'Explosive growth' in tiny loans to poor

from The Financial Times

By Krishna Guha in Washington

More than 113m people took part in microfinance programmes last year according to a new report that documents explosive growth in the business of making tiny loans to poor people.

The study, by umbrella organisation Microcredit Summit, says the number of loans reported by member lenders has risen at an average annual rate of 34 per cent since 1997. A growing share ofmicrofinance loans are funded by for-profit businesses.

The report does not put a cash value on the loans, but one Microcredit Summit official estimated that it could be as high as $30bn.

The report follows the award of this year's Nobel Peace Prize to Muhammad Yunus, founder of Grameen Bank of Bangladesh, one of the pioneers of microfinance.

The report says that of the 113m people with microfinance loans last year, 82m were among the poorest people in the countries in which they live. The vast majority were women.

Microfinance activists had hoped to reach a target of 100m of the poorest by 2005, but say they will now reach that goal this year. However, organisers admit that microfinance programmes in Africa and Latin America have struggled to reach the most disadvantaged.

The report claims data increasingly supports the contention that microfinance is an effective way of reducing poverty.

Research by Shahidur Khandker, a World Bank economist, suggests microcredit has had a significant impact on poverty alleviation in rural Bangladesh.