text:
VA loan
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A VA loan is a mortgage loan in the United States guaranteed by the United States Department of Veterans Affairs (VA). The program is for American veterans, military members currently serving in the U.S. military, reservists and select surviving spouses (provided they do not remarry) and can be used to purchase single-family homes, condominiums, multi-unit properties, manufactured homes and new construction. The VA does not originate loans, but sets the rules for who may qualify, issues minimum guidelines and requirements under which mortgages may be offered and financially guarantees loans that qualify under the program.
The basic intention of the VA home loan program is to supply home financing to eligible veterans and to help veterans purchase properties with no down payment. The loan may be issued by qualified lenders.
The VA loan allows veterans 103.3 percent financing without private mortgage insurance (PMI) or a 20 percent second mortgage and up to $6,000 for energy efficient improvements. A VA funding fee of 0 to 3.3% of the loan amount is paid to the VA; this fee may also be financed and some may qualify for an exemption. In a purchase, veterans may borrow up to 103.3% of the sales price or reasonable value of the home, whichever is less. Since there is no monthly PMI, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment. In a refinance, where a new VA loan is created, veterans may borrow up to 100% of a property's reasonable value, where allowed by state laws. In a refinance where the loan is a VA loan refinancing to VA loan (IRRRL Refinance), the veteran may borrow up to 100.5% of the total loan amount. The additional .5% is the funding fee for a VA Interest Rate Reduction Refinance.
VA loans allow veterans to qualify for loan amounts larger than traditional Fannie Mae / conforming loans. Standard VA guidelines state that the VA will insure a mortgage where the monthly payment of the loan is up to 41% of the gross monthly income vs. 28% for a conforming loan assuming the veteran has no monthly bills, although there is no hard limit to the DTI for a VA home loan. Veteran's have been known to be approved with a DTI of up to 80%, if there are other factors that strengthen their loan application. These factors include a low Loan-To-Value (LTV), sufficient residual income, additional income received but not used to qualify for the loan, good credit, etc...
The maximum VA loan guarantee varies by county. As of 1 January 2018, the maximum VA loan amount with no down payment is usually $453,100, although this amount may rise to as much as $721,050 in certain specified "high-cost counties."[1]
Contents
1 History
2 Funding fees
2.1 Purchase and construction loans
2.2 Cash-out refinancing loans
2.3 Other types of loans
3 Equivalents of VA loans
3.1 Private mortgage insurance
4 VA Loan application
5 Qualifying for Veteran Home Loans
6 Homeless Veterans - The National Center on Homelessness Among Veterans (NCHAV)
7 References
8 External links
History[edit]
The original Servicemen's Readjustment Act, passed by the United States Congress in 1944, extended a wide variety of benefits to eligible veterans. The VA loan guarantee program was especially important to veterans.[2] Under the law, as amended, the VA is authorized to guarantee or insure home, farm, and business loans made to veterans by lending institutions. Over the history of the program, 20 million VA home loans have been insured by the government. The VA can make direct loans in certain areas for the purpose of purchasing or constructing a home or farm residence, or for repair, alteration, or improvement of the dwelling. The terms and requirements of VA farm and business loans have not induced private lenders to make such loans in volume during recent years.
The Veterans Housing Act of 1970 removed all termination dates for applying for VA-guaranteed housing loans. This 1970 amendment also provided for VA-guaranteed loans on mobile homes.
More recently, the Veterans Housing Benefits Improvement Act of 1978 expanded and increased the benefits for millions of American veterans.[2]
Until 1992, the VA loan guarantee program was available only to veterans who served on active duty during specified periods. However, with the enactment of the Veterans Home Loan Program Amendments of 1992 (Public Law 102-547, approved 28 October 1992), program eligibility was expanded to include Reservists and National Guard personnel who served honorably for at least six years without otherwise qualifying under the previous active duty provisions. Such personnel are required to pay a slightly higher funding fee when obtaining a VA home loan.
Despite a great deal of confusion and misunderstanding, the federal government generally does not make direct loans under the act. The government simply guarantees loans made by ordinary mortgage lenders (descriptions of which appear in subsequent sections) after veterans make their own arrangements for the loans through normal financial circles. The Veterans Administration then appraises the property in question and, if satisfied with the risk involved, guarantees the lender against loss of principal if the buyer defaults.
In association with the VA's program, the Servicemembers' Civil Relief Act protects service members from financial woes on their home loan that may occur as a result of active duty commitments, freezing their interest rates at 6%.
On October 26, 2012, the Department of Veterans Affairs announced it has guaranteed 20 million home loans since its home loan program was established in 1944 as part of the original GI Bill of Rights for returning World War II Veterans. The 20 millionth loan was guaranteed for a home in Woodbridge, Va., purchased by the surviving spouse of an Iraq War Veteran who died in 2010. (www.va.gov)[better source needed]
Funding fees[edit]
A funding fee must be paid to VA unless the veteran is exempt from such a fee because he or she receives a minimum of 10% VA disability compensation. If a veteran is awarded disability compensation after paying a funding fee, he/she can apply for a refund of this funding fee, so long as the beginning date of the disability is prior to the closing date of the home mortgage.
