kenya, Nepal, the United
Republic of Tanzania and Viet Nam. Recent evaluations and
impact assessments conducted in two countries, Egypt and
Viet Nam have shown that microcredit can improve the
well-being of the borrowers and that the impact is greatest
when credit is combined with support for access to basic
social services.

        3.     United Nations Development Fund for Women

56.  As part of its core strategy, UNIFEM recognizes the
need to provide credit to women as a way of strengthening
women's institutions at the grass-roots level. In that
connection, UNIFEM has invested in a series of projects in
Western Asia to ensure that women's capacities and skills
are developed and to enable them to run small-scale
businesses successfully. These initiatives include
developing business counselling services within national
institutions, establishing networks of credit programmes and
supporting business skills training sessions on business and
financial management for several hundred women
entrepreneurs in Gaza, Jordan, Lebanon and the Syrian Arab
Republic. Working in partnership with several United
Nations agencies and other organizations, UNIFEM has
facilitated the creation of women's business networks in a
region where women have limited economic power. In the
Latin American and Caribbean region, UNIFEM, in
association with Accio'n Internacional, worked to gain
private sector support for the launch of gender-sensitive
initiatives and helped broker a partnership between Latin
American microlending organizations and banks to leverage
a $1.2 million line of credit to support women's
microenterprise in Colombia and Chile. In Africa, in
association with UNDP and the Special Unit for Technical
Cooperation among Developing Countries, UNIFEM
brokered the establishment of MICROFIN-Africa, a network
of 42 microenterprise non-governmental organizations that
deliver small credit to women in 17 countries of sub-Saharan 
Africa. On the global level, UNIFEM has also
facilitated the formation of the International Coalition on
Credit, which consists of 32 of the world's leading
microcredit and business non-governmental organizations
with more than 200 affiliated organizations.

        C.     Specialized agencies of the United Nations

        1.     International Labour Organization

57.  The involvement of the International Labour
Organization (ILO) in microfinance reaches back many
years, through its activities related to the development of
the informal sector, and in particular its promotion of
cooperatives, including savings and credit cooperatives. In
response to the needs of its constituency -- Governments,
trade unions and employer organizations -- ILO developed
international labour norms that define standards for its
constituents on how to support entrepreneurial activities of
the working poor, formulated norms in technical
cooperation to help constituents finetune policies and
improve institutional performance, and developed research
modalities to help resolve information deficits, influence
policy makers and identify best practice. Through its
country objective reviews, ILO found that its constituents
consider microfinance to be a potentially powerful tool in
facing the poverty alleviation challenge, especially through
self-employment and micro and small enterprise
development. The reviews call on authorities to create a
more favourable environment for formal and informal
microfinance, the establishment of additional microfinance
institutions, and improved access for micro and small
enterprises to microfinance services, and to assist women
in accessing those opportunities (for example, by using
collateral substitutes for loan securitization).

58.  ILO conducts research on various aspects of
microfinance to fill information deficits, influence policy
makers and identify best/good/bad practices. Its ongoing
work covers such issues as enterprise creation by the
unemployed; the role of microfinance in industrialized
countries   an ILO action programme for 1998 1999; the
impact of financial sector liberalization on the access of
micro and small enterprises to financial services; gender and
control over financial resources; the use of collateral
substitutes in loan securitization; and strategies to reduce
transaction costs in bank lending to micro and small

59.   With regard to technical cooperation, a recent review
of ILO technical cooperation, covering the period
1996 1998, identified 52 projects with a microfinance
component. Nineteen of the projects focus exclusively on
microfinance, while the rest contain other intervention
components. The total budget of the 52 projects is $67.8
million, with $6.1 million going into microcredit funds and
an estimated $30.1 million to research and advisory and
capacity-building services in the field of microfinance. The
projects are located in Africa, Asia and Latin America. ILO
expertise is also increasingly in demand in the promotion
of sustainable microfinance operations in post-conflict
countries such as Cambodia, and the former Yugoslavia and
in regions such as Central America and sub-Saharan Africa.

        2.     World Bank

60.   One reason the original members of CGAP decided
to locate the secretariat within the World Bank was to
strengthen the Bank's growing microfinance-lending
portfolio. CGAP expects the Bank to play a pivotal role in
working with Governments to create an enabling business
environment for microfinance institutions and making
linkages between the overall macroeconomic framework and
microfinance. CGAP has formed alliances with World Bank
Group entities involved in microfinance, including the
Sustainable Banking for the Poor Initiative, the Africa
Research Programme and the Rural, Microfinance and
Small and Medium-sized Enterprise Thematic Group. Each
alliance has generated joint products such as the
Microfinance Practical Guide and case studies of
microfinance institutions. In terms of World Bank projects
with microfinance components, it is reported that, in 1997,
there were 21 such projects being developed or in the
pipeline in 19 countries, including 13 low-income African
countries. In almost every case, CGAP was involved at an
early stage, reviewing the choice of financial intermediaries,
products and services, capacity-building activities and other
characteristics of the planned loan or credit. CGAP has also
collaborated on World Bank projects in several countries
to leverage the Bank's ability to create enabling policy
environments. In the past two years, the CGAP secretariat
and the World Bank staff have held technical discussions
on more than 40 existing and planned microfinance-lending
operations and regional activities. This cooperation has
improved the design of many lending operations, resolved
operational and technical issues and expedited financial
sector reform in a number of countries, including Angola,
Argentina, Armenia, Brazil, the Republic of Moldova, Sri
Lanka and Viet Nam.

