In Search of “Sound Practices” for Microfinance
by Christopher Dunford

The notion of “best practices” for all microfinance is challenged in favor of “sound practices” that are appropriate for particular organizational strategies and situations. A simple conceptual framework is offered to facilitate understanding of the current diversity of experiments with product-market pairs (e.g., group-based lending to poor women struggling to earn enough for family survival). Since the microfinance movement is still in a mode of intensive learning, we should not presume too soon what will be “best” for all product-market pairs. We can expect to discover a somewhat different set of sound practices for each distinct product-market pair.

The Application of Microcredit Technology to the UK: Key Commercial and Policy Issues
by Rosalind Copisarow

This article addresses the following issues: who needs microcredit in the UK, what is the extent of the unmet demand across the country, what are the precise terms and conditions required by microentrepreneurs, how repayment rates of at least 95% can be expected, and how an institution making microcredits can become self-financing within six years. The article also describes the main barriers faced by microcredit institutions in the UK and offers solutions to obtaining funds from the private, public, and voluntary sectors and to operating within a legal and regulatory framework that permits microcredit institutions to serve their clients with the products that they need. Finally, the article examines the social and economic impact that can be expected from microcredit, at an individual client level, at a local community level, and at a national level.

Rural Towns as Partners in the Utilization of Financial Credit: A Viable Option for Accelerated Development in Africa
by Napoleon Bamfo

One option of development that governments in Africa can pursue but which does not appear to have crossed their minds, is encouraging towns, represented as incorporated units, to borrow financial credit. There are several reasons why this appears to be a viable option of development. No government has the financial capacity to address the social and developmental needs of every town under its jurisdiction. A government that encourages or makes it easy for individual towns to utilize credit available from financial institutions, therefore, will be opening a hitherto underutilized component of development in the form of local savings and entrepreneurship in addressing the particular needs of communities. That the constant demands of several communities on government for developmental assistance will be substantially mitigated will also be complemented by the fact that the simultaneous engagement of several towns in myriad development projects may be the most cost-effective way of accelerating economic development. This paper examines a developmental option that could potentially relieve poverty in Africa by examining the feasibility of making townships the primary recipients of financial credit and offers a look at the problems that might be associated with pursuing that policy.

Macroeconomic Stabilization and the Microentrepreneur
by Jeffrey R. Franks

Macroeconomic instability is largely detrimental to microenterprises. An unstable economic environment generates inflation and thus hits small business and the poor more severely than the more formal, wealthier segments of the population. Stabilization policies, which eliminate these disadvantages of instability, can help microenterprise. While healthy macroeconomic factors can positively influence the informal economy, the so-called “informal sector” can strengthen the macroeconomy. Given proper underlying conditions, microenterprise may prove as an engine of growth for an entire economy, and not just a small subsector of only marginal macroeconomic importance. This article discusses the effects of these macro-micro links with a special focus on IMF-style macroeconomic stabilization policy. It argues that macroeconomic instability imposes high costs on microentrepreneurs. Therefore—contrary to popular belief in the development community—macroeconomic stabilization can ultimately be very beneficial to microentrepreneurs, although it can be costly in the short run.

Small Business Promotion and Microlending: A Comparative Assessment of Jamaican and Israeli NGOs
by Benson Honig

Loan programs in two different countries, Israel and Jamaica, are compared and contrasted, in order to identify common elements of project design, selection, and institutional norms. Utilizing agency theory, this article examines what types of borrowers successfully navigate the credit market and to what extent the bureaucratic processes employed by institutions influence and bias outcomes in unpredicted ways in organizations. Entrepreneurs are well recognized as coming from a wide range of backgrounds; indeed, it is the very heterogeneity of their origins that allows many to provide the newness of perspective so necessary for their activities. However, hidden or tacit institutional biases were found to work against this diversity, limiting severely the impact of efforts to sustain an entrepreneurial culture and to promote economic development. The characteristics of the lowest level of organizational actor(s) were found to differentiate successful innovation from unsuccessful attempts. Selection of the appropriate staff was found not only to influence the quality and nature of the tasks assigned, but also the very direction and choice as to exactly what the organization would do.

Client Exit Surveys: A Tool for Understanding Client "Drop-Out"
by Anton Simanowitz

The ability of microfinance institutions (MFIs) to reach and to demonstrate a positive impact on their clients is increasingly recognized as a core principal in poverty-focused microfinance, and there is a growing move toward lower-cost, practitioner-friendly approaches to impact assessment. Interviews with program drop-outs are an important source of information, and they are incorporated into a number of impact-assessment systems. This article explores how useful impact information can be gained from drop-out interviews and presents ideas from the experience of the Small Enterprise Foundation (SEF) in South Africa. Drop-outs provide a very valuable source of information for program improvement, relating both to the performance of the MFI in relation to client needs, and more generally to how an MFI relates to client livelihoods and external conditions. Two approaches commonly used are contrasted—the survey-based client exit interview and a more in-depth case-study approach that seeks to understand deeper, underlying reasons for drop-out.