In August 2012, Congress passed a bill that allows a Veteran to receive the benefits of having Veteran Disability while it is still pending. The amount paid for the funding fee can be refunded back to the Veteran when a determination is made and the paperwork is received.
The VA Funding fee may be paid in cash or included in the loan amount. Closing costs such as VA appraisal, credit report, loan processing fee, title search, title insurance, recording fees, transfer taxes, survey charges, or hazard insurance may not be included in the loan. However, the seller may pay these on behalf of the VA borrower.
Purchase and construction loans[edit]
Note: The funding fee for regular military first time use from 1/1/04 to 9/30/04 was 2.2 percent. This figure dropped to 2.15 percent on 10/1/04. If you have a service connected disability that you are compensated for by the VA or if you are a surviving spouse of veteran who died in service or from service connected disabilities, the funding fee is waived.
Type of Veteran
Down Payment
First Time Use
Subsequent Use for loans from 1/1/04 to 9/30/2011
Regular Military None
5%-9.99%
10% or more 2.15%
1.50%
1.25% 3.3%*
1.50%
1.25%
Reserves/National Guard None
5%-9.99%
10% or more 2.4%
1.75%
1.5% 3.3%*
1.75%
1.5%
The VA funding fee can be financed directly into the maximum loan amount for the county in which the home is located. If the sales price and the financed VA funding fee total more than maximum loan amount for that county, the borrower or seller must pay for the fee out of pocket. All VA loans require an impound account for property taxes and homeowners insurance which makes the monthly payment of VA loans calculated as a PITI payment.**
Cash-out refinancing loans[edit]
Type of Veterans
Percentage for First Time Use
Percentage for Subsequent Use
Regular Military 2.15% 3.3%*
Reserves/National Guard 2.4% 3.3%*
The higher subsequent use fee does not apply to these types of loans if the veteran’s only
prior use of entitlement was for a manufactured home loan.
Other types of loans[edit]
Type of Loan
Percentage for Either Type of Veteran
Whether First Time or Subsequent Use
Interest Rate Reduction
Refinancing Loans .50%
Manufactured Home Loans 1.00%
Loan Assumptions .50%
Veterans who previously lived in a home they had to then rent out will typically qualify for a no appraisal Interest Rate Reduction Refinance. The Veteran's Administration also allows Veteran Homeowners to refinance from a Conventional loan to a VA mortgage Loan. This process, however, does require an appraisal.
Equivalents of VA loans[edit]
Private mortgage insurance[edit]
Main article: Private mortgage insurance
Private mortgage insurance (PMI) guarantees conventional home mortgage loans - those that are not guaranteed by the government. This loan program is a private sector equivalent to the Federal Housing Administration (FHA) and VA loan programs.
The PMI company insures a percentage of the consumer's loan to reduce the lender's risk; this percentage is paid to the lender if the consumer does not pay and the lender forecloses the loan.
Lenders decide if they need and want private mortgage insurance. If they so decide, it becomes a requirement of the loan. PMI companies charge a fee to insure a mortgage loan; the VA insures a loan at no cost to a veteran buyer (other than the VA funding fee); the FHA charges a monthly fee to guarantee the loan.[2]
VA Loan application[edit]
The VA loan application is a standardized loan application form 1003 issued by Fannie Mae also known as Freddie Mac Form 65. It is a Federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements on a VA loan application under the provisions of Title 18, United States Code, Section 1001, et seq. [3]
You will need the following paperwork to apply:
Copies of your W2 statements for the past two years, so your gross household income can be confirmed,
Copies of your previous two pay stubs,
Documentation of other assets (checking accounts, savings accounts, financial investments, trust funds, etc.),
If self-employed, two years of consecutive tax returns will be required.
The Veteran also needs to supply their DD 214 or Certificate of Guarantee
Qualifying for Veteran Home Loans[edit]
The Veteran Loan program is designed for veterans who meet the minimum number of days of completed service. Some of the other eligibility requirement for the VA loan program[4] and some specific home loan benefits include the length of service or service commitment, duty status and character of service. The program does allow for benefits to Surviving Spouses.
The VA does not have a minimum credit score used for pre-qualifying for a mortgage loan, however, most Lenders require a minimum credit score of at least 620.[5]

A Veteran who has used their entitlement to previously purchase a home, may have entitlement left to purchase another one. If you previously purchased a home using your VA Benefits then you might still have some of that “Entitlement” available to you for the purchase a new home. To Calculate Maximum Entitlement available, consider the following:
If your previous home was purchased using a VA Loan, and that loan was paid off by the new owners, the full entitlement may have been restored.
If you sold your home to someone, and allowed them to assume your VA Loan, then you might have the full entitlement restored, if one or more of the purchasers were also Veterans.
If you still own the home, and you are renting it out – you might be able to purchase a new home using your partial entitlement, but there are several restrictions.
Allowable Income Sources used to qualify for a VA Loan include: Retirement Income, Social Security Income, Child Support, Alimony and Separate Maintenance, BAH, BAS and Disability Income. Dependency and Indemnity Compensation (DIC) for a Surviving Spouse can also be included. In addition, stable, documented income from employers remains the best income source for VA loans.
