Microenterprise Credit Programs: Deja vu

This paper reviews previous small credit schemes for farmers to forecast what may become of the current trend towards lending to microenterprises. Outlines common assumptions, policies, target group definitions and justifications for past schemes. Problems encountered and lessons learned are also reviewed in terms of loan size and institutional problems. Authors are sceptical of further development of lending schemes and conclude that:

• Similarities between small farmer debt schemes and more recent debt programs for microenterprises portend similar results, they mean many loans made will not be repaid, most programmes are likely to be transitory and borrowers will not be materially assisted in the long run by having an increased debt;
• Lack of formal loans is not the most pressing problem facing operators of small farms or microenterprises or poor women;
• Providing financial services to poor people is expensive and building sustainable financial institutions to do this requires patience and keen understanding of costs and risks;
• Most formal financial institutions in low-income countries currently avoid providing services to poor people for sound commercial reasons;
• Competitive formal financial systems should expand, especially their deposit services, to serve more people;
• Innovations other than credit programmes are necessary to assist more poor people to become credit-worthy and have long-term working relationships with formal financial institutions.