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Sustaining and supporting microcredit initiatives

Grants for establishing loan capital and covering initial administrative costs are necessary to launch a microcredit scheme. These funds usually come from donors, United Nations agencies, international financial institutions and governments. Experience has shown that some groups can also generate these funds through their own savings.

Microcredit programmes must sustain themselves by charging interest rates that are above market rates to recover the operating costs associated with extending small amounts of credit. A major concern to the poor is their limited access to credit, not the relative cost of credit.

A successful microcredit scheme requires a long-term commitment from government authori-ties, donors and NGOs because time and effort are needed to establish the infrastructure and to build the necessary capacities. It takes even longer to develop the trust, group confidence and financial discipline on the part of borrowers to make such schemes sustainable. Partnerships between NGOs, financial institutions, donors and UN agencies are also time consuming but are essential for developing sustainable schemes. Such partnerships allow for greater outreach, as well as better identification of, and support to, the most appropriate local NGOs to manage the schemes. Systems for monitoring and evaluating the schemes' performance are also important, and borrowers must be helped to graduate to other systems of credit.

The nature and extent of UNICEF support for microcredit is determined at the country level through the country programme process. The lessons learned from many experiences suggest that in view of limited resources and capacity, UNICEF's role in microcredit is primarily to be supportive of national schemes, with a view to maximizing their outreach and impact.

In certain countries, UNICEF plays a catalytic role in microcredit by working with governments to stimulate national efforts through NGOs and socially conscious financial institutions. Where UNICEF provides direct financial support, it covers areas such as creating a core capital fund for lending, building national capacities, and monitoring and evaluating activities to learn from experi-ence and adapt the schemes to the specific situation at local and national levels. Management of the schemes is most often in the hands of a partner organization. All microcredit schemes that are supported by UNICEF primarily target poor women. In almost all countries, UNICEF advocates for basic social services and social communication to be linked with microcredit schemes in order to maximize the impact on the survival, protection and development of children and the empowerment of women.

February 1997

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