Homeless Veterans - The National Center on Homelessness Among Veterans (NCHAV)[edit]
The National Center on Homelessness Among Veterans (NCHAV) has planned to increase recovery-oriented care provided to homeless Veterans, or those soon to be, through the development and dissemination of evidence-based programs, policies as well as best practices. It was established in 2009 to support the execution of the U.S. Department of Veteran Affairs’ (VA’s) Five Year Plan to End Homelessness Among Veterans. This plan was born out of the goals and timeframes set forth by the legislators, governors, nonprofits, faith-based and community organizations, the U.S. Congress, the United States Interagency Council on Homelessness, business entities and philanthropic leaders to end homelessness in America and progress to make affordable and stable housing available to all its people.
Below are the four core activities of NCHAV’s integrated and organized work:
Model Development & Implementation
Research & methodology
Education & Dissemination
Policy Analysis[6][7]
References[edit]
Jump up ^ "2018 VA Loan Limits". VA Home Mortgage Loan. VA Home Mortgage Loan which owns http://www.vahomemortgageloan.com. 2018-08-18. Archived from the original on 2018-08-18. Retrieved 2018-08-18. External link in |publisher= (help)
^ Jump up to: a b c Mishler, Lon; Cole, Robert E. (1995). Consumer and business credit management. Homewood, Ill: Irwin. pp. 220–121. ISBN 0-256-13948-2.
Jump up ^ "VA Home Loan Application" (text)|format= requires |url= (help). Fannie Mae. Missing or empty |url= (help); |access-date= requires |url= (help)[1]
Jump up ^ "Eligibility Requirements". U.S. Department of Veterans Affairs. U.S. Department of Veterans Affairs. Retrieved 2015-11-24.
Jump up ^ Da Costa, Polyana. "5 things to know about getting a VA loan". Bankrate. Retrieved 2018-05-28.
Jump up ^ "Homeless Veterans". U.S. Department of Veterans Affairs. Retrieved 19 December 2014.
Jump up ^ "Opening Doors - Federal Strategic Plan to Prevent and End Homelessness" (PDF). U.S. Department of Veterans Affairs. Retrieved 19 December 2014.
External links[edit]
Veterans Affairs Home Loan Guaranty Services
Funding Fee Table
VA Funding Fee
2018 County Loan Limits
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text:
Microcredit
From Wikipedia, the free encyclopedia
Jump to navigation Jump to search
This article is specific to small loans, often provided in a pooled manner.[1] For direct payments to individuals for specific projects, see Micropatronage. For financial services to the poor, see Microfinance. For small payments, see Micropayment.
Microcredit is the extension of very small loans (microloans) to impoverished borrowers who typically lack collateral, steady employment, or a verifiable credit history. It is designed to support entrepreneurship and alleviate poverty. Many recipients are illiterate, and therefore unable to complete paperwork required to get conventional loans. As of 2009 an estimated 74 million people held microloans that totaled US$38 billion. Grameen Bank reports that repayment success rates are between 95 and 98 percent.[2]
Microcredit is part of microfinance, which provides a wider range of financial services, especially savings accounts, to the poor. Modern microcredit is generally considered to have originated with the Grameen Bank founded in Bangladesh in 1983.[3] Many traditional banks subsequently introduced microcredit despite initial misgivings. The United Nations declared 2005 the International Year of Microcredit. As of 2012, microcredit is widely used in developing countries and is presented as having "enormous potential as a tool for poverty alleviation."[4] Microcredit is a tool that can be helpful to possibly reduce feminization of poverty in developing countries.
However, a skeptical approach is advisable when assessing the effectiveness of microcredit[5]. Critics argue that microcredit has not had a positive impact on gender relationships, does not alleviate poverty, has led many borrowers into a debt trap and constitutes a "privatization of welfare".[6] The first randomized evaluation of microcredit, conducted by Esther Duflo and others, showed mixed results: there was no effect on household expenditure, gender equity, education or health, but the number of new businesses increased by one third compared to a control group[7].
Contents
1 History
1.1 Early Beginnings
1.2 Modern microcredit
2 Principles
2.1 Economic principles
2.2 Group lending
2.3 Lending to women
3 Examples
3.1 Bangladesh
3.2 India
3.3 United States of America
3.4 Peer-to-peer lending over the Web
4 Impact of microcredit
5 Improvement
6 See also
7 References
8 Bibliography
9 External links
History[edit]
Early Beginnings[edit]
Ideas relating to microcredit can be found at various times in modern history, such as the Starr-Bowkett Society. Jonathan Swift inspired the Irish Loan Funds of the 18th and 19th centuries.[8] In the mid-19th century, Individualist anarchist Lysander Spooner wrote about the benefits of numerous small loans for entrepreneurial activities to the poor as a way to alleviate poverty.[9] At about the same time, but independently to Spooner, Friedrich Wilhelm Raiffeisen founded the first cooperative lending banks to support farmers in rural Germany.[10] In the 1950s, Akhtar Hameed Khan began distributing group-oriented credit in East Pakistan. Khan used the Comilla Model, in which credit is distributed through community-based initiatives.[3] The project failed due to the over-involvement of the Pakistani government, and the hierarchies created within communities as certain members began to exert more control over loans than others.[3]
Modern microcredit[edit]
Nobel laureate Muhammad Yunus, the founder of Grameen Bank, which is generally considered the first modern microcredit institution.
