PEOPLE-CENTERED CREDIT SYSTEMS IN DEVELOPING COUNTRIES: THE NEED FOR REGIONAL NETWORKS People-Centeredness ofCredit Many studies have emphasized the need to involve people in the decision-making process that affect their life. This is particularly true for low-income households, where in many cases, the success of a project would depend on the degree of participation incorporated into the various project stages. The importance of community participation is well know, and many international organizations, including the UNCHS, have called for extensive participation in all stages of development. Formulation, planning, implementation and management of a program or project should be done with active participation of all groups, taking each of their potentials and shortcomings into consideration. Nowhere is this more true than in the mobilization of financial resources within the settlement. Due to the extensive externalities that access to credit provides, credit is one of the main factors that can induce people to participate, for example, in improving their settlement, setting up a home-based enterprise, or providing for education. The Quality and Quantity of credit for low-income groups Before such action can be taken, it is necessary to understand the quality and quantity of credit used by low-income households. As mentioned above, in the absence of formal credit to satisfy their needs, they turn to their own resources and the informal credit market to satisfy their needs. In the survey of squatter settlements, the respondents had approached money lenders, pawn brokers, employers, rotating savings clubs, self- help groups, friends, relatives, neighbours etc. for their credit needs (in more than 98% of the cases). Analyzing the quality of credit used, the following three main points emerged (Srinivas, 1995): The informal loans used by the low-income households were small in size since the money was required for a part of a larger activity (for example, in improving doors/windows as a part of a larger home improvement activity). This was in stark contrast to loans from banks, which tended to be large and for lump sum investments. Loans were usually made for very short periods. That is, the borrowers preferred to repay the loans quickly to avoid long-term commitments in repayments. This was necessary due to the uncertainty of their jobs/income and smaller interest payments. Banks invariably lent for very long periods with low-interest rates. Loans were unsecured, and usually no collateral or guarantee was used. This was due to the reason that most of the informal lenders used personal information of the borrowers and close proximate links to "keep on eye" on the borrowers and their expenditures, thus ensuring repayment. Since services were localized, and only well-known borrowers identified, the rate of repayment was also very high. Of the credit suppliers studied, the type that offered the greatest promise with respect to serving the needs and functions of the low-income households was the settlement-based community groups (also know as people's organizations or self-help associations). These were spontaneously formed and activated for mobilization of very small savings among its members, and sharing of these savings. Such groups offered democratic control of the proceedings because it was made up of the residents themselves; it was not profit motivated; it had multiple proprietorships; and it had close informational links among its members. In many cases, such self-help groups were initiated, supported and trained by a local NGO. There were several features of their credit activity brought up in the survey. The credit mobilized by them was savings linked. Only if a member had saved a predetermined amount was a loan given. Members were interchangeable, that is, they were credit suppliers at one point of the process and demanders at another. The benefits of the credit operation were mutual to all members and equally distributed. Most groups used only internal funds to provide loans. Trust and social/cultural links were primary factors for evaluation of potential members. This ensured proper enforcement of loan terms and conditions, besides allowing for flexible operations. Thus the credit mobilized by such groups was timely, savings-linked and had flexible loan terms and conditions (Srinivas, 1995). Go to the next section Return to the Table of contents Return to the Virtual Library on Microcredit