| While the “Big Box” Money Holders are entering the Micro-Finance Marketplace |
| In our last week story entitled “Micro-Finance, A comprehensive Approach of Financial Planning”, we mentioned that we believe the creation of well operated business in a free market environment is the best path for sustainable economic growth. Among crucial element for the development of the new small businesses are: preferential markets, best production practices, sound business management, sufficient financing and skills improvements. By definition, Micro-Finance Institutions offer financial services to those underserved or ignore by the conventional banking system. A sound micro-finance program to be successful should include or enhance support services and develop alliances and partnership with social oriented entities such as: Government Agencies, Academic Entities, Non Governmental Organizations and Private Businesses. Having these partnerships functional requires brokerage mechanism, business linkage initiatives, and communication approach. It is important to review the evolution of micro-finance institutions over the past years: - Between the 1950s and 1970s, Governments and Donors focused on providing subsidized agricultural credit to small and marginal farmers, in hope of raising productivity and income. Government entities administering these programs were most likely Agricultural or Rural Credit Bureaus, part of the Country Department of Agriculture. - The 1980s encourage the promotion of subsidized small loans to micro-enterprises (tiny businesses) specially run by women head of household and single mother, with the purpose to enabling them accumulate assets and raise household income and welfare. These experiments resulted in the emergence of nongovernmental organizations (NGOs) that provided financial services for the poor. The goal was the alleviation of poverty. - In the 1990s, when the International Donors reduced the support to the overheads of the NGO’s involved in micro-credit, we assist the conversion and privatization of many of these Non Governmental Organizations into formal financial institutions in order to access other niche-market, collect savings and achieve strength and sustainability. Thus, the restructured NGO adopted the new terminology of Savings and Loans Cooperatives, Credit Union or “Caisse Populaire” and they started to use the term Micro-Finance the define the scope of their activities. - For the 2000’s, deregulation and monetary control acts enabled commercial bank, brokerage firms and institutional investors to enter the micro-finance marketplace and serve groups of consumers non served or underserved by the conventional banking system (because of either a poor credit history or a record of low income) and charge a higher interest rate. Therefore, the Subprime Lending Market was created. |