Reuters news item on UN Report -

UNITED NATIONS, Sept 1 (Reuters) - Programmes that provide small loans to poor families are highly overrated as a primary means of reducing poverty throughout the world, a United Nations report said on Tuesday.

The concept of microcredit programmes skyrocketed to prominence in the last 10 years, especially as a way of enabling poor women to start small businesses. U.S. First lady Hillary Clinton, among others, has visited successful projects run by women in several Asian countries.

And last year, donors at a microcredit conference in Washington agreed to extend small loans to 100 million poor households by the year 2005 at a cost of $26 billion.

But the report by the U.N. Department for Economic and Social Affairs said the concept had its limits if it sought to be a substitute for overall long-term aid projects.

It said the funds expended were modest and that the poorest of the poor lacked business skills to participate in such programmes during a period of dwindling foreign aid.

"Furthermore, many claims of high rates of repayment or of stable improvements in the standard of living of borrowers are not consistently or convincingly substantiated, despite the proliferation of literature in this area," said the report.

Nevertheless, the report said small-scale lending arrangements had considerable success in several areas, especially the Grameen Bank in Bangladesh, which has compulsory weekly public meetings for participants.

Other programmes mentioned include Thailand's Bank of Agriculture and Agricultural Cooperatives, institutions in Senegal, Guinea, Burkina Faso, Mali and Bolivia as well as the Accion Internacional with $1 billion in loans to Latin Americans in the last five years.

But the report's principle author, James Kanu of Sierra Leone, warned against siphoning scarce development assistance funds away from agriculture, health, sanitation, education and infrastructure repairs "for relatively untested microcredit schemes."

Noting that foreign aid has been declining rapidly over the past decade, he said that it was "important that resources are channelled to sectors that have potential, especially agriculture, infrastructure and education."

The report said that many microcredit programmes lacked support services or a linkage with other public sector activities, such as land reform, which may be needed for such projects.

It recommended that loans be provided in the context of access to land, appropriate technology, counselling and other projects, such as credit unions.

"Microfinance should be conceived as one component in an overall strategy to foster small business enterprise," the report said.

"Without long-term sustainability, a microcredit institution is in danger of collapsing or of becoming a thinly veiled charity," the report concluded

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