The worldwide micro-finance industry currently comprises about 7,000-10,000 institutions, out of which probably no more than 100-200 are both profitable and serving tens of thousands of clients. None of these are in any industrialized country. Out of the 300-500 programs currently operating in industrialized countries, Fundusz Mikro has come considerably close to profitability and scale than any other, with 30,000 loans having been extended over the past 3-4 years, by 90 staff working in 33 towns and cities. Since 1999, Fundusz Mikro has been fully self-supporting. Fundusz Mikro lends to any micro-enterprise with at least three months' net cash-flow surplus, however small.

The impact of microcredit is visible at many levels: for an individual borrower, these loans first and foremost directly affect the chances of survival of their business and continuation of their livelihood. In particular, loans provided for working capital during times of cash shortage are crucial. Secondly, they psychologically boost borrowers' self-confidence and self-esteem by giving them greater control over their lives and expanding their options. Thirdly, since the loans are accompanied by frequent interactions with loan officers, borrowers enhance their business skills, particularly in the areas of risk assessment and risk management, cashflow and inventory management, the optimal use of debt and the maximization of return on long-term investment.

Fourthly, micro-entrepreneurs, borrowing under group-lending schemes, derive considerable benefit from the mutual support (albeit accompanied by joint and several liability) provided by their group members. This increases their security and morale, helps strengthen their local communities. Fifthly, micro-loans have a rapid effect on borrowers' incomes and wealth. In Fundusz Mikro, every loan has increased a borrower's income by about 20% over an average term of 9 months. Clients who started borrowing in 1995, are now 2-3 times, bigger in terms of income, assets and employment.

At a community level, in addition to strengthening the bonds between people through group-borrowing, microcredit programs have also, without excluding others, benefited women and minority groups whose self-confidence to apply for a loan may be lower than average. They have also had a particularly strong influence in smaller towns and rural areas where financial institutions are absent or less prevalent and the social bonds between people are greater and enable easier adoption of the group lending approach.

At a macro-economic level, the benefits of microcredit include substantial job creation, through increase in employment of businesses that would otherwise have been stable, survival of businesses that would otherwise have folded and graduation into the formal economy of businesses that would have remained gray market activities.

A recently commissioned independent social impact study on Fundusz Mikro's clients shows, despite only four years of lending, a significant increase in the survival rates of clients businesses over those of similar, non-client businesses. The Fundusz Mikro study also shows six times the proportion of clients who have grown to employ five or more people as the proportion in the Polish micro-enterprise population as a whole. This equates, as stated earlier, to 47 new jobs created by every 100 clients over 3-4 years.

Two other macro-economic impacts that have been visible from microcredit are firstly, the increase in long term capital investment rates in micro-enterprises among Fundusz Mikro's clients, over six times the proportion made annual investments of over 15,000 pounds as the proportion in the Polish micro-enterprise population as a whole. Secondly, the informal training and skill-building received by clients have provided commercial banks with a greatly improved stream of new (graduating micro-credit) clients which has lowered their default rates on small business lending.

Overall, microcredit makes a very important contribution to the psychological, social and financial well-being of micro-entrepreneurs. It strengthens the bonds of support between people and it reaches out to the most needy communities, creates long term, unsubsidized jobs in an organic way, increases the skill base of the workforce, increases the capital investment rates in small businesses and offers to mainstream financial institutions an attractive pool of new business clients.

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Extracted from: The Application of Microcredit Technology to the UK