The origins of microcredit in its current practical incarnation can be linked to several organizations founded in Bangladesh, especially the Grameen Bank. The Grameen Bank, which is generally considered the first modern microcredit institution, was founded in 1983 by Muhammad Yunus.[3] Yunus began the project in a small town called Jobra, using his own money to deliver small loans at low-interest rates to the rural poor. Grameen Bank was followed by organizations such as BRAC in 1972 and ASA in 1978.[11] Microcredit reached Latin America with the establishment of PRODEM in Bolivia in 1986; a bank that later transformed into the for-profit BancoSol.[12] Microcredit quickly became a popular tool for economic development, with hundreds of institutions emerging throughout the third world.[3] Though the Grameen Bank was formed initially as a non-profit organization dependent upon government subsidies, it later became a corporate entity and was renamed Grameen II in 2002.[11] Muhammad Yunus was awarded the Nobel Peace Prize in 2006 for his work providing microcredit services to the poor.[13]
Principles[edit]
Economic principles[edit]
Microcredit organizations were initially created as alternatives to the "loan-sharks" known to take advantage of clients.[3] Indeed, many microlenders began as non-profit organizations and operated with government funds or private subsidies. By the 1980s, however the "financial systems approach," influenced by neoliberalism and propagated by the Harvard Institute for International Development, became the dominant ideology among microcredit organizations. The commercialization of microcredit officially began in 1984 with the formation of Unit Desa (BRI-UD) within the Bank Rakyat Indonesia. Unit Desa offered ‘kupedes’ microloans based on market interest rates.
Many microcredit organizations now function as independent banks. This has led to their charging higher interest rates on loans and placing more emphasis on savings programs.[3] Notably, Unit Desa has charged in excess of 20 percent on small business loans.[14] The application of neoliberal economics to microcredit has generated much debate among scholars and development practitioners, with some claiming that microcredit bank directors, such as Muhammad Yunus, apply the practices of loan sharks for their personal enrichment.[11] Indeed, the academic debate foreshadowed a Wall-street style scandal involving the Mexican microcredit organization Compartamos.[3]
Even so, the numbers indicate that ethical microlending and investor profit can go hand-in-hand. In the 1990s a rural finance minister in Indonesia showed how Unit Desa could lower its rates by about 8% while still bringing attractive returns to investors.[14]
Group lending[edit]
Though lending to groups has long been a key part of microcredit,[citation needed] microcredit initially began with the principle of lending to individuals.[11] Despite the use of solidarity circles in 1970s Jobra, Grameen Bank and other early microcredit institutions initially focused on individual lending.[12] (A solidarity circle is a group of borrowers that provide mutual encouragement, information, and assistance in times of need, though loans remain the responsibility of individuals.[15][16]) Indeed, Muhammad Yunus propagated the notion that every person has the potential to become an entrepreneur. The use of group-lending was motivated by economics of scale, as the costs associated with monitoring loans and enforcing repayment are significantly lower when credit is distributed to groups rather than individuals.[12] Many times the loan to one participant in group-lending depends upon the successful repayment from another member, thus transferring repayment responsibility off of microcredit institutions to loan recipients.[12]
Lending to women[edit]
Lending to women has become an important principle in microcredit, with banks and NGOs such as BancoSol, WWB, and Pro Mujer catering to women exclusively.[12] Pro Mujer also implemented a new strategy to combine microcredits with health-care services, since the health of their clients is crucial to the success of microcredits.[17] Though Grameen Bank initially tried to lend to both men and women at equal rates, women presently make up ninety-five percent of the bank’s clients. Women continue to make up seventy-five percent of all microcredit recipients worldwide.[12] Exclusive lending to women began in the 1980s when Grameen Bank found that women have higher repayment rates, and tend to accept smaller loans than men.[3]
Examples[edit]
Bangladesh[edit]
Mumbai Headquarters of the National Bank for Agriculture and Rural Development of India, which on-lends funds to banks providing microcredit.
Grameen Bank in Bangladesh is the oldest and probably best-known microfinance institution in the world. Grameen Bank launched their US operations in New York in April 2008.[18] Bank of America has announced plans to award more than $3.7 million in grants to nonprofits to use in backing microloan programs.[19] The Accion U.S. Network, the US subsidiary of the better-known Accion International, has provided over $450 million in microloans since 1991, with an over 90% repayment rate.[20] One research study of the Grameen model shows that poorer individuals are safer borrowers because they place more value on the relationship with the bank.[21] Even so, efforts to replicate Grameen-style solidarity lending in developed countries have generally not succeeded. For example, the Calmeadow Foundation tested an analogous peer-lending model in three locations in Canada during the 1990s. It concluded that a variety of factors — including difficulties in reaching the target market, the high risk profile of clients, their general distaste for the joint liability requirement, and high overhead costs — made solidarity lending unviable without subsidies.[22] Microcredits have also been introduced in Israel,[23] Russia, Ukraine and other nations where micro-loans help small business entrepreneurs overcome cultural barriers in the mainstream business society. The Israel Free Loan Association (IFLA) has lent more than $100 million in the past two decades to Israeli citizens of all backgrounds.[citation needed][24]
India[edit]
In India, the National Bank for Agriculture and Rural Development (NABARD) finances more than 500 banks that on-lend funds to self-help groups (SHGs). SHGs comprise twenty or fewer members, of whom the majority are women from the poorest castes and tribes. Members save small amounts of money, as little as a few rupees a month in a group fund. Members may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees. As SHGs prove capable of managing their funds well, they may borrow from a local bank to invest in small business or farm activities. Banks typically lend up to four rupees for every rupee in the group fund. In Asia borrowers generally pay interest rates that range from 30% to 70% without commission and fees.[25] Nearly 1.4 million SHGs comprising approximately 20 million women now borrow from banks, which makes the Indian SHG-Bank Linkage model the largest microfinance program in the world. Similar programs are evolving in Africa and Southeast Asia with the assistance of organizations like IFAD, Opportunity International, Catholic Relief Services, Compassion International, CARE, APMAS, Oxfam, Tearfund and World Vision.
