The Financial Sustainability of Microcredit in Portugal

This paper evaluates the long-term financial sustainability of microcredit programs in Portugal.

The paper uses data on 652 projects financed by Associacao Nacionale de Direito ao Credito (ANDC), a Portuguese NGO, for the period 2006-2009. It evaluates the failure rate of the financed projects and compares the on-lending interest rates with the real interest rate required for a financially sustainable microcredit system. Findings include:

• Failure rate of projects is 20.63 percent per year;
• Real interest rates required for a financially sustainable microcredit system is 23.4 percent, which is higher than the prevalent interest rates;
• Projects in regions that are economically dynamic and have higher population density have higher failure risk.

The paper states that microcredit institutions need to be financially sustainable to make a long-term contribution to poverty alleviation. It mentions that an area for future research would be a comparison of the impact of microcredit on poverty and unemployment with that of other redistribution programs in Portugal.