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The ‘cooperative wave’ of microfinance gave way to the ‘microcredit’ wave in the 1970s. ‘Elite capture’ severely damaged the cooperative wave in the South. The story of the transition from the Comilla model to Grameen Bank, at the inflection point between the movements, is exemplary.

The ‘Comilla Model’ was initiated in East Pakistan by Dr. Akhter Hameed Khan in 1959. Khan drew inspiration from the Raiffeisen credit unions of rural Germany. He envisioned ‘vigorous local institutions’ that could provide credit and access to markets for the farmers of Comilla district. The cooperatives Continue Reading »

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Layaway plan from Chuka, Kenya, Feb 17, 2012

A shopkeeper shows us his informal yet careful bookkeeping for his customers.  After selecting the product or device they wish to purchase, they come to an agreement with the shop’s owner for a layaway plan that suits their need for flexibility and control over the amount paid each time and frequency of said payments.  Once the total amount is cleared they are free to collect the device and take it home, sometimes taking as long as 2 or 3 years to reach their goal. Since they have selected the product already and the shop has put their name on it, there is an intangible sense of ownership that incentivizes their efforts to complete the transaction as rapidly as they are able.

The sticker seen is used to mark the specific product as an indicator of having been “Sold”, while Continue Reading »

Flower mandala, Ahmadabad. Many great traditions need right and left to clap.

The founders of early financial cooperatives believed in ‘cooperation’. This was not a sentimental idea. It was seen as a practical tool for pooling financial and human resources where poverty was too great for individuals to escape by themselves. It required an almost obsessive focus on both prudent financial management and disciplined adherence to operational rules.

Democracy in private enterprise, and practical concern for poorer neighbours, are left-wing ideas. Prudent financial management Continue Reading »

Two rallying cries propelled the second wave of microfinance. First, in the 1970s it was ‘proved’ that poor people repay their loans; and second, we ‘learned’ that you can lend money to poor people and make money doing it. These statements may motivate people, but they are impoverished reflections of history.

The first wave of microfinance began in 1864, and rapidly spread over much of Europe, delivering both credit and savings in villages the banks would not touch. Reflecting on nearly 50 years of village finance practice, the journalist Henry W. Wolff wrote in 1910 that “… there has been found to be no more regular and more scrupulous repayer than the small man.” (People’s Banks, p. 27)

Continue Reading »

Saving at home is convenient, private and predator-free.

In a study of 301 households that belonged to village financial institutions (VFIs) in 37 villages in Cambodia, my team from the Canadian Co-operative Association asked what would cause them to deposit more savings? By far the strongest response was: “the managers must show more respect for the rules.” (Towards Safety & Self-Reliance, p. 51.)

The rules to which they referred were not complex: they expected the managers to refrain from Continue Reading »

Krong Pailin, Cambodia. In the rainy season a 1-2 km trip can take much of the day.

Rural microcredit rates have risen sharply since the dawn of the microfinance revolution. Most modern rates range from 12-60% annually, with unsubsidized rates below 12% being extremely rare. The alternative for most poor borrowers is either no credit at all, or much higher informal rates.

At the dawn of the microfinance revolution, during the 1860s-90s, the Raiffeisen banks of rural Germany charged 5½% (per annum, declining balance) on small farmers’ loans, Continue Reading »