London, Nov. 16, 2004 (IPS/GIN) -- Small is becoming beautiful again in the world of finance. Or let us say, the microfinance business is beginning to pick up.

And with it the lives of many of about a billion people worldwide who lack access to basic financial services, says a report from the Rome-based UN agency, the International Fund for Agricultural Development (IFAD) as it prepares for an active International Year of Microcredit 2005.

Microfinance follows a broad enough range within small limits. ''A first-time borrower can be asking a loan of $50,'' chief development strategist for IFAD Gary Howe told IPS.
That does not sound like a lot but ''it could buy you three goats, fertiliser seeds, tools,'' he said. ''After repayments are made microfinance could go up to $500, the kind of money that can buy you machines.''

The inspiration for spreading microfinance services around the world has been the celebrated Grameen Bank in Bangladesh that now serves about 2.4 million borrowers. ''The Grameen Bank started off as a small experimental activity,'' Howe said. ''Then it became an NGO, then a bank.''

Other microfinance services are following that pattern in moving from local do-good NGO financing towards financial structures. Now microfinance is in the hands of local institutions becoming financial organisations. And increasingly it is being routed through national institutions that are capable of forming relationships with NGOs and the world.

The move towards more specialised and experienced providers is good for microfinance, Howe said. ''It is better to work through institutions with financial self-control and probity. It makes regulation easier, and gives the industry a voice in relation to regulators.''

Microfinance is beginning to attract the attention of global players in the world of finance. The UN-designated International Year of Microcredit 2005 will be launched Nov. 18 from stock exchanges in several cities including New York and in Milan, Italy, to give it a more global platform.
Over the last five years the microfinance sector has grown at an average rate of 25 to 30 percent, IFAD says in a note. ''Sixty-three of the world's top MFIs (microfinance institutions) had an average return of about 2.5 percent of total assets, comparing favourably with returns in the commercial banking sector.''

In countries as diverse as Bangladesh, Benin and the Dominican Republic, the report says repayment rates are as high as 97 percent.

''Commercial financial institutions such as Triodos Bank of The Netherlands, Citibank of the United States and Deutsche Bank are now moving into microfinance, attracted by the 'double bottom line' of making a profit and reducing global poverty,'' IFAD says. More than 60 investment funds incorporate microfinance in their portfolios, and around 70 percent of these have appeared in the last two years, the IFAD note says.

''Poor people are becoming part of the global financial market and want to access a greater range of financial services and products,'' IFAD president Lennart Bage said in a statement. ''To meet their needs, we have to help microfinance move closer towards the formal financial system.''

Many of these larger players are tying finances into national microfinance systems.
IFAD itself, besides promoting the technology of microfinance has an ongoing project portfolio of $640 million in rural finance activities, which is about 30 percent of its ongoing projects. Two-thirds of IFAD projects have a microfinance component.

Howe says microfinance could provide a major boost to the Millennium Development Goals because ''they improve the capability to earn more.'' Microfinance can work beyond handed down aid because it can ''help to raise productivity and profitability of poor people.''

Microfinance is working particularly well with women who have traditionally had little access to lands and markets, Howe said. ''Microfinance has opened their window to the world. It has had a very profound impact particularly in health and education.''

The IFAD report acknowledges that microfinance has not yet reached the poorest 25 percent of the poor. ''Most microfinance goes to areas that are urban or semi-urban because providing a service is easier when people are close together,'' Howe said. IFAD is engaged in finding methods to reduce costs in taking microfinance to rural areas.

IFAD is examining ''technical factors that make microfinance easier,'' he said, and ''working with national institutions and multilateral institutions to reduce costs.''