my understanding (and that of our open source editors at http://grameen.tv) is microcredit is the name for the exact franchise that yunus open sources ; this contains many features that other "microfinance models" may not have.

Notoriously Martin Rizzi in other place claims in many of his posts about Mexico that many loan sharks now call themselves Mfinanciers. More Mexican MF controversy is debated here

Microcredit Truth insists on the following:

*peer to peer training on entreptreneurship among all borrowers (5 women circles)

*the whole community's face is connected with sustaining the entrepreneurs (in this context credit is a human right)

*each bank for the poor is graded until it is self-sustaining and all its surplus is reinvested back in the community

yunus keeps an eye out on how to upgrade his borrowers work - so for example whilst the main business of the loans (1970s) began with buy a cow - very much the most prized today among hard working village entrepreneurs is being the village's mobile telephone kiosk (a modern day equivalent to being the telegram operator of 100 years ago)

replicating the quality certification of microcredit is no small job ; http://www.results.org has helped yunus immensely by staging the most impactful global summit http://microcreditsummit.org where 2000 people join in annually - there are about 15 roles you can bring to this summit only one of which is being nanker but you must bring one and share experiences; this conference set the pre-millennial goal of lifing 100 million families out of poverty within 7 years

it was only about 2003 that jeff skoll and bill drayton and susan davis invited Yunus to join with them in branding the global social entrepreneur - as far as I can see Yunus is excepitional in his worldwide branding talents (vested interest I am the author of key books in the genre of the media crisis of world calss branding http://worldclassbrands.tv)

if you want to see how some billanthropists have been tempted to redesign microfinance the gos in this new yorker article is not for the conflict-innocent http://www.newyorker.com/archive /2006/10/30/061030fa_fact1

my family of economists and journalists investigators of entrepreneurial truth is 24 years into searching for what socila projects scale http://normanmacrae.com/netfuture.html; we intend to convene 1000 person debrief http://entrepreneurialrevolution .blogspot.com in 008

It is worth noting that in Bangladesh Yunus is part of a magic duo. Fazle Abed (which our open source journals cover at http://brac.tv ) franchises what only public service models can do (eg infant health and primary schools for teh very poorest). Together MYFA blend entrepreneurial and community government models to empower sustainable futures around what were the world's poorest communities.

Chris, the work that yunus has done in bangladesh is very interesting, but it strikes me that bangladesh remains one of the world's poorest societies. Mr. Yunus himself continues to innovate - we are not done developing effective microfinance services yet.

Microcredit is one part of microfinance, through which savings, insurance and other kinds of financial services are offered to the poor. The grameen way is one way to deliver microcredit. In my own personal view, there is too much emphasis on sustaining institutions to support the poor and not enough emphasis on transitioning the poor away from institutions designed for the poor.

Until a few year ago, a man who had no debts was considered virtuous, honest and hardworking. Today, he's an extraterrestial. Whoever does not owe, does not exist. I owe, therefore I am. Whoever is not credit-worthy deserves neither face nor name.

• Eduardo Galleano, Upside Down

Relevant ?

To me they are both like having clean water. Clean water will not bring prosperity to the area, but the area cant prosper without it. Same with microcredit/finance - not a solution in and of itself but a access to credit is a vital part of the path to development.

However, if there is a crisis in the economy as there was in Thailand in 1997, clean water won't drive you deep into poverty and debt can, even a little debt.

But with microcredit the debt does not do that as there is no collateral, so while if you stop paying you cant get more credit, their is not other consequence to default.

Well, there are social consequences, espectily with group lending type programs.

Isn't there an assumption here that 'development' or the individual's route from poverty is better funded through debt rather than savings ?

Don't collective savings that are locally owned emphasise the positives of a social solidarity that comes from building something together - whereas group lending schemes (funded by outsiders) are based on the more negative and divisive necessity for group pressure and sanctions ?

