Section 1: Summary

Objectives of the Summer School:
The objective of the Summer School was for participants to gain knowledge and skills on Microfinance models for adaptation to local conditions and their role in the socioeconomic development of rural communities. It was also expected that the participants would learn about and from practical microfinance experiences in countries in the European Region. This was to be accomplished through sharing experiences on approaches and presenting various microfinance models by the participants.

Design of the Summer School:
A pre-workshop questionnaire was sent to all the participants in advance so that the Summer School would respond to the participants concerns (see Annex 3). The objective of this exercise was to gauge the participants knowledge and experience in dealing with microfinance. Participants were asked to outline why they were interested in the sector and if they were aware of any microfinance initiatives in their countries or institutions. They were invited to present such information at the Summer School. They were also asked to outline the specific microfinance issues they would like the Summer School to address.

The facilitators Anda Boros and Úna Murray organized the overall structure and timetable of the Summer School in line with the issues raised by participants in their questionnaires. These issues were categorized within the overall FAO Socioeconomic and Gender Analysis (SEAGA) framework, which analyzes issues on three levels: field, intermediate and macro. As a result, the entire Summer School on microfinance was presented through the lens of the SEAGA framework. Gender issues were examined as crosscutting through all levels (see Annex 1 for timetable). The microfinance sector was presented along the following lines: evolution and trends, how to build sustainable microfinance institutions and creating an enabling environment for microfinance at the macro level. Issues related to microfinance at the field level were addressed through a group exercise.

Adapting SEAGA to the Microfinance sector:
To illustrate how the SEAGA methodology could be adapted to the microfinance sector, the facilitators compiled selected illustrative slides. The first such slide focused on types of socioeconomic and gender questions that could arise related to decision-making in microfinance funding operations. Additional detailed types of questions concerned access to micro credit that could be asked at field, intermediate and macro levels and the linkages between them.

The schedule/timetable was organized so that the microfinance sector would be discussed and presented primarily at the SEAGA intermediate level corresponding to micro finance intermediaries such as banks, financial NGOs, credit unions, grassroot microfinance groups, etc. Linkages to the macro/policy level and to the field level (corresponding to enabling policy for microfinance institutions and their clients to operate efficiently) were highlighted during discussions.

Elements necessary to create an enabling environment for microfinance at the macro/policy level were presented and discussed in detail. How policy links to the field and intermediate levels were discussed in small groups, as were issues related to how those in the field and intermediaries can affect changes at the macro level.

A session was also spent on examining the major obstacles faced by entrepreneurs in accessing microfinance services as well as difficulties faced by microfinance intermediaries when working to become sustainable institutions.

There were four key presentations of different microfinance models with eight shorter presentations highlighting participants' work experiences in the microfinance sector (see Annex 4 for list of presentations). Each presenter was given guidelines on how to structure their presentation in terms of the SEAGA framework: activities at the field level, intermediaries involved in the lending process, and the legislative and policy support at the macro level.

The facilitators designed the Summer School to encourage participants to draw and refine individual action plans throughout the week. Participants then proactively looked for information and ideas (during presentations, informal conversations and group work) that would be relevant to their work in their own context. This activity was spread over three formal sessions (see Annex 5 for action plan handouts). The concept of developing an action plan to take home for further implementation was discussed. Subsequently participants identified relevant new ideas and steps they would be willing to take to put them into practice. Finally, the participants spent time writing a preliminary action plan defining their objectives, steps they need to take, expected outputs and results, how they would monitor and evaluate the outcomes and what resources (financial, human and physical) they would require to implement their plan.

Methodology:

§ Experiential learning and participatory methodology
§ Presentations of the microfinance sector and best practices.
§ Presentation of the SEAGA framework adapted to microfinance
§ Sharing of participants experiences (presentations) followed by strategic exercises to explore and clarify issues presented previously.

Section 2: Workshop Details

The following pages include further details of the workshop, issues raised and discussion points.

