It is widely accepted that microcredit is a valid tool to reduce poverty and promote empowerment where there is participation of borrowers in management, definition of market interest rates and use of social collateral.
This paper analyses critically this position and draws some relevant conclusions on the basis of field research of five microcredit programmes: Grameen Bank, ASA, Proshika, BRAC and CARD Rural Bank. Empirical evidence suggests that this explanation is used more to attract the support of development aid than to describe the reality faithfully.
This paper reveals that successful microcredit programmes in large part depend on:
* A strong operational focus on providing a narrow and standardised range of services. This helps to keep transactions costs low;
* Ability to match loan repayment schedules with borrowers' income level and savings potential;
* Capacity to create a social and institutional environment where social and moral pressures make borrowers pay back their loans;
* Addressing basic client needs in an efficient way;
* Good work performance achieved through personnel management and motivation.
Finally, the paper concludes that there are different ways of making microcredit effective. Therefore, it is essential not to replicate a specific model but to adapt lending methodologies and organisational forms to the specific context where we operate.