United States of America[edit]
In the United States, microcredit has generally been defined as loans of less than $50,000 to people — mostly entrepreneurs — who cannot, for various reasons, borrow from a bank. Most nonprofit microlenders include services like financial literacy training and business plan consultations, which contribute to the expense of providing such loans but also, those groups say, to the success of their borrowers.[26] One such organization in the United States of America, the Accion U.S. Network is a nonprofit microfinance organization headquartered in New York, NY. It is the largest and only nationwide nonprofit microfinance network in the U.S.. The Accion U.S. Network is part of Accion International, a U.S.-based nonprofit organization operating globally, with the mission of giving people the financial tools they need to create or grow healthy businesses. The domestic Accion programs started in Brooklyn, NY, and grew from there to become the first nationwide network microlender.[27][better source needed] U.S. microcredit programs have helped many poor but ambitious borrowers to improve their lot. The Aspen Institute’s study of 405 microentrepreneurs indicates that more than half of the loan recipients escaped poverty within five years. On average, their household assets grew by nearly $16,000 during that period; the group’s reliance on public assistance dropped by more than 60%.[28] Several corporate sponsors including Citi Foundation and Capital One launched Grameen America in New York. Since then the financial outfit – not bank - has been serving the poor, mainly women, throughout four of the city’s five boroughs (Bronx, Brooklyn, Manhattan, and Queens) as well as Omaha, Nebraska and Indianapolis, Indiana. In four years, Grameen America has facilitated loans to over 9,000 borrowers valued over $35 million. It has had, as Grameen CEO Stephen Vogel notes, “a 99 percent repayment rate.”[29]
Peer-to-peer lending over the Web[edit]
The principles of microcredit have also been applied in attempting to address several non-poverty-related issues. Among these, multiple Internet-based organizations have developed platforms that facilitate a modified form of peer-to-peer lending where a loan is not made in the form of a single, direct loan, but as the aggregation of a number of smaller loans—often at a negligible interest rate.
Examples of platforms that connect lenders to micro-entrepreneurs via Internet are Kiva, Zidisha, and the Microloan Foundation. Another WWW-based microlender, United Prosperity, uses a variation on the usual microlending model; with United Prosperity the micro-lender provides a guarantee to a local bank which then lends back double that amount to the micro-entrepreneur. United Prosperity claims this provides both greater leverage and allows the micro-entrepreneur to develop a credit history with their local bank for future loans. In 2009, the US-based nonprofit Zidisha became the first peer-to-peer microlending platform to link lenders and borrowers directly across international borders without local intermediaries.[30] Vittana allows peer-to-peer lending for student loans in developing countries.[31]
Impact of microcredit[edit]
Further information: Impact of microcredit
The impact of microcredit is a subject of much controversy. Proponents state that it reduces poverty through higher employment and higher incomes. This is expected to lead to improved nutrition and improved education of the borrowers' children. Some argue that microcredit empowers women. In the US, UK and Canada, it is argued that microcredit helps recipients to graduate from welfare programs.[32]
Critics say that microcredit has not increased incomes, but has driven poor households into a debt trap, in some cases even leading to suicide. They add that the money from loans is often used for durable consumer goods or consumption instead of being used for productive investments, that it fails to empower women, and that it has not improved health or education.[33]
The available evidence indicates that in many cases microcredit has facilitated the creation and the growth of businesses. It has often generated self-employment, but it has not necessarily increased incomes after interest payments. In some cases it has driven borrowers into debt traps. There is no evidence that microcredit has empowered women. In short, microcredit has achieved much less than what its proponents said it would achieve, but its negative impacts have not been as drastic as some critics have argued. Microcredit is just one factor influencing the success of a small businesses, whose success is influenced to a much larger extent by how much an economy or a particular market grows.[34]
Unintended consequences of microfinance include informal intermediaton: That is, some entrepreneurial borrowers become informal intermediaries between microfinance initiatives and poorer micro-entrepreneurs. Those who more easily qualify for microfinance split loans into smaller credit to even poorer borrowers. Informal intermediation ranges from casual intermediaries at the good or benign end of the spectrum to 'loan sharks' at the professional and sometimes criminal end of the spectrum.[35]
Improvement[edit]
Many microfinance institutions also offer savings facilities, such as Banco Palma in Brazil shown here.
