How the credit crisis effects microfinance

Credit is tightening up, it will be harder for people to get loans in the aftermath of the credit crisis. But this could be devastating for microcredit in the developing world.

Microcredit gives small loans to small business and farmers, a large portion were women. The movement helped to pave a way out of poverty for thousands, especially in Asia.

Now with less money being lent out, it will be harder for microcredit lenders to find money to lend.

In this Reuters article that we found in the International Herald tribune, reporter Rina Chandran has some quotes from people who are worried.

"A liquidity crisis is the very worst-case scenario for microfinance institutions," said Roy Jacobowitz, managing director of development and communications at ACCION International in Boston, which backs microfinance institutions. "The demise of microfinance will be devastating. It will leave people that depend on it in a very, very bad situation. They could go from a level of success back to poverty."

South Asia accounts for the most microfinance borrowers, making up more than half of global demand, according to Sa-Dhan, an association of community development finance institutions.

While ACCION has not seen a "catastrophic impact" on microfinance institutions there yet, Kashf Foundation, one such institution in Pakistan, is now seeking international lines of credit, he said.

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Kulsum Bibi, a 45-year-old mother of three, set up a nursery with a loan of 3,000 taka, or $44, from Bangladesh Rural Advancement Committee, or BRAC, after her husband left her and their children.

"I felt as if I was sinking in a deep sea," said Kulsum, who also enrolled in a BRAC school for adults, and can now read and write and maintain the accounts of her small but profitable business selling plants and saplings. It employs 10 people.

BRAC is one of the largest providers of financial services to the poor in Bangladesh, having disbursed more than $5 billion to nearly seven million people since 1972, mostly women.

"If commercial banks are affected, then the expansion of the microfinance program will be affected," said Mahabub Hossain, an executive director at BRAC, adding that its donor-dependent efforts in education, health care and family planning are at risk.

"I am deeply worried," said the village health worker Hosne Ara, who works on programs for tuberculosis and family planning. "I have been working on this program for many years now, and if it stops, my family will be deprived of a regular income."

In neighboring India, microfinance programs were serving 10.5 million clients at the end of 2007, according to Sa-Dhan. The market is forecast to expand to 50 million clients by 2012, with the outstanding loan portfolio rising to $6 billion from about $769 million now.