Secuencia metodológica de la hora del juego libre en los

2.3.1.

Backdrop – Financial Exclusion of Poor People

Microfinance is an innovative development tool that has been introduced to help deal with the problem of financial exclusion faced by poor people around the world. Provision of credit to poor has been a challenging task since the beginning of financial sector evolution. Low income people, who are unable to provide suitable collateral, are generally denied access to financial services through conventional financial sector (Piot- Lepetit and Nzongang, 2014). Information asymmetries, high transaction costs, lack of adequate collateral, and risks associated with the pro poor lending practices are cited as major reasons for the financial exclusion of poor from the formal financial sector (Stiglitz and Weiss, 1981, Coleman, 2006, Armendáriz de Aghion and Morduch, 2010). Other obstacles faced by the poor in accessing finance include high interest rates, and

8 _{For more conceptual differences between microfinance and micro credits, see ELAHI, K. Q.-I. &} RAHMAN, M. L. 2006. Micro-credit and micro-finance: Functional and conceptual differences.

Development in Practice, 16, 476-483.

9 _{Social capital is defined as a set of social relations and norms that can help people in coordinating their} actions and achieving desired goals. NARAYAN, D. 1999. Bonds and bridges: Social capital and poverty. Washington, D.C.: Poverty Group, World Bank.

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relatively long and complicated admissions and application procedures (Jones et al., 2007, Hamada, 2010).

This is not to say that there has been a complete dearth of efforts, before introduction of the microfinance technique, to help poor people in getting much needed finance. To the contrary, provision of subsidized credit aimed at poverty alleviation has a long history. There were a number of development strategies that had been implemented from 1950’s to 1980’s to facilitate provision of the pro poor finance. While the main focus of all

such traditional strategies was to help the resource-constrained poor people, the actual implementation vehicles took different forms such as; government owned and operated institutions, agricultural and cooperative banks, commercial institutions encouraged by governments to participate in special financing schemes, and various other types of development financial institutions.

Unfortunately, most of these earlier schemes failed to achieve their desired objectives and many ended in complete disasters. Major problems that have been identified in relation to the failure of such schemes include: low repayment rates, accelerated costs of subsidies and politicization issues. These problems also led to the practice of benefiting more influential people, instead of the real poor, for whom these schemes were originally designed (Adams et al., 1984). Another factor contributing towards the failure of such financial interventions was related to slow policies of local governments for introducing reforms, resulting in obstruction of growth (Milana and Ashta, 2012). It was in this background, that the concept of microfinance was first put into practice, as a novel way of providing finance to poor people.

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2.3.2.

Origin of the Microfinance Movement

The origin of the so called modern microfinance movement is generally traced to the well-known Grameen Foundation, and its founder Dr Muhammad Yunus from Bangladesh10. The idea of helping poor through this innovative approach was conceived in 1970s, when Dr Muhammad Yunus started providing small, collateral free loans to poor women, facing financial exclusion. Encouraged by high repayment rates of these loans, Dr Yunus founded an organization, specializing in pro-poor financing that is today known as the Grameen Bank.

The lending model of Grameen Bank11 was originally based on group lending methodology, and this model is considered to be the pioneer in provision of collateral free loans to the poor (Tassel, 2000). With repayment rates of Grameen Bank being more than 95%, poor were finally seen as a bankable and credit worthy population segment that was previously ignored by the formal financial sector, based on the perceived high credit risks and transaction costs associated with lending to the poor (Siwar and Talib, 2001). The astounding success of Grameen Bank led to the replication of this model worldwide12, with nearly 7000 MFIs established in Asia, Africa, and Latin America (Chemin, 2008). In addition to the Grameen Model, many other microfinance models have been developed; introducing different innovations, in line with the diverse contextual requirements in various countries. Some well-known examples of such models include: the village banking model, rotating savings and credit associations, banking models, and credit union models, to name a few.

10 _{Bangladesh is a highly populated South Asian country, with nearly half of its population living on less} than $1 a day.

11 _{For a detailed account of the original Grameen Model, refer to HULME, D. 2008. The story of} Grameen Bank: From subsidized microcredit to market-based microfinance. BWPI Working Paper.

Brooks World Poverty Institute.

12 _{Some examples include: The First’s People’s Fund in Canada, Kashaf Organization in Pakistan, Micro} Credit Rainbow in Italy, and Micro Business International in USA.

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After recognition of the microfinance methodology as an effective development strategy, there came an era of unprecedented growth, with financial support and subsidies provided through various channels including; international development agencies, governmental organizations, philanthropists, large commercial institutions and non-government organizations (Koveos and Randhawa, 2004). A major milestone in the history of microfinance movement can be traced to the establishment of the Consultative Group to Assist the Poor (CGAP13) in 1995. CGAP aims to facilitate access of poor people to various financial and non-financial services, primarily through capitalizing on success of microfinance in this endeavour. Some other landmark events include: the launch of a global movement for reaching 100 million poorest families by the year 2005 (The Microcredit Summit Campaign, 1997), inclusion of microfinance in development strategies selected in G8’s action plan in 2004 summit, and declaring year 2005 as “the year of microfinance” by the United Nations.

The effectiveness of microfinance as a development tool was further substantiated with establishment of the Global Commercial Microfinance Consortium in 2005. The award of Nobel Peace Prize to Dr. Mohammad Yunus and his organization, for introducing an innovative approach for poverty alleviation through Grameen Bank model, could be seen as yet another momentous event. In 2006, Microcredit Summit meeting took place at Halifax, for celebrating the successful achievement of reaching target poor population of 100 million. Summing up the discussion, it can be observed that the microfinance concept has been hugely successful, with an average asset growth rate of nearly 39% per annum during the period 2004-2008 (Chen et al., 2012); while catering to the financial requirements of approximately 205 million poor people around the globe, by the year 2010 (Maes and Reed, 2012).

13 _{CGAP is a consortium of private and public agencies that has been established with support from the} World Bank.

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