Microfinance institutions are one of the oldest financial
institutions in the world, but like all the other institutions in the world,
with time they have adapted various kinds of changes, and have started using
various credit lending models. The Microfinance service/or community has
divided itself into hierarchies. Some of the popular microfinance credit
lending models adopted across the world are:
Associations: In this type of model, a
target community forges together to form an association through which a variety
of microfinance activities are carried out. The microfinance activities may
also include savings. The associations may comprise of youth, women, or be
formed around cultural, religious, or political issues.
In some of the countries a legal body can also form an
association. These legal associations have certain advantages, like collection
of insurance, fees, tax breaks, and provide other protective measures.
Community banking: This financing model
considers the whole community as one unit and facilitates the establishment of
semi-formal and formal institutes through which microfinance are administered.
Usually NGOs and other similar organizations take it upon themselves to form
such institutions, and also educate the community members in diverse financial
activities.
Co-operatives: A co-operative is an
independent association of people who come together voluntarily to meet their
mutual economic, social and cultural aspirations and needs through a
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egalitarian controlled enterprise. Sometimes the cooperatives
also include savings activities and member financing as well.
Credit Unions: A credit union is a
member-driven unique self-help financial institute comprising of members of a
specific group like labor unions or a social fraternity who assent to save
money and make loans to each other out of that fund at reasonable interest
rates. A credit union membership is free to all, and it follows a democratic
approach in electing the director as well as the committee representatives.
Grameen model or JLG model: The Grameen
model is the most popular model which is practiced by so many MFIs all around
the world. The grameen model entails that a bank unit be composed with a field
manager and a set of bank staff covering a specified area, like 15 to 20
villages. The banking service starts when the manager and the staff familiarize
themselves with the native people and explain to them the intent, functions
motives, and mode of operation. Finally, groups comprising of five future
borrowers are formed, out of which only two people get the loan initially, and
if within fifty weeks they return the principal amount along with interest, as
per the banking rules, the othermembers become eligible as well for taking
loans. This is done, so that there is a collective liability on the group,
which serves as guarantee against the loan as risk factor is so high.
Group: This model is based on overcoming
individual shortcomings by the aggregated accountability and security
engendered by the formation of a group of these individuals. This collective
approach also helps in educating and building awareness, collective negotiation
powers, peer pressure etc.
Individual: This is the simplest and the
oldest credit lending model where small loans are given straight to the
borrower. In most cases such loans are accompanied by socio-economic services
like education and skill development.
Intermediaries: As the name suggests this
model is a `go-between' organization operating between the lender and borrower.
They play a critical role of creating credit cognizance like starting savings
programs and thus raising the credibility of the borrowers to a sufficient
level. These intermediaries can be NGOs, individuals, commercial banks etc.
Non-Governmental Organizations: NGOs are
very active in the field of micro-credit, be it creating consciousness of the
importance of micro-credit, or developing tools and resources to monitor and
identify righteous practices. The NGOs have also created many opportunities to
help people learn all about micro-credit practices and principles through
organizing workshops, seminars, training programs etc..
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Rotating Savings and Credit Associations: A
group of people join together and make periodic cyclical contributions to a
common fund that is given to a member in a lump sum. After receiving the amount
the member starts paying back by making regular contributions.
Small Business Enterprises (SME): They get
loans from micro-credit programs for creating employment, increasing income
etc. The micro credit is either provided directly to the SME or as a part of a
bigger SME development program.
Village Banking: This is a community based
banking. In this 15-50 low income individuals who seek self-employment come
together to collect funds and give loans. The initial capital is generally
arrived from outside, but the members follow a democratic approach in operation
and moral collateral for repayment. (
http://www.gdrc.org)
Literature prepared for the Microfinance Summit in Washington
in February 1997, many donor statements on credit and NGO funding proposals
presented an extremely attractive vision of increasing numbers of expanding,
financially self-sustainable micro-finance programs reaching large numbers of
women borrowers. Through their contribution to women's ability to earn an
income these programs are assumed to initiate a series of `virtuous spirals' of
economic empowerment, increased well-being for women and their families and
wider social and political empowerment. Female-targeted programs have
supplanted support for many other gender strategies in many donor agencies.
However parallel to, but to a large extent marginalized by,
the enthusiasm of donors and many MFIs and NGOs some researchers have
questioned the degree to which micro-finance services in themselves benefit
women. Some argue strongly that current models of microfinance where the
overriding concern is financial sustainability divert resources from other more
effective strategies for empowerment and/or poverty alleviation. There are now
beginning signs of a change in thinking. On the one hand donors are beginning
to be more skeptical of the achievements and potential of microfinance on its
own and also more interested in self-managed programs. On the other hand there
is rapid innovation at program level and an increasing focus on participation.
These trends are combined with a growing recognition of the need to address
macro-level constraints. The solutions proposed have been varied and are far
from presenting a coherent strategy for poverty elimination and empowerment.
Nevertheless there are now spaces for introducing policy changes which may
increase the contribution of microfinance to both these development aims.