    3.  International Fund for Agricultural Development

61.  Over the past two decades of providing financial aid,
much of it through microcredit programmes for the poorest
of the rural poor in developing countries, the International
Fund for Agricultural Development (IFAD) firmly believes
that the poor are "bankable". Its action plan is based on
three fundamental propositions. The first stems from the
Fund's mandate to address rural poverty by recognizing the
importance of microfinance as a key empowerment tool in
ensuring improvements in incomes and sustainable
household food security among the world's poorest families,
especially the women of those families. The second
recognizes the fact that, while access to credit and savings
facilities is crucial, it is usually not enough by itself to
ensure the sustainable development of the rural poor, who
also need links to an efficient distribution system for their
production, including viable roads to market places, access
to appropriate technology, technical training, fair prices for
inputs and a favourable regulatory climate. Thirdly, rather
than providing temporary services for the poor, the main
objective of IFAD is to develop viable and financially
sustainable rural financial systems, especially for the very
poor living in remote areas in many developing countries.
While maintaining the prime focus on the poor, IFAD also
emphasizes the need to safeguard loan funds, promote
sector-wide performance standards and strengthen the
provision of non-financial services. At the regional and
local levels, IFAD is helping to build a cadre of
microfinance technical experts, strengthen training centres
and promote sustained linkages to commercial capital, while
seeking to ensure a favourable regulatory environment.
IFAD is an active member of CGAP and has thus far
committed over $1 billion in financial services and credit
to the rural poor, which represents about one quarter of its
total lending to date. An estimated 20 million persons have
benefited from these services.


          1/   See Report of the World Summit for Social Development,
               Copenhagen, 6 12 March 1995 (United Nations publication,
               Sales No. E.96.IV.8).

        Selected recent literature on microfinance and related issues

         United Nations entities

         International Fund for Agricultural Development, The State of World
         Rural Poverty: An Inquiry into Its Causes and Consequences (New York,
         New York University Press, 1992).

         United Nations Capital Development Fund, Microfinance and
         Anti-Poverty Strategies, A Donor Perspective (1997).

         Consultative Group to Assist the Poorest and World Bank

         CGAP, "The Microcredit Summit report", communique' issued by the
         Council of Heads of State and Government at the Microcredit Summit,

         __________, "A policy framework for the Consultative Group to Assist
         the Poorest (CGAP)   a microfinance programme".

         __________, Focus Notes Nos. 1, 2 and 10.

         __________, "Microfinance: the new emerging market?", by Mohini
         Malhotra, Newsletter No. 3.

         __________, "Towards creating a poverty-free world", by Mohammad
         Yunus, Newsletter No. 1.

         __________, "Three innovative institutions in Bangladesh: BRAC, ASA
         and Buro-Tangail", by Gregory Chen, Newsletter No. 5.

         __________, "Strengthening Asian MFIs", by Jyita Mukherjee,
         Newsletter No. 5.

         World Bank, "Case studies in microfinance, Zimbabwe: ZAMBUCO Trust"
         (1995) (abstract executive summary).

         __________, "The informal sector and microfinance institutions in
         West Africa", Regional and Sectoral Studies, Leila Webster and Peter
         Fidler, eds. (1996).


         Buckley, Graeme, "Microfinance in Africa: is it either the problem or
         the solution?", World Development, vol. 25, No. 7 (1997).

         Currie, Antony, "Small lenders count too", Euromoney (July 1996).

         Development Centre of the Organisation for Economic Cooperation and
         Development, Microfinance for the Poor, Hartmut Schneider, ed.

         Johnson, Susan, and Ben Rogaly, "Microfinance and poverty reduction",
         Oxfam (United Kingdom and Ireland) and ACTIONAID (1997).

         MkNelly, Barbara, and Christopher Dunford, "Are credit and savings
         services effective?" A Literature and Analysis, Freedom from Hunger,
         Research Paper No. 1.

         Mosley, Paul, and David Hulme, "Microenterprise finance: is there a
         conflict between growth and poverty alleviation?", World Development,
         vol. 26, No. 5 (1998), pp. 783-790.

         United States Agency for International Development, "Assessing the
         impacts of microenterprise interventions: a framework for analysis,
         managing for results, Working Paper No. 7 (March 1995).

         __________, Microenterprise Development Brief No. 18 (September



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