Monday 8th June

Presentation on the Microfinance sector - Evolution and Trends, by Anda Boros

The presentation outlined how microfinance was developed; what it is; best practices; current implications and future direction.

Characteristics
Microfinance is relatively new: it started to develop in the 1970s around the time when economic development saw a major change: a shift from top down dispensing of aid and a "charity" mode of operation to a more "horizontal" approach involving consultation with recipients of aid seen as "partners" of development, and based on a more business-like philosophy. There is a ample opportunity for the development of the microfinance sector, since banks and other financial institutions are estimated to service today only 25% of potential clients worldwide. Furthermore, statistics indicate that apparently only 2% of microentrepreneurs are serviced by banks. Some of the best known actors in the development of microfinance in the 70s were Accion International in South America and the Grameen Bank in Bangladesh.

Women have evolved as major actors. Microfinance programmes which initially targeted both a male and female clientele became mainly women oriented (e.g. Grameen Bank, 98% women clients). Women proved to be better and more timely repayers than men; they also dedicated more of the income generated from business activities to their families' well-being, child health and education. From the beginning, the focus of microfinance has been on low-income entrepreneurs - especially women - and it has involved small-scale enterprises, mostly in the service sector. Women's World Banking - a global network of microfinance non-governmental organizations (NGOs)- played a role in putting on the map the existence and legitimacy of low income women entrepreneurs, and is successfully continuing to promote them as clientele.

A major issue highlighted by microfinance is the "bankability" of low income men and women entrepreneurs. Microfinance clients, both urban and rural microentrepreneurs, can be viable borrowers and savers. With repayment rates of over 96% and interest rates that are in many cases higher than ongoing local commercial rates, the microfinance business has been proven to be bankable. A key element: microfinance covers both credit and savings services and in certain cases it may also include other services (e.g. social security services, SEWA Bank). Microfinance encompasses both so called "minimalist programmes" - which focus only on credit - and "credit plus programmes" - which involve technical assistance and business advisory services, as well as other training on a wide range of topics.

Microfinance methodologies
These include: individual lending; peer lending; credit unions and village banks.

Microfinance intermediaries
These may be banks, financial NGOs, credit unions or grassroots organizations. The challenge for the sector is to create sustainable microfinance institutions and to help develop successful client businesses. Sustainable organizations are those which generate enough income to cover both administrative and financial costs over the long-term. Experience has demonstrated that it takes 3-5 years for a microfinance institution to become self sustaining. Microfinance institutions play a role in global networks and international economic development, with interesting transfers of business experiences from "South" to "North" proving indeed the existence of the "global village". To illustrate this trend, Grameen Bank replications are being successfully adapted and implemented in Norway despite inherent cultural differences.

The microfinance sector is characterized by a fast rate of change; this change is expected to continue. The sector is constantly responding to clients needs and many microfinance programmes are built on strong ties with clients and involve strong client participation. Proximity to clients is important. Knowing and understanding clients' needs and aspirations is essential. At Grameen Bank 90% of the employees live very close to their clients. The relationship between clients and microfinance institutions is based on trust and services are provided under a different philosophy than that of financial institutions. The emphasis is on a "win - win" strategy - which makes microfinance a laboratory for the business of the future.

Client participation in MFI decision-making is an essential part of the model. Recent research studies show that businesses tomorrow will be more integrated and in this sense microfinance is leading the way. Microfinance is known for empowering people - both at the intermediate and field levels. It has also been able to influence policy and thus create in many parts of the world a favourable environment for entrepreneurship for low income people.

Microfinance also contributes to building civil societies by strengthening the NGO sector, by developing outreach services and by involving people in community and economic development activities. It can contribute to the reduction of poverty, the empowerment of people (especially women) and the creation of employment. It has a global field of application and fosters continuous change and innovation. It also has the potential to influence and change policy at levels that transcend economic development.