Many scholars and practitioners suggest an integrated package of services ('a credit-plus' approach) rather than just providing credits. When access to credit is combined with savings facilities, non-productive loan facilities, insurance, enterprise development (production-oriented and management training, marketing support) and welfare-related services (literacy and health services, gender and social awareness training), the adverse effects discussed above can be diminished.[36] Some argue that more experienced entrepreneurs who are getting loans should be qualified for bigger loans to ensure the success of the program.[37]
One of the principal challenges of microcredit is providing small loans at an affordable cost. The global average interest and fee rate is estimated at 37%, with rates reaching as high as 70% in some markets.[38] The reason for the high interest rates is not primarily cost of capital. Indeed, the local microfinance organizations that receive zero-interest loan capital from the online microlending platform Kiva charge average interest and fee rates of 35.21%.[39] Rather, the principal reason for the high cost of microcredit loans is the high transaction cost of traditional microfinance operations relative to loan size.[40] Microcredit practitioners have long argued that such high interest rates are simply unavoidable. The result is that the traditional approach to microcredit has made only limited progress in resolving the problem it purports to address: that the world's poorest people pay the world's highest cost for small business growth capital. The high costs of traditional microcredit loans limit their effectiveness as a poverty-fighting tool. Borrowers who do not manage to earn a rate of return at least equal to the interest rate may actually end up poorer as a result of accepting the loans.[41] According to a recent survey of microfinance borrowers in Ghana published by the Center for Financial Inclusion, more than one-third of borrowers surveyed reported struggling to repay their loans.[42] In recent years, microcredit providers have shifted their focus from the objective of increasing the volume of lending capital available, to address the challenge of providing microfinance loans more affordably. Analyst David Roodman contends that in mature markets, the average interest and fee rates charged by microfinance institutions tend to fall over time.[43]
Professor Dean Karlan from Yale University advocates also giving the poor access to savings accounts.[44]
See also[edit]
Cooperative banking
Count Me In (charity)
Crowdfunding
Crowd sourcing
Flat rate (finance)
Microcredit for water supply and sanitation
Microgrant
M-Pesa
Project Enterprise
Solidarity lending
The Women's Development Bank
Oikocredit
References[edit]
Jump up ^ "Kiva Is Not Quite What It Seems".
Jump up ^ "What We Do - Grameen Foundation - Connecting the World's Poor to Their Potential".
^ Jump up to: a b c d e f g h i Bateman, Milford (2010). Why Doesn't Microfinance Work?. Zed Books.
Jump up ^ Jason Cons and Kasia Paprocki of the Goldin Institute, "The Limits of Microcredit—A Bangladeshi Case" Archived 2012-01-16 at the Wayback Machine., Food First Backgrounder (Institute for Food and Development Policy), Winter 2008, volume 14, number 4.
Jump up ^ Arp, Frithjof (12 January 2018). "The 34 billion dollar question: Is microfinance the answer to poverty?". Global Agenda. World Economic Forum.
Jump up ^ Gina Neff:Microcredit, microresults The Left Business Observer #74, October 1996
Jump up ^ Banerjee, Abhijit; Esther Duflo; Rachel Glennester; Cynthia Kinnan. "The miracle of microfinance? Evidence from a randomized evaluation". Retrieved 17 April 2012.
Jump up ^ Aidan Hollis; Arthur Sweetman (March 1997). "Complementarity, Competition and Institutional Development: The Irish Loan Funds through Three Centuries" (PDF). Retrieved 30 January 2012.
Jump up ^ Spooner, Lysander (1846). "Poverty: Its illegal causes and legal cure". Boston. Archived from the original on 25 October 2012. Retrieved 30 January 2012.
Jump up ^ Deutscher Raiffeisenverband:The Raiffeisen organization: Beginnings, tasks, current developments Archived 2007-08-10 at the Wayback Machine., March 2011
^ Jump up to: a b c d Drake, Deborah (2002). The Commercialization of Microfinance. Kumarian.
^ Jump up to: a b c d e f Armendariz, Beatriz (2005). The Economics of Microfinance. Cambridge, Mass: The MIT Press.
Jump up ^ Nobel Prize.org:The Nobel Peace Prize 2006:Muhammad Yunus, Grameen Bank, retrieved on 13 February 2012
^ Jump up to: a b "BRI-Unit Desa, Indonesia".
Jump up ^ "Archived copy". Archived from the original on 2009-01-06. Retrieved 2014-07-30. CS1 maint: Archived copy as title (link)
Jump up ^ Minilening uitleg. "Wat is een minilening ?". Minilening (in Dutch). Retrieved 16 December 2016.
Jump up ^ Microfinance - Healthy Clients http://www.dandc.eu/en/article/pro-mujer-why-microfinance-institutions-should-offer-healthcare-services-too
Jump up ^ University of Michigan, Urban and Regional Planning Economic Development Handbook: Microcredit strategies for assisting neighborhood businesses, 22 March 2005, retrieved on 13 February 2012
Jump up ^ "Bank of America Issues Grants for Microloans". Wall Street Journal. October 6, 2010. Retrieved 30 January 2012.
Jump up ^ "U.S. Network". 5 June 2014.
