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LATIN AMERICA : MICROCREDIT - A TOOL FOR DEVELOPMENT OR PROFIT? By Patricia Grogg HAVANA , Dec. 9, 2004 (IPS/GIN) -- Microcredit alone is not a cure-all solution to overcoming poverty, but it can be a powerful tool when combined with technical assistance, training and a better distribution of wealth. Above all, microcredits - small loans for the poor -- and other forms of microfinance must recover their ''social'' role, said Edgar Zurita, the executive director of the Latin American Development Fund (FOLADE). FOLADE is an association of 45 NGOs from 17 Latin American countries dedicated to finding new financial tools for development and reaching higher self-sufficiency levels within the region. ''We need to find ways to make an impact in terms of development, social inclusion, and broader socio-economic benefits, as opposed to merely providing income for individual families,'' Zurita told IPS. Microfinance has become ''fashionable'', he said, as a result of a major publicity campaign carried out by the big multilateral credit institutions, but he believes that what is needed is ''more action and less fanfare.'' Zurita was in Havana to participate in a regional conference on ''The Globalisation of Financial Services for Microenterprises and Their Impact on Overcoming Poverty'', held from Nov. 29 to Dec. 1 and co-sponsored by FOLADE, the International Network of Alternative Financial Institutions (INAFI), and the Cuban Animal Production Association (ACPA). According to a report from the International Fund for Agricultural Development (IFAD), the microfinance sector has grown by an average of 25 to 30 percent annually over the last five years, which makes it an attractive area for the world's big commercial financial institutions. The participants in the meeting in Havana , however, concurred that microcredit should not be viewed as a business or a goal in itself, but rather as a tool that requires a series of other factors to contribute to development. ''Our goal is to restore its social foundation. There are microfinance giants out there that are only interested in making money,'' Zurita said. Another point stressed at the meeting was the potential for linking microcredits with remittances sent from abroad, which are a major source of income for many Latin American countries. According to the Inter-American Development Bank (IDB), the region took in close to 38 billion dollars in 2003 in the form of funds transferred by emigrants to their families back home. The World Bank provides a more conservative estimate of 29.6 billion dollars for the same period, but even this reduced figure represents a 10 percent increase over 2002, and is double the amount received in 1998, according to FOLADE statistics. Zurita believes these resources should serve as seed capital for generating more microenterprises in Latin America , but in order for this to be possible, the region's governments need to adopt legislation and policies that promote their use for this purpose. The result would be greater reproduction and circulation of capital and the generation of jobs, and therefore income, for a large sector of the population. According to FOLADE, 40 percent of the roughly 540 million inhabitants of Latin America are involved in some form of microenterprise, yet only eight percent of this total receive financing for their activities. ''Better terms of trade between countries are also needed, as well as greater access to the world market for microentrepreneurs,'' said Zurita, a native of Bolivia . As opposed to large financial institutions, microfinance funds should ideally come from ''ethical investment, more focused on development than on profit,'' he added. Zurita pointed out that in Bolivia , Nicaragua and other countries in the region, there are programmes that have achieved impressive results, and have received international recognition for their work. ''These are examples that should be emulated, but they are completely overshadowed by the giants that handle millions and millions of dollars in microcredits,'' he said. The world has undergone a major structural change, he commented. ''Today, market forces determine the conditions for promoting development, and this is why people believe microcredit is a cure-all for eliminating poverty,'' he added. Zurita said that there has been significant development of the microcredit sector in Cuba , a socialist country, and that FOLADE is sponsoring an exchange programme that will allow Cuban specialists to travel to Bolivia and learn more about the projects undertaken there. In the meantime, the Local Human Development Programme (LHDP) of the United Nations Development Programme (UNDP) has established a revolving fund for local development initiatives in Cuba , which provides small loans for small and medium-sized enterprises in Old Havana and in the provinces of Pinar del Río and Granma, at the eastern and western tips of the island, respectively. A study by Luis del Castillo from the University of Havana School of Economics finds that, among other objectives, the fund is aimed at helping to raise productivity and improve the organisation and marketing ability of microenterprises in the industrial, agricultural and service sectors. The interest rates for the revolving fund loans range between five and 10 percent, with terms of up to two years. |