Points raised:

1. Financial intermediaries often operate under the terms of the funding partners and cannot therefore operate freely. They must become autonomous, self-sustainable institutions.
Response: In order to be self-sustaining, microfinance institutions must cover their costs. Therefore rates need to be higher than commercial bank rates, (at the same time they are lower than the alternative rates of loan sharks and pawn-brokers).
2. Loans can create dependency
Response: Loans should not be made indiscriminately. Institutions need to make loans to borrowers who present the potential for successful businesses. Each loan should be made after careful analysis of the business plan and future cash flow streams, thus preventing loan dependency.

Presentations of Microfinance Experiences (10 minutes long)

· Leyla Sen - Presentation of her paper, "An Overview of Tyrkiye Kalkinma Vafki (TKV) Rural Credit Program".

After noting that in conventional development programmes separate agencies provide training, agricultural credits and marketing outlets, and although each is a crucial segment, the lack of linkages between these activities makes them often fall short of both ultimate objectives of development and project goals. TKV aimed at providing human resources development, training, rural credit and market assistance in an integrated system. Another unique feature in TKV's rural credit is the optional alternative repayment scheme that is consistent with local traditions - eliminating, when necessary, conventional interest rates and instead, indexing the debt service to repayments in kind by borrowers. The "Euromoney" magazine conducted one of the earliest reviews of TKV's rural credit programme, and quotes a report from the International Finance Corporation, which states "not a single borrower has defaulted and that the TKV's Rural Credit Program is the first successful lending programme for low-income farmers in Turkey."

· Jela Tvrdonova - Presentation of the Slovak savings initiative.

There are two approaches to microfinance development - top-down and bottom-up. Legislation supports a top-down approach both from Slovakian organizations and outside institutions. Examples of outside organizations are Intra-Fund and VOCA. However, because of the existence of an identified loophole in current legislation, it is possible to implement bottom-up programmes under the Slovak civil law.

The state recognizes the crucial importance of the development of the country's small and medium sized enterprise (SME) sector, which includes microenterprises. In reality, however, there is no legislation for credit unions, and despite the fact that the oldest credit union in the world was formed in Slovakia, there are currently only very few active credit unions in operation in the country. However, a local initiative of women entrepreneurs with support from Women's World Banking has established a savings group system for rural women. So far, the focus has been on women who have already started a business and is not yet directed at low income women entrepreneurs. The group establishes a common bank account and cannot start lending until they have saved a certain sum, which is estimated to take them at least one year. The fact that the women in the group know each other well is important. This in turn has a positive impact on local community development.

Discussion

Points raised:
What is the rate of interest on short term loans and medium term loans in Slovakia?<
The Interest rate is 13%. The inflation rate in Slovakia is about 7-8%. The Bank rate is 25%.

Presentations of Microfinance Models (20 minutes long)

· Leonidas Papakonstantinidis - Presentation of the Agricultural Bank of Greece (ABG)

Since its foundation ABG has three roles: to operate as a commercial bank, as a development institution and as a social bank, "the bank with a human face" (it extended loans with very low interest rates). Before July 1991, the bank implemented the Ministry of Agriculture's annual development programmes.

July 1991 was the turning point in ABG's development as a result of two influences: the European Union's legislation 2328/91 to support and encourage "non agricultural" rural activities e.g. rural tourism and the LEADER Programme (Liason Entre Actions Development Economie Rurale).

The bank now functions as an intermediary organization for a number of programmes, such as the LEADER Programme, and offers consulting services to the rural population as a result of the recognized need to keep young people in agriculture and reduce rural depopulation. The bank encourages the development of entrepreneurship by the young in agriculture. In addition, it motivates women to establish enterprises, for example, in handicrafts or fruit processing.

