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Five microcredit programs innovate to break the cycle of poverty

Microcredit programs in developing countries now include other features such as connections to markets and savings accounts, as well as business development, health, and education services.

By Isaac HopkinsNourishing the Planet / May 30, 2012

Shobha Vakade, who took a loan of rupees 18,000 ($400) from a microfinance company to start her own business, strings beads into necklaces outside her house in a slum in Mumbai, India. Microloan groups are expanding to include other services to clients, including savings accounts and health and education services.

Danish Siddiqui/Reuters/File

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One of the best ways to encourage economic growth in poor areas is to provide affordable small loans to farmers and small-business owners. Called microcredit or microloans, these programs can inject capital into communities that lack the collateral required by conventional banks.

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Today, Nourishing the Planet introduces five innovative microcredit programs that are encouraging economic growth in poor communities.

1. Farmer-to-farmer programs: Microcredit programs tend to be most sustainable when they promote cooperation between residents of a community. Encouraging farmer-to-farmer support can be an effective technique because it allows participants to be less reliant on outside financing and guidance.

Farmer-to-farmer programs in action:  When Africa’s Sustainable Development Council (ASUDEC) connects farmers with microcredit loans, the recipients have several expectations placed upon them. ASUDEC requires farmers to not only pay back the loans, but also to offer equally affordable loans to their neighbors. This policy generates a ripple effect, helping communities increase their incomes and fund their own progress, rather than relying on ASUDEC. As the trust and cooperation between farmers builds, it “helps the poor transition from subsistence to entrepreneurship,” says ASUDEC’S Director, Dr. Salibo Some.

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2. Integrated economic support:  While gaining access to affordable lines of credit is an important step for poor farmers, it isn’t always enough to provide real financial stability. Some microcredit programs go beyond small loans and offer many services, such as connections to markets, supply regulation, and savings accounts.

Integrated economic support in action:  BRAC, formerly Bangladesh Rural Advancement Committee, started its microfinance program in 1974 in Bangladesh, and now provides asset- and referral-free microloans to impoverished people in 16 countries. The largest development organization in the world, BRAC’s aim is to “use microfinance groups as a social platform to deliver scaled-up services in health, education, business development, and livelihood support.” They provide specialized loans ($50 to $700) and training for young women, and larger loans ($700 to 7,000) to existing small enterprises. All of these loans come with access to a range of services, including savings, technical assistance, and marketing. Over 99 percent of BRAC’s 7 million borrowers pay back their loans on time.

3. Training centers:  Without the necessary knowledge and training, many farmers who receive microloans would struggle to increase their production and pay back loans. Most microcredit programs, therefore, link their loans with training and education on up-to-date techniques and practices.

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