I do wonder if anyone here is at risk of muddling debt (as badwill marketed by many of west's biggest banks with such addictive obscenities as credit cards ) with empowering entrepreneurial education

I mean if someone went to a university and paid $500 to be taught theory of entrepreneurship (or even if they did not pay but invested a year of their life doing that from a very poor society where that year might alternatively be helping with water) that would "put them in debt too"; wehereas at least Yunus communities use your mutual resources to start you up with your business and peer to peer mentor you and the whole community's sustainability out of poverty depends on transpareny/goodwill of your success growing over time

I absolutely accept that there are all sorts of sharks out there - many even rebranding themselves as mocrofinance. However it does a great dis-service to true alumni of Yunus to tar his model with the same brush when its the exact opposite (or unless you have been to one of his vilages and have evidence we need to query).

Its also a case that someone (and some map) has to choose where the orgin of finance begins. If you wish to nominate who you trust most in the world for such a source I am delighted to journey in searching with you until I learn why you trust that person most.

Chris, I don't think anyone else has mentioned Yunus except you.

John as I tried to explain at the start (and in response to the private mail you sent me before planting this thread) when you use microcredit in your title - you are benchmarking the open source brand certified by all alumni of Yunus including 2000 people a year who meet at http://microcreditsummit.org - if you are suggesting that Yunus is not the golden thread flowing through this conversation, I will have to respectfully disagree;

http://worldclassbrands.tv its really quite a big media/communications/inter-community trust issue how to open source brand so its quality is never burst as a human relations system - if Dhaka formally asked you (as almot all commercial brands by now would have) to put TM(Yunus) alongside microcredit every time you used the word you might feel fatigued; and fortunately part of the Yunus "microcredit" model saves 20% of operating cost that other banks give up to lawyers as he has taken pain to explain in many videos including the 3 he made with ashoka one of which was translated into 100 + languages as part of the Nobel prize knowhow sharing!

chris macrae http://grameen.tv alumni for mapping/weaving the compound good (including 100 million verified end-povrty families http://www.results.org) that can be expoenentially sustained by yunus true franchises http://www.ned.com/group/network weavers/news/7/

Microcredit is a generic term - not a brand.

Yunus cannot stake any exclusive claim to the term anymore than he can claim ownership of any other word. People talk about 'hoovers' when they mean vacuum cleaner and no one from Hoover gets wound up about that.

I also find it odd that you mention my PM. You were interrupting another discussion on Opok Farms with posts about microfinance v microcredit.

I therefore simply suggested that the subject probably merited a discussion thread in its own right. You suggested that I should take a certain track in starting this thread but I decided to keep it more open by posing questions that I thought other people might also want to raise.

That's all. No hidden agendas !

John said:

Isn't there an assumption here that 'development' or the individual's route from poverty is better funded through debt rather than savings

No - there is no such assumption. There is an assumption, fact in my opinion, that where there is not access to formal credit, predatory money lenders dominate. There is an assumption that access to cheaper credit provides more options, or at least reduces the cost of the current moneylender system. Savings are still an important part of microfinance.

Also - you seem to be making the assumption that before the microcredit organization there was not debt or lending. People seem to think that the micro credit orgs move in and all of a sudden debt is introduced to the community for the first time. That assumption is nonsense - you will have a hard time finding a place anywhere where there are no moneylenders, - micro credit is a low cost alternative to the existing debt structures.

One important point - the existing money lenders don't just lend cash. I was talking yesterday to a major jewelry importer about a source they had in Nepal. It turns out the jewelry was purchased from a Nepali man who lends the materials to the makers - who make it in their huts, and return the finished jewelry for a small fee. This is a form of money lending, since if the jewelry maker could borrow to buy the raw materials and make a much higher profit.

John Berger said:

you will have a hard time finding a place anywhere where there are no moneylenders

I have read about "debt bondage" as a social institution in places - do you see microcredit as a partial solution to that?

John, just one quick point because I'm also interested in what others think about this - but I don't see your last example of the jewellery maker as being a loan at all. It is simply outworking.

Small assembly work is carried on at home (instead of a factory) throughout the world - including the UK - often for appalling 'piece work' payments that circumvent minimum wage legislation - where such legislation exists.