· Zana Konini - Presentation of the Albanian Development Fund (ADF), an NGO Rural Credit Programme

ADF is based on a project initiated by the World Bank in 1992 to establish "village banks", i.e. Village Credit Councils. ADF offers small loans to villages which in turn give small sums of credit to village dwellers who otherwise do not have access to traditional credit. Individual loans are given without discrimination through links with the Village association. Credit amounts vary between US$500 and US$1 000. The maximum amount is US$10 000. The reimbursement rate is 100%. The objectives of the programme are to: build village NGOs, mobilize savings, increase the number of clients, and create an Apex organization which could serve as an umbrella organization for the village banks created under the ADF rural credit programme.

Today ADF has established 207 village banks spread throughout the country and has enabled over 10 000 borrowers to take out loans. Initially the project was intended only to provide credit. Now, however, a framework for savings mobilization has been put into place. In 1997, the rural credit programme was interrupted due to an acute economic crisis in the country. The system effectively lost money during this time due to inflationary pressures. However, reimbursement rates declined by only 1% during the period. The programme has been adapted well to local village needs which helps to explain its success. If repayments are not made the village activities cease. The social pressure to make repayments is therefore critical. The programme has adopted a village banking methodology. A new apex association (federation) is being established which has three roles: to represent village associations; to provide technical assistance; to play a financial lending role.

The long term aim is that village banks will become self-sustaining. Funds will be transferred to the apex organization by ADF which will not take an active role.

Tuesday 9th June

Overview of the SEAGA Framework & Core Ideas, by Úna Murray

FAO's socioeconomic and gender analysis programme (SEAGA) provides a set of practical tools and a framework for undertaking socioeconomic and gender analysis.

The objectives of the SEAGA Programme:

1. to strengthen socio-economic and gender analysis capacities
2. to provide policy-making methods and tools
3. to sensitive people to the need to undertake gender analysis

These objectives will be achieved by:

1. developing a package of analytical tools for local adaptation
2. distributing SEAGA materials and delivering associated training
3. establishing networks for dissemination and communication of ideas

Three levels of analysis are identified in SEAGA:

1. THE FIELD LEVEL - Focusing on women and men, both as individuals and in groups, and on socioeconomic differences within and among households, and on communities as a whole.
2. THE INTERMEDIATE LEVEL - Focusing on structures, processes, institutions and services that function to link the field and macro levels
3. THE MACRO LEVEL - Focusing on international agreements and policies and national policies and legislation.

Examples of questions at the SEAGA field level:
Who needs credit? What is the potential for income generation, or repayment? who controls money in the household? Are there traditional norms that limit access to money by women? Who owns land and other assets? How do people learn to trust microfinance organizations?

Examples of questions at the SEAGA intermediate level:
Who else is providing microfinance services in the area/region? (formal and informal) How is information reaching borrowers? Does it reach both women and men entrepreneurs and potential entrepreneurs? Do low income clients need technical assistance? Do they need other services related to their enterprises and/or their personal (and families) well being? Do microfinance institutions have simple and adaptable procedures? Can borrowers easily complete credit forms? Is it feasible to mobilize savings?

Examples of questions at the SEAGA macro level:
Is there state control over lending institutions? Does the law allow for women to own land or are women "legal minors"? Can financial NGOs extend credit? Mobilize savings? Are interest rates controlled?

Stakeholder Analysis:
Stakeholders were defined as: "All those who stand, indirectly or directly, to gain or lose given a particular development activity, programme or policy." It was highlighted that "stakeholder" is a difficult term to translate in other languages. The participants were asked to explore the concept of stakeholder analysis. Firstly they were invited to think of a word(s) in their own language that accurately illustrates the definition given in the SEAGA programme. Many participants could not find direct translations for this term.

SEAGA presents a range of participatory tools for identifying the stakeholders of a project e.g. Venn diagram. This also identifies who stands to gain and who to lose. Analysis also identifies potential conflicts between stakeholders.

Activity identifying the stakeholders for the Summer School
The stakeholders for the FAO Eleventh International Rural Development Summer School were identified and discussed using a Venn Diagram.