Jump up ^ Federal Reserve Bank of Kansas City, The Creditworthiness of the Poor: A Model of the Grameen Bank, April 2010
Jump up ^ Cheryl Frankiewicz. "Calmeadow Metrofund: A Canadian Experiment in Sustainable Microfinance", Calmeadow Foundation, April 2001.
Jump up ^ Svivatomehet.org.il (in Hebrew)
Jump up ^ Israel Free Loan Associantion, History of IFLA, "Archived copy". Archived from the original on 2013-10-04. Retrieved 2013-07-26. CS1 maint: Archived copy as title (link) , July 26, 2013
Jump up ^ Nimal A. Fernando:Understanding and Dealing with High Interest Rate on Microcredit, Asian Development Bank, May 2006, p. 1
Jump up ^ Dewan, Shaila. "Microcredit for Americans". nytimes.com.
Jump up ^ Accion U.S. Network
Jump up ^ "Can Microcredit Work in the United States?". hbr.org. 1 November 1999.
Jump up ^ Bayrasli, Elmira. "Microfinance in America?". forbes.com.
Jump up ^ "Zidisha Set to "Expand" in Peer-to-Peer Microfinance", Microfinance Focus, Feb 2010 Archived 2010-02-28 at the Wayback Machine.
Jump up ^ Rao. L. (2010). Vittana Applies The Kiva Model To Help Finance Education In Developing Countries. Retrieved March 9, 2011, from https://techcrunch.com/2010/03/15/vittana-applies-the-kiva-model-to-help-finance-education-in-developing-countries/
Jump up ^ Nitin Bhatt, Gary Painter, and Shui-Yan Tang, 1999. “Can Microcredit Work in the United States?”, Harvard Business Review, November-December 1999 Issue. Retrieved March 06, 2018, from https://hbr.org/1999/11/can-microcredit-work-in-the-united-states - "U.S. microcredit programs have helped many poor but ambitious borrowers to improve their lot. The Aspen Institute’s study of 405 microentrepreneurs indicates that more than half of the loan recipients escaped poverty within five years. On average, their household assets grew by nearly $16,000 during that period; the group’s reliance on public assistance dropped by more than 60%."
Jump up ^ Tonelli M. and C. Dalglish, 2012. “Micro-Credit is Necessary but Not Sufficient for Entrepreneurs in Desperate Poverty”, FSR Forum, Vo.14, Issue 4 (p.16-21). ISSN 1389-0913 Retrieved July 12, 2012, from https://jeffersonal.issuu.com/secretarisfsr/docs/fsr_forum_14-04_lr/18[permanent dead link] - "U.S. microcredit programs have helped many poor but ambitious borrowers to improve their lot. The Aspen Institute’s study of 405 microentrepreneurs indicates that more than half of the loan recipients escaped poverty within five years. On average, their household assets grew by nearly $16,000 during that period; the group’s reliance on public assistance dropped by more than 60%."
Jump up ^ "Microcredit doesn't live up to promise of transforming lives of the poor, 6 studies show". EurekAlert!.
Jump up ^ Arp, Frithjof; Ardisa, Alvin; Ardisa, Alviani (2017). "Microfinance for poverty alleviation: Do transnational initiatives overlook fundamental questions of competition and intermediation?". Transnational Corporations. United Nations Conference on Trade and Development. 24 (3): 103–117. doi:10.18356/10695889-en. UNCTAD/DIAE/IA/2017D4A8.
Jump up ^ Holvoet, Nathalie. "The Impact of Microfinance on Decision-Making Agency: Evidence from South India".
Jump up ^ Goetz; Gupta (1996). "Who takes the credit?Gender, Power, Control over loan use in Rural credit program in Bangladesh" (PDF). World Development. 24 (1): 45–63. doi:10.1016/0305-750x(95)00124-u. [permanent dead link]
Jump up ^ McFarquhar, Neil (April 13, 2010). "Banks Making Big Profits From Tiny Loans". New York Times.
Jump up ^ "Kiva Help - Interest Rate Comparison". Kiva.org. Archived from the original on August 3, 2009. Retrieved October 10, 2009.
Jump up ^ "How Kiva works - Kiva".
Jump up ^ "Microfinance: Do the micro-loans contribute to the well-being of the people or do they leave them even poorer due to high interest rates? - Quora".
Jump up ^ http://centerforfinancialinclusionblog.files.wordpress.com/2011/11/111108_cfi_over-indebtedness-in-ghana_jessica-schicks_en_final.pdf
Jump up ^ Roodman, David. "Due Diligence: An Impertinent Inquiry Into Microfinance." Center for Global Development, 2011.
Jump up ^ BBC:Business Weekly, 2 August 2009
rakha khan
Bibliography[edit]
Following is a selected bibliography about microcredit.
Adams, Dale, Doug Graham and J.D. Von Pischke (eds.). Undermining Rural Development with Cheap Credit. Westview Press, Boulder, Colorado, 1984.
Bateman, Milford. 'Why Doesn't Microfinance Work? The Destructive Rise of Local Neoliberalism'. Zed Books, London, 2010.
Drake, Deborah, and Elizabeth Rhyne (eds.). The Commercialization of Microfinance: Balancing Business and Development. Kumarian Press, 2002.