I think it's stretching your case to say that, in these circumstances, that the raw materials are being 'loaned' when clearly both the raw material and the finished product still belong to the exporter.

Chris, I have to disagree that Mr. Yunus naturally runs through this or any thread that talks about microcredit. As mentioned above, microcredit is not a brand, it's a tool. Mr. Yunus has inspired many others to develop mechanisms for lending to the very poor, and not all who attend the Micro-credit summit summit are engaged in the microcredit field through the Bangladesh model at all.

Because microcredit uses alternative forms of (usually social) collateral, effective microcredit delivery mechanisms need to be built on existing local social norms. The small solidarity group lending that Mr. Yunus developed in Bangladesh didn't work as well in Latin America as village banking approaches did, which are based on larger groups of people and some different governance principles. Both models successfully deliver microcredit. Then again, in my personal view neither of these credit delivery systems really reflects Ugandan social norms, such that they can be imported in neat packages into this particular culture with the same results.

Of late the Ugandan Government is pushing for the delivery of micro-credit through "cooperative & savings societies," and incentivising those coops that have additional viable group income generation programs with microlending capital. Informal cooperative savings groups existed in Uganda long before the global microcredit rage. I find it very interesting that the Govt. is encouraging an institutionalized return to that approach.

Christina Jordan said:

Of late the Ugandan Government is pushing for the delivery of micro-credit through "cooperative & savings societies," and incentivising those coops that have additional viable group income generation programs with microlending capital. Informal cooperative savings groups existed in Uganda long before the global microcredit rage. I find it very interesting that the Govt. is encouraging an institutionalized return to that approach.

Thanks for that Christina.

I come from a working class mining family and I know that one of the things that poor people used to fear most of all was debt. They also used to fear not being able to pay for their own funerals. That is why 'penny' life insurance policies were once widespread in traditional working class communities. Once an almost universal form of savings in some areas.

That has all changed now - although not for the socially excluded - but I would guess that the principle and the instinct to put 'savings before debt' still holds strong in poor communities.

It's therefore heartening to read about the cooperative savings groups in Uganda because I think that some of the great achievements of the emergent working class in the UK - from the 18C through to the 20C - were in the financial field and especially the cooperative savings and housing association movements.

I appreciate that there are no direct parallels with UK economic history but I think the key point is that our cooperative ventures were a genuine development process initiated 'from below' rather than prescriptive solutions bought into the community and controlled from the outside.

It sounds as though that kind of 'development' is being encouraged in Uganda.

Maybe I'm stretching what you're saying too far - but I have no doubt that you will correct my errors if that's the case. :)

Been thinking out what I've written here because I may have given the impression that my 'pro-savings' emphasis might imply that I'm allergic to loans and I just wanted to shade that in some more.

I think Christina made a good point when she said that "effective microcredit delivery mechanisms need to be built on existing local social norms" and I think this is where some of my concerns arise.

Where we have established banking or financial systems we generally trust those established institutions and we are effectively asking the bank to trust us (and our known future income and our credit history) when we are asking for unsecured loans.

However, where there are no established financial institutions it seems that the roles are reversed. The village already trusts itself. It is up to the microcredit lender to prove that they can be trusted.

John Berger said that we will have a hard time finding a place anywhere where there are no moneylenders and it was wrong to assume that micro credit organisations move in and all of a sudden debt is introduced to the community for the first time.

I think John glosses over a whole range of 'loan or support arrangements' (in produce, kind or labour) that can exist in close communities and maybe misses the point that microcredit is strictly about cash loans repayable with cash and that kind of debt might be new.

And even if local moneylenders do operate, there can also be an assumption here that microcredit (particularly if it is sourced from the developed world) is somehow superior and more ethical.

John Berger is not saying that exactly but he does go along that road when he asserts, as a fact, that where there is not access to formal credit, predatory money lenders dominate.

I'm not sure if this holds true. In established communities we should remember that the community itself also has sanctions it can exercise over the unscrupulous. The sanctions can be quite simple. In mining villages loan sharks used to get a good kicking.