The other key idea in the SEAGA approach was identifying the resources and constraints of different stakeholder groups.
SEAGA frames questions about linkages between levels and competitive demands for resources among stakeholders. It was recognized that resources controlled at one level may create constraints at another level.

Leyla Sen from the Development Foundation of Turkey shared the experience of her organization in using the method and tools in the SEAGA Handbooks. Since September 1997 her foundation has been using the SEAGA methods (along with other participatory methodologies) in its work.

Celia Fernandez-Fontanillas from the Regional Ministry of Agriculture and Fisheries, Andalucia, Spain, talked about her recent experience of SEAGA training and its encouraging outcome (the training took place one week before the Summer School). Since the training Celia said that a network of participants has been created and they are already sharing experience amongst each other.

In the discussion that followed, it was highlighted that for change to take place, support at the policy level is needed. It was however interesting to note that in Norway, although there is effective macro legislation on gender issues, problems are often encountered at the field level.

Leyla Sen from Turkey highlighted that from her experience local government is often afraid of participatory methodologies. Her foundation has found that the root of the problem is people's reluctance to participate because they fear they will lose their efficiency/strength or power. Leyla concluded that training at the governmental level is key.

· Group work (See Annex 6) Applying the SEAGA Framework to microfinance intermediaries

The participants divided into three groups. Each group was an institution planning to either extend loans to target clients or to provide business services
Each group was to: list stakeholder groups; decide if these stakeholder groups are at the macro, intermediate or field level; ask questions about the different stakeholders that were relevant to the microfinance activities; write these questions on a flipchart; and discuss enabling factors and constraints of each stakeholder group.

· Visit to Agricultural Bank of Greece, Tripoli Branch

A bank with a "social human face", ABG offers easily accessible credits for an isolated rural population (number of branches is 576) and free advisory services. It also provides banking services for national and for European Community development programmes such as the LEADER programme. Credit amounts vary between 500 000 Drahmas and 500 000 000 Drahmas. Credit repayment is around 60%; women clients represent about 10% of the bank clientele. Current inflation rate in Greece is 4.8%; the market interest rate is 12%. No women are on the board of the bank, but approximately 50% of the branches are headed by women.

9 July 1991 was a turning point for the Bank. From that day onwards, the Bank ceased to be solely an agricultural bank and began to operate in the open market and to provide services to non-agricultural clients. Objectives for the next decade are to increase profits so as to facilitate ABG's privatization; it is foreseen that 49% of the ownership will go to the private sector while the government will keep the remainder.

Wednesday 10th June

The Credit Union Model, by Greg Pirie, World Council of Credit Unions (WOCCU), FYR Macedonia

WOCCU was established in 1971 and is based in the United States,. Members are organizations that represent savings and credit institutions in 86 countries; there are currently 90 million members of individual credit unions (CU).

Statement of Purpose
WOCCU assists members and others interested in becoming members to organize expand, improve and integrate CUs as effective "not for profit organizations".

Working Principles:

· Institutional development
· Savings mobilization
· Credit administration
· Participatory development
· Safety and soundness
· Prudential supervision
· Microenterprise - e.g. solidarity group leadership
· Women in development

Operating systems:

1. Democratic structure
2. Provides services only to members
3. Social goals

1. Democratic structure:

WOCCU emphasizes voluntary association. Within the group there should be no discrimination and no compulsion to join. Members control the opportunities for co-operation (people not capital-based). Non-discrimination is professed, not just in the membership structure but in the way services are offered.

2. Services to members:

· that promote economic and social well-being
· distribution of profits - there is a distinction between rates of interest paid to members and surplus money in the union at the end of a year. Surpluses are owned by members and contribute to the building of a strong balance sheet; thus ensuring that the CU is self-sustaining.

3. Social Goals

· Education is key for CUs; providing financial services, assisting people in their financial problems, sorting out complexities of financial administration
· Co-operation amongst co-operatives - negotiating and managing administrative systems and acting as intermediaries in relationships, centralized services such as data processing, central liquidity management, borrowing between institutions
· Social responsibility. As the customers contribute to economic and social well-being, there is a responsibility to work within the social sphere and offer more than basic service. Services must contribute, i.a. to social justice, equality, etc.

