In Atlantic Canada and around the world, men and women are using microcredit to build a better future. During the fall of 2006, the Atlantic Council for International Cooperation (ACIC) hosted a series of free public workshops and speaking engagements on the impact of microcredit across Atlantic Canada.
Frequently Asked Questions
1. What is microfinance?
To most, microfinance means providing very poor families with very small loans (microcredit) to help them engage in productive activities or grow their tiny businesses. Over time, microfinance has come to include a broader range of services (credit, savings, insurance, etc.) as we have come to realize that the poor and the very poor that lack access to traditional formal financial institutions require a variety of financial products.
Microcredit came to prominence in the 1980s, although early experiments date back 30 years in Bangladesh, Brazil and a few other countries. The important difference of microcredit was that it avoided the pitfalls of an earlier generation of targeted development lending, by insisting on repayment, by charging interest rates that could cover the costs of credit delivery, and by focusing on client groups whose alternative source of credit was the informal sector. Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors towards the building up of local, sustainable institutions to serve the poor. Microcredit has largely been a private (non-profit) sector initiative that avoided becoming overtly political, and as a consequence, has outperformed virtually all other forms of development lending.
Traditionally, microfinance was focused on providing a very standardized credit product. The poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we see a broadening of the concept of microfinance--our current challenge is to find efficient and reliable ways of providing a richer menu of microfinance products.
2. What is the difference between microfinance and microcredit?
Microfinance refers to loans, savings, insurance, transfer services and other financial products targeted at low-income clients. Microcredit refers to a small loan to a client made by a bank or other institution. Microcredit can be offered, often without collateral, to an individual or through group lending.
3. Who are the clients of microfinance?
The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income.
Access to conventional formal financial institutions, for many reasons, is directly related to income: the poorer you are the less likely that you have access. On the other hand, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of microfinance.
As we broaden the notion of the types of services microfinance encompasses, the potential market of microfinance clients also expands. For instance, microcredit might have a far more limited market scope than, say, a more diversified range of financial services which includes various types of savings products, payment and remittance services, and various insurance products. For example, many very poor farmers may not really wish to borrow, but rather, would like a safer place to save the proceeds from their harvest as these are consumed over several months by the requirements of daily living.
4. How does microfinance help the poor?
Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change.
Poverty is multi-dimensional. By providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women, who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment.
Recent research has revealed the extent to which individuals around the poverty line are vulnerable to shocks such as illness of a wage earner, weather, theft, or other such events. These shocks produce a huge claim on the limited financial resources of the family unit, and, absent effective financial services, can drive a family so much deeper into poverty that it can take years to recover.
Learn more about microcredit and how it works.
Source: Micro Finance Gateway
Atlantic Microfinance Organizations
Centre for Entrepreneurship Education and Development (CEED)
With ongoing support and guidance CEED enables entrepreneurs in metropolitan Halifax who may not be eligible for bank loans to start their businesses. CEED also acts as delivery agent for ACOA Seed Capital Loan Program, Canadian Youth Business Foundation and Students-in-Business low interest loan programs.
Saint John’s Community Loan Fund
Committed to strengthening social conditions through economic independence and entrepreneurship, the Loan Fund strives to generate income, asset building and greater self-reliance. Programs include: Business loans, employment loans, shelter loans, financial literacy training and business plan training.
Black Business Initiative (BBI)
Focus on growth and effective management, BBI provides financial assistance and business education to businesses owned by members of the Nova Scotia Black Community. These objectives are accomplished through the provision of Loans, Mentorship, Information, Training, Business Counselling, and Business Plan Development.
One of few ethical investment funds that encourages investors to invest funds in a socially responsible manner, financing development projects that benefit disadvantaged and marginalized people in the south. Oikocredit finances cooperatives as well as small and medium size businesses with a particular focus on agriculture, trade, services and manufacturing.
Atlantic Association of Community Business Development Corporations (CBDC’s)
A network of over 41 autonomous, non-profit organizations that work with all levels of government and private sectors to meet the needs of small businesses. CBDC’s support the creation of small businesses or the expansion and modernization of existing business through programs such as Financial Assistance, Self-Employment Benefits, SEED Capital Program, Women in Business Initiatives, Micro credit and Business Counselling.
ACIC Partners in Microfinance
Earth Action PEI