So I think John is wrong here. I believe predatory money lenders predominate where societies are fractured and where ties of extended family or clan or class solidarity have broken down.

I am sure no poor person loves moneylenders but I would suggest that the predators - indigenous or otherwise - operate at the fringes and feed on the underclass. The established moneylenders are, in a very real sense, regulated by the community and their relations with that community.

They can only 'get away with' charges that are either acceptable or customary and we should also not forget the controlling influences of Islamic finance in areas where that applies.

In this context isn't it the case that it can be the microcredit organisation - with no roots in the community - that is completely unregulated and is not even subject to the informal regulation of the community?

In which case, then surely this can be a loss of community powers and controls which they cede to the new 'bankers' who now tell the community how to behave ?

Indeed, it may even be the case that it is the microcredit operator - seeking to extend the market for 'new finance products' - that needs firm regulation and particularly where it is extending its reach into the informal economy of the poor ?

In my jewelry example, the exporter is lending materials to the artisan who then returns the product and gets a fee. Sure, you can look at it as contract work because that is what it is, but it is also lending, or if you dont buy argument on that, it is a practice that microloans competes against.

If the raw materail was worth $10 the artisan might get $1 for a days work, and the exporter will make $30 - so the exporter has a 300% ROI and the artisan has a $1 wage.

But if the artisan can borrow the $10, repay $12 at the end of the day after they sell the products for $30 - all of a sudden the artisan goes from a $1 a day wage to a leveraged, high ROI manufacture.

Only credit changes this impliclty lending relationship that is so dominant in poor countries.

John Berger http://www.madebysurvivors.com/

Re debt bondage.

I am not convinced microcredit will help much in escaping with debt bondage as it not the implied interest that is the factor.

however - anything that helps economic opportunity will reduce debt bondage.

For clarity - I use the legal term debt bondage which includes fraud, deception of force. Just being stuck witha big loan that you took eyes open because you had no other opportunity is not legaly debt bondage, even if the effect is the same.

John, I see what you're saying about the jewellery maker and obviously some artisans also acquire expertise in sales and marketing and become entrepreneurs (with or without the help of microfinance) but I still think you're stretching the lending analogy.

If the craftsman worked in a factory and was paid a wage (however calculated) you would not say that he was being 'loaned' the materials. General Motors do not loan their car parts so their workers can make cars.

I think it is too easy to succumb to romantic notions when we talk about artisans. They may be notionally self-employed (as spinners were in the UK before the industrial revolution) but they are effectively outworkers with no controls over their work. They are entirely dependant upon the flow of raw materials from the merchant.

When the merchant has no prospective future sales then the workflow stops. Credit might help a few but all artisans cannot be entrepreneurs - unless of course they form cooperative ventures.

But that, of course, is another story.

John

It's all about "Capital" and "Labour" at the end of the day, and we are used to the current model of Capitalism where Labour works for Capital for a "wage", and Capital reaps most of the rewards.

I advocate a different approach - a "Capital Partnership", where Capital works WITH Labour using an LLC, LLP or similar - whereby the artisan and the exporter simply share the revenues from the sale of the finished product in agreed proportions.

So x% of revenues could go to the artisan, and (100-x)% to the exporter.

Now most artisans can't actually afford to do that, and need some form of credit or time to pay, where the value they provide in exchange consists of their future earnings (from the exported goods, say).

That's where the concept of the "Guarantee Society" and "Time Pool" come in - a mutual guarantee of bilateral credit between the artisan, and the people who sell him,on credit, what he needs to survive until he can pay them from his "Equity Share" in the export "joint venture".

ie I'm interested firstly: in micro-investment, where there is no Debt, just a simple form of revenue-sharing "Equity"; and secondly, in a form of risk-sharing mutualised microcredit, where there is no "Interest" but there is a provision paid into a "Default Fund", and an amount paid to the system manager.

This combination of "Capital Partnership" and "Guarantee Society" I term "Open" Capital.