WOCCU conducts development programmes in a large number of Eastern European countries such as Latvia, Lithuania, Albania, FYR Macedonia, Romania, Ukraine, Russia and Poland. A measure of CUs in different countries is the proportion of the population which has become members of a Credit Union. Over 50% of Ireland's working population are members of CUs. In Australia 20% of loans are made by CU's. In the UK where there is a long history of co-operatives and where CUs have been introduced at a later stage, the CU system is becoming more important.

Definition of a CU

A Credit Union is a group of people who join together to save money, pool internally generated funds and make loans to each other at reasonable rates of interest. A credit union is organized by people who share a common bond such as members of the same workplace, association or community. No one member can borrow more than 10% of total capital.

Services Provided by CUs

1. Savings and credit
- safe place to save
- credit reasonably priced
2. Education for members - thrift - wise savings and use of credit
3. Community Economic Development to emphasize community reinvestment to keep money in the community

Key characteristics of CUs

· A tool for community economic development
· Using the co-operative model of enterprise (based on human rather than financial capital, emphasizing people, profit stays in the group)
· Focused on meeting members' needs; flexible, responsive to changing needs
· Complying with sound business practices

Essential points:

· Reliance on savings mobilization, reducing dependence on external funds for sustainability
· Truly democratic governance (1 person, 1 vote)
· Independence of the state (reflected in terminology)
· Complying with sound principles

Typical Services

· Savings accounts (on-call or notice-of-withdrawal)
· Deposit Accounts (Fixed term)
· Loans (personal, business, credit card, home)
· Access systems (cheques, debit cards, automatic payment)

People's preferences for becoming members of a CU vary. Sometimes people have no access to other financial institutions (apart from loan sharks). They may be attracted to CUs by savings opportunities. Sometimes as in the case of other large organizations, the attraction is responsiveness and extensive service. People also respond to the community nature of CUs.

A national organization chooses to be a member of WOCCU and each must acknowledge and subscribe to the Council's principles. WOCCU is not a regulatory body, however, and can only encourage its members to meet the standards set out by the fundamental principles. Within countries, however, there may be legislation to set and enforce business practices and regulations that must be met and are enforced.

Points raised:

1. When new members join WOCCU, who initiates the membership process?
Response: Funds available to help membership processes may come from US, EU, CU system individual governments

2. What are the benefits?
Response: WOCCU is part of a strong international network which shares information, technical assistance and lobbying efforts.

3. Is there a charter?

Response: No charter, rules are devised by individual credit unions which must then build a relationship with WOCCU and should work within WOCCU's principles

4. In the countries that have CUs, what is the relationship with governments?
Response: This depends upon the law. Loans may be made for example, but not always savings. In FYR Macedonia, for example, the law needs to be changed in order to allow savings and credit unions to be exempt from tax on final net profit, as are non-for-profit organizations. This tends to be the case in countries where CUs are well established. Elsewhere in the EU and CEE, tax must be paid in the normal way. Relationships with governments vary. Interest rates are dependent on a range of factors - country, context of members who form CUs. Interest rates reflect the circumstances in which members operate, alternative forms of credit etc.

5. Can preferential loan rates be applied?

Response: No, this goes against the principles of equality. (1 member 1 vote) everyone must be treated equally. European banking requirements have a minimum capital requirement for credit co-operatives which means that most co-operatives cannot operate small savings programmes. Lending is not a problem - savings are. Ireland and the UK, because of their long-standing institutions and lobbying power, are exempt from this European banking directive. Central and Eastern European Countries (CEE) that are working towards EU membership, and currently establishing financial systems that conform to EU requirements, risk having to close down their credit unions.

