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BRUSSELS 2007! Workshop 5: "Credit for the “Poor”: Microlending or Bank Loans?" - OUTLINE
W5: CREDIT FOR THE “POOR”: MICRO-LENDING OR BANK LOANS?

Benoit Granger (MicFin, Chair), Leo Verhoef (Eindhoven University) and Bernd Balkenhol (ILO) ask critical questions to Pierre Silvy (ADIE), Karol Sachs (FEBEA), Antoine Saint-Denis (EU DG Empl.), Pete Garcia (Chicanos Por La Causa, USA), and Gregory Squires (George Washington University, USA)

Held on Friday Sept14th at 4.45pm, concurrent workshop is W6 on PPI and default charges.

Financial institutions and NGOs are active in promoting the start-up of small businesses by providing initial capital funds. By their nature, whether in developed or developing countries, such loans are risky; arguably, they are even riskier if the loans are part of a social lending strategy that focuses on the disadvantaged. The market economy has natural barriers for credit to the poor because their lower expected future income will cause a rise in the interest rate charged or the outright denial of the loan. The question of how to bring the disadvantaged back into income generation has led to some countries restricting non-licensed lender activity while others, following the advice of opinion leaders and key institutions, have tried to seize the potential of micro-lending to the poor.

In general, there seems to be no end to the benefits claimed by micro-lending proponents. In that context, identifying the limitations of the opportunities created by microfinance is important. This involves discussing the lack of transparency in the price and revolving nature of some of the loans, and distinguishing among its applications to poverty alleviation, economic and social inclusion, and productive investment. Innovations potentially affecting microfinance - for example, the fast growing person-to-person credit markets, correspondent banking through retail stores or lending through pre-paid cards and mobile phones - may have negative as well as positive impacts.

In this workshop, three experts will ask their peers a series of questions. This will generate a discussion of how financial institutions and NGOs can work together to optimize the combined objective of promoting small business formation and empowering the disadvantaged. Participants will debate how the differences and similarities in treatment between micro loans for consumption purposes and for business purposes can affect the quality of the loan and the level of consumer protection provided. What is the role of debt advice organizations in this area? What are the barriers hindering further expansion of the micro-lending? What can we expect to result from the growing pressures for professionalism and financial sustainability among micro-lenders? Is micro-lending a “laboratory for responsible financial services”, a training unit for future or present bankers, or a broker for the banking system? Because social consumer protection and social finance have the same goal, should it not be possible to find common solutions and compromises, or is more protection really synonymous to less access to credit for the poor? What consequences can the activities of this sector have on the rise of illegal money lending and predatory lenders? Assessing the broader role and structure of community development finance will be especially useful, including the role of the community reinvestment strategy of promoting responsible lending in this area.

ID: 40038
Author(s): iff
Publication date: 14/09/07
   
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Created: 16/08/07. Last changed: 09/03/11.
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