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Access to small loans at a low in developing nations

An elderly couple walks hand in hand along a street in a poor neighbourhood of Tegucigalpa, Honduras, Feb. 5. (Orlando Sierra /AFP/Getty Images)

For a host of complicated reasons, the number of poor people in developing nations who are able to access microcredit is steadily dropping.

The latest report on the state of microcredit, or small loans given to the poor to help them start their own businesses, indicates 13 million fewer families were able to access microcredit in 2011 compared to 2010.

The number of clients fell from 205 million to 195 million, according to the latest Microcredit Summit Campaign report, released on Wednesday. The campaign is a project run by the U.S. based advocacy group the RESULTS Educational Fund.

“Not everybody has access to credit and those that need it most have less access,” said Jean-Francois Tardif, executive director of RESULTS Canada.

India, Eastern Europe and Central Asia saw the biggest drop in microcredit users while sub-Saharan Africa saw a modest increase.

Why the drop?

The campaign says there are a few main reasons and none of them are easily solved.
Microfinancing institutions and investors aren’t targeting the right areas - they often tend to go to places already serviced. The right statistics aren’t being gathered to figure out where the need is and it is expensive to get to remote areas.

And, it is tough for clients to get focused and organized when they are faced with more immediate problems such as, “How will I feed my family today?”

It is not hard to imagine these people have fallen off the radar during the financial crisis of the past several years, Tardif added. “You can’t really prove that in a report, but it is common sense.”

Larry Reed, who wrote the campaign’s report, said in a release that his findings are a “wake-up call” to financial institutions.

“We can attribute all of the reduction in clients to events in Asia, over lending in a few markets in India led to a government crackdown and in Bangladesh, a maturing market coupled with political uncertainty led many lenders to scale back,” he added.

The challenge now is to try and be more responsive to clients needs, the report noted.
By 2015, the campaign wants to reach 175 million people with micorcredit loans and lift 100 million of the worlds poorest – those living on less than $1.25 U.S. a day – out of poverty.

Tanya Talaga is the Star’s Global Economics Reporter. Follow her on Twitter @tanyatalaga


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