Rhyne, Elizabeth. Mainstreaming Microfinance: How Lending to the Poor Began, Grew and Came of Age in Bolivia. Kumarian Press, 2001.
Fuglesang, Andreas and Dale Chandler. Participation as Process – Process as Growth – What We can Learn from the Grameen Bank. Grameen Trust, Dhaka, 1993.
Gibbons, David. The Grameen Reader. Grameen Bank, Dhaka, 1992.
Harper, Malcolm and Shailendra Vyakarnam. Rural Enterprise: Case Studies from Developing Countries. ITDG Publishing, 1988.
Hulme, David and Paul Mosley. Finance Against Poverty. Routledge, London, 1996.
Johnson, Susan and Ben Rogaly. Microfinance and Poverty Reduction. Oxfam, Oxford UK, 1997.
Kadaras, James & Elizabeth Rhyne. Characteristics of equity investment in microfinance. Accion International, 2004.
Khandker, Shahidur R. Fighting Poverty with Microcredit. Bangladesh edition, The University Press Ltd, Dhaka, 1999.
Ledgerwood, Joanna. Microfinance Handbook. Washington, D.C., World Bank, 1998.
Rutherford, Stuart. ASA: The Biography of an NGO, Empowerment and Credit in Rural Bangladesh. ASA, Dhaka, 1995.
Small Enterprise Development. Intermediate Technology Publications, London.
Todd, Helen Women at the Center: Grameen Borrowers After One Decade. University Press Ltd, Dhaka, 1996.
Wood, Geoff D. & I. Sharif (eds.). Who Needs Credit? Poverty and Finance in Bangladesh. University Press Ltd., Dhaka, 1997.
Yunus Muhammad, Moingeon Bertrand & Laurence Lehmann-Ortega, "Building Social Business Models: Lessons from the Grameen Experience", April-June, vol 43, n° 2-3, Long Range Planning, 2010, p. 308-325"
Tonelli M. and C. Dalglish, 2012. “Micro-Credit is Necessary but Not Sufficient for Entrepreneurs in Desperate Poverty”, FSR Forum, Vo.14, Issue 4 (p.16-21). ISSN 1389-0913
Yunus, Muhammad. Banker to the Poor: Micro-Lending and the Battle Against World Poverty. Public Affairs, 2003.
Padmanabahn, K.P., Rural Credit, Intermediate Tech. Publ. Ltd., London 1988.
Germidis D. et al.,Financial Systems and Development: what role for the formal and informal financial sectors?, OECD, Paris 1991.
Robinson, Marguerite S., The microfinance revolution, The World Bank, Washington D.C., 2001.
Mauri, Arnaldo, (1995): A new approach to institutional lending and loan administration in rural areas of LDCs, International Review of Economics, ISSN 1865-1704, Vol. 45, no. 4, pp. 707–716.
Goetz, A.-M.; Sengupta, R. (1996). "Who Takes the Credit? Gender, Power and Control over Loan Use in Rural Credit Programmes in Bangladesh". World Development. 24: 45–63. doi:10.1016/0305-750x(95)00124-u.
Johnson, S. 1997. Gender and Micro-finance: guidelines for best practice. Action Aid-UK.
Kabeer, N. 1998. 'Money Can't Buy Me Love'? Re-evaluating Gender, Credit and Empowerment in Rural Bangladesh. IDS Discussion Paper 363.
Mayoux, L. 1998a. Women's Empowerment and Micro-finance programmes: Approaches, Evidence and Ways Forward. The Open University Working Paper No 41.
Rahman, A (1999). "Micro-credit Initiatives for Equitable and Sustainable Development: Who Pays?". World Development. 27 (1): 67–82. doi:10.1016/s0305-750x(98)00105-3.
CHESTON, S. and KUHN, L. (2002). Empowering Women through Microfinance. Pathways Out of Poverty: Innovations in Microfinance for the Poorest Families.
Harper, A. ( 1995). Providing women in Baltistan with access to loans – potential and problems. Lahore, AKRSP Pakistan.
Mutalima, I. K., 2006, Microfinance and Gender Equality: Are We Getting There?: Micro Credit Summit, Halifa, Royal Tropical Institute and Oxfam Novib.
External links[edit]
What is Microcredit
Latest Findings from Randomized Evaluations of Microfinance Access to Finance Forum by CGAP and Its Partners No. 2, December 2011
Building a Microfinance Institution from Scratch Institution's objective is to offer financial services on a self-sustaining yet efficient basis to microentrepreneurs.
Journal of Microfinance, a forum for practitioners in microfinance and microenterprise development to exchange information and ideas
Omidyar-Tufts Microfinance Fund, a partnership between Pierre Omidyar and Tufts University.
"Microfinance in the U.S." Helping ensure egalitarian access to needed financial services.
The Promise of Microfinance for Poverty Relief in the Developing World
Microcredit Regulatory Authority, MRA The central body to monitor and supervise microfinance operation of NGOs of Bangladesh
Alleviation and poverty and enpowerment of the poor, BRAC Bangladesh
The European Union Project "Credit Cooperatives – Russian Federation" official web site
Small Fortunes: Microcredit and the Future of Poverty web site for a PBS documentary
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