Credit Unions: A Formal Sector Alternative for Financing Microenterprise Development

This paper examines one type of financial institution, the credit union, that is heavily involved in small-scale enterprise lending in nearly every developing country. The absence of sustained, reliable access to adequate financial services (both savings and credit) is one of the most vexing problems facing small-scale enterprises' in the developing countries.

The purpose of this paper is to introduce credit unions to those enterprise development professionals who have not had extensive contacts or experience with the credit union system in the developing world. It attempts to:

• Establish preliminary estimates of the extent of credit union participation in savings mobilization and small-scale enterprise lending;
• Discuss the salient differences between credit union and non-credit union approaches to enterprise lending;
• Summarize the lessons learned from more than thirty years of credit union operations in the developing countries;
• Present recommendations on how credit union enterprise lending activities can be improved;
• Explore opportunities for collaboration between credit union and non-credit union programs for microenterprise development;
• Suggest future research and investigative needs.