Best Regards

Chris Cook

John Berger said:

In my jewelry example, the exporter is lending materials to the artisan who then returns the product and gets a fee. Sure, you can look at it as contract work because that is what it is, but it is also lending, or if you dont buy argument on that, it is a practice that microloans competes against.

If the raw materail was worth $10 the artisan might get $1 for a days work, and the exporter will make $30 - so the exporter has a 300% ROI and the artisan has a $1 wage.

But if the artisan can borrow the $10, repay $12 at the end of the day after they sell the products for $30 - all of a sudden the artisan goes from a $1 a day wage to a leveraged, high ROI manufacture.

Only credit changes this impliclty lending relationship that is so dominant in poor countries.

John Berger http://www.madebysurvivors.com/

I 100% agree with you that John, that my example is oversimple and that the artisan in my example would need to create a buying co-op and have a whole bunch more management and sales skills to really use the loans to compete with the current system.

My goal was not to make a broad statement, more to show that microfinance is not in competition with savings, that debt allready exists most places that have no microcredit, and that there are very common structural problems that credit can be an important part of the tools needed for improvement.

Thanks for the comment on debt-bondage John - John & John it sounds like you are both saying the same thing with different emphasis?

Chris Cook said:

I'm interested firstly: in micro-investment, where there is no Debt, just a simple form of revenue-sharing "Equity"; and secondly, in a form of risk-sharing mutualised microcredit, where there is no "Interest" but there is a provision paid into a "Default Fund", and an amount paid to the system manager.

As Chris knows - this is an agreement to eliminate the "time value" of money through something akin to profit sharing. I find it easier to understand if we use a term other than "money" or "credit" to explain the terms of the agreement. We can describe these transactions in terms of "shares" or "interests in the enterprise" (as opposed to "interest on money").

I see micro-finance-credit as an important tool - useful in specific instances. In the end it is only a minor extension of the existing "money system" that regulates flows of value through the larger system. We will need to think in broader terms to design additional systems to fill the gaps that cannot be filled by the "market".

There are those who say that "the market" is capable of expanding until "all of Us" are included. My own analysis indicates that the market cannot produce abundance and therefore cannot employ "all of Us". But either way, until such time as "the market" does employ "all of Us" there is no reason that we cannot or should not institute these additional systems for the benefit of those left out - or who opt out - of "the market".

I think it is sad when people make something fuzzy that is quite simple

the yunus brand includes these systemic flows:

peer to peer training in being a micro-entrepreneur

reinvesting in each community; ie not taking any surplus out a community that developed it

communal pride and empowerment in moving a whole community sustaibility up out of poverty

at least 2000 network weaving people a year who meet to open source knowledge of this brand franchise through practical experiences

what is evident is as sonn as someone uses the word microfinance, they are definitely not aiming to apply the yunus model

whether those who claim that using the word microcredit when not intending to employ the yunus microcredit model is fair I dont know

I believe that htpp://www.results.com very strictly looks at those applying te YUnus microcredit model when it audits 100 million lifted out of poverty in last 7 years

none of this would matter so much if there were not several people in this thread who keep on raising their dislike of debt as averagely practised - something I abhor too - insinuating that yunus microcredit has any of the devious addictive aims that most of those financing debt have; yunus model is the very opposite of banks that have used to profit from people being trapped in debt

Chris, I really don't think anybody is insinuating anything about the Yunus model except that it is not the only only way small amounts of credit are delivered in the world. It sounds like perhaps you think it should be.

I did take a look at http://results.org, and actually they don't use the term microcredit but microenterprise at this link http://www.results.org/website/s tory.asp?id=364 though the mouse over on the front page that I clicked on to get there said "microcredit transforms the lives of the impoverished."

Somewhere else, it says about the microcredit summit campaign:

The Campaign brings together microcredit practitioners, advocates, educational institutions, donor agencies, international financial institutions, non-governmental organizations and others involved with microcredit to promote best practices in the field, to stimulate the interchanging of knowledge, and to work towards reaching our goals.

Which says to me clearly that it's recognized there are different people & orgs out there doing different things. There is not one best practice; there are many practices that the microcredit summit campaign aims to bring (and measure) together.