Microfinance was first set up in the form of the Grameen Bank in 1976, by the Bangladeshi economist Professor Muhammad Yunus. Microloans, which may be anything from a few pounds upwards, are used for income-generating activities such as buying rice to husk and sell, or to protect a borrower from having to pay extortionate rates to moneylenders for essential needs such as house repairs, weddings or funerals. The loan is given at an interest rate higher than bank rates, to cover the high costs of administering small loans, but substantially lower than money-lenders' rates. Savings are also crucial to microfinance, both institutionally in that they make up much of the loan capital, and also as a safe place for people to deposit their money. 

 As borrowers have no collateral to secure loans, many microfinance institutions (MFIS) follow the Grameen example of creating social collateral through peer pressure and support. A solidarity group of five or so borrowers will agree and mutually guarantee each other's loans, deterring default by group members so effectively that repayment rates often stand at well over 90%. 
  

Microfinance has now become a crucial poverty alleviation strategy and there are over 7,000 micro finance institutions worldwide, reaching around 16 million people. For many borrowers, particularly women, the social aspect of microfinance is both supportive and liberating. Most microfinance insti-tutions focus on women because they are excluded from conventional banking services more than men and because they have proved to be better repayers. With women accounting for over 900 million of the world's absolute poor and bearing much of the family burden of survival, the need for female focussed poverty alleviation schemes is unarguable. 

In India, self-employed women constitute 94% of the female workforce, but are highlv vulnerable financially. Mirai Chaterjee of the Self Employed Women's Association (SEWA), an Indian trade union for women, points out that "women rarely own capital or tools of production; they have no access to modern technology or facilities. All they possess are the skills and knowledge of their trade and their physical labour. There are few laws that protect such workers. Thus they remain poor and exploited, eking out a 
living, invisible to policymakers, planners and legislators. 

SEWA'S first micro-loan in 1975 involved giving a mere $1.50 to a poor woman and looking after her baby for her while she went to buy spices which she then sold at a small profit to buy some food.  That such small amounts can make the difference to a family's survival underscores the fact that, despite record economic growth worldwide, millions are excluded from it. 

SEWA turned itself into a bank to provide credit for its members after acting as a financial intermediary between members and commercial banks for several years.  It now provides conventional banking services, but it has adopted procedures and designed schemes suitable to poor, self-employed women, such as rescuing women's jewellery from pawnbrokers and private money-lenders, giving loans against jewellery, providing deposit-linked group insurance, legal aid, productivity training and education, maternity protection. child care and other social welfare services. 

The hope invested in MFIS highlights the fact that economic globalization and the domination of markets by transnational corporations have failed the poor.  The trickledown effect espoused by the free marketeers has not trickled far enough.  There are still 1.5 billion people living in dire poverty, most living on less than $ 1  a day.  The goal of the first World Microcredit Summit held this February was to "launch a global movement to reach I 00 million of the world's poorest families, particularly the women of those families, and provide them with microcredit facilities by the year 2005." 

With rural-urban migration proving a great drain on rural communities, and a great drain on urban infrastructure, microfinance may well be a crucial factor towards building more sustainable societies.  Microfinance for small enterprise helps support traditional crafts, skilled artisans and small-scale nonintensive farming, all the forms of employment that are being suffocated out of existence by big business. 

The problem most MFISs face is how to provide small loans to large numbers of people without incurring insurmountable costs and how to raise enough capital to lend.  Results International, who organized the Microcredit Summit, estimate that US$ 21.6 billion needs to be raised from grants, commercial sources and the savings of borrowers to attain the goal of reaching 100 million people by 2005. 
MFIS are striving to attract soft loans in the form of "patient equity" - funds which do not expect a quick return.  "The ideal is to build up enough equity which can be used to attract finance up to twelve-and-a-half times, allowing us to operate at a scale where we can meet operating costs fully and therefore attract mainstream funds, explains Vijay Mahajan, President of BASIX, an Indian rural livelihood credit association with a mission to promote a large number of sustainable livelihoods through the provision of financial services and technical assistance.  Mahajan estimates that 75 million Indians need microfinance services, of which 60% are in rural areas. 40% of India's 1,000 million population are below or just above the poverty line (living on 1400 calories per day), despite being in a rapidly expanding economy. 

The banks are, it seems, beginning to realize that the poor are bankable, both in the South and the North, but whether funds will be made available from mainstream banks is yet to be seen.  In the North, ethical banks, credit unions and charities are aware of the increasing need for microcredit.  "The top 100 companies in the UK have shed 2 million jobs over the last three years," explains Ed Mayo, "and it is the small and micro field that is creating jobs." In the US, 195 micro-loan funds have loaned over $44 million and served 208,190 clients, 71% of whom are on low income, according to the New Economics Foundation's recent report, Community Banking. 

This year will see the first British attempt to replicate a Grameen-style peer-lending credit and savings scheme by the Women's Employment Enterprise and Training          Unit  (WEETU) in Norfolk, where women are the lowest paid in the country.  "There is little support for small businesses and no attempt to help people form a proper business," says WEETU coordinator Erica Watson. WEETU has negotiated a three-month period of "enterprise rehearsal" when borrowers can trade but still claim social security benefits, a vital consideration, particularly. for single mothers. 

"A hundred years ago there were poor working people, now there are poor workless people," explains Pat Conaty of the Aston Reinvestment Trust (ART), which is Britain's first local community reinvestment venture, lending primarily to "viable, but not yet bankable" social and community initiatives.  "The formal economy has vanished in many inner city areas - shops are boarded up and banks have relocated out of the area.  In these areas it's not just self-help that's important, but mutual aid.  We need to build up society again." 

North and South, the gulf between rich and poor is widening.  Microfinance may provide the means for people not only to pull themselves out of poverty, but also to build up local economies and reassert the value of traditional and creative skills.  For those who are used to feeding on the financial crumbs of the vast profits from the global market, this is good news indeed.   · 

Sue Wheat is a journalist specializing in environmental and social issues.  She is author of The Future of Microfinance: Banking the Unbankable -- a report available from Panos, 9 White Lion Street, London NI 9PD.  Tel. 0171-278 1111; Fax. 0171-278 0345.