The presentation on credit unions was illustrated with a case study on a New Zealand CU, The Ngai Tai Iwi Authority.

Presentation of Microfinance Models

· Froya and Hitra Credit Programme, by Lise Hauge, Norway

Subject: the establishment of Microcredit Groups in Central Norway, mainland and island regions focusing on rural women. The inland area: the counties of Rennebu and Cppdal (9100 inhabitants) and the island area: Froya and Hitra (8200 inhabitants). The presentation addressed the process, the results and the value of cooperation.

The programme started in the mainland area with funding of 600 000 krona (US$83 000) sufficient to set up three different microcredit groups as part of the women's rural network association (5 women per group) and in the island area with 400 000 krona (US$55 000), sufficient to set up two microcredit groups, one of eight development projects in the area.

The project consisted of assisting local women to work together and to help each other in local development projects, to identify local needs and address them correctly, to identify and solve problems of local women and to ensure that the women take over the problems by themselves. The aim is to make the women entrepreneurs feel that the programme belongs to them.

79 women microcredit groups have been established. These groups lobby the government to secure funding to encourage other women entrepreneurs to start microenterprises.

Difficulty for women in setting up their enterprises

1. It is very difficult for women to give priority to themselves and their ideas when so many domestic demands are placed on them.
2. Many women are afraid to borrow money as they feel intimidated by officials in financial institutions and the institutions themselves.
3. Women entrepreneurs, especially owners of small enterprises, are not taken seriously. Applications for funds can take a long time.
4. Within their own organizations, the women can share experiences and problems, and get support for their work. A good business plan has strong chances of being financed.
5. Rural women may not have the appearance of successful business people, they may not have the appropriate approach to convince banking institutions of the validity of their business ideas.
6. Male and female approaches to business differ because of their different roles in society. Women still have to make choices (work or family). In microcredit organizations it has been recognized that women must educate men about the choices women must make and also operate their own microcredit organizations in the way they prefer.
7. It is essential to be able to manage conflict within groups. This will help them to later manage difficult business issues: customers, suppliers, etc.
8. Another barrier may be the community itself. Change effected by some rural women can create waves of discontent within communities that would like to maintain traditional ways of life.
9. Women must learn to take risks and this may be new to them.

Results of the programme

Each group has had 200 000 KN at its disposal. Interest rates vary but are slightly less than commercial rates (average rate = between 7.5 and 9% whereas in microcredit = 5% the 7% to encourage women to join the programme). Loans must be paid within three years. Repayment rate = 94.4%. Maximum loan amount per member = US$6 900. Additional separate funding is necessary and is supplied by local municipalities on which national funding relies. A facilitator was employed almost full time (80% of her time) at the beginning of the programme and she devoted gradually less of her time to this work as women clients took over their programme entirely. Today there is no facilitator. The project is self-sustaining.

Equal emphasis is given to measurable economic results and to social results. There are eleven new business enterprises with a turnover of 110 000 NK. Twenty-three women have focused on how to set up and develop businesses and there is a knowledge of women's way of working. Approximately 140 people are in the network now. The question is how to facilitate future training e.g. micro-finance.

The Norwegian situation was represented as an hourglass with available funds at the top and rural people at the bottom. The `bottle-neck' created by lack of finance to rural people may be eased by micro-financial institutions and solidarity groups. The presentation was illustrated with slides drawn by a female client of the programme.

Sharing of Microfinance Experiences

· Entrepreneurship for rural women by Leena Heiskala, Finland

Unemployment in Finland is a considerable problem, as it is currently 15%. Finland is sparsely populated in many areas. In 1997 a three year programme to help rural women start rural enterprises was initiated. Today there are four groups of five women each. The Association for Rural Women Entrepreneurs (ARWE) visited Norway and has adapted the model to Finnish needs. The first group started in August 1997, the second group in September and the third and fourth groups in November 1997.

Each group had a leader. Members of groups had ideas, business plans, etc. and groups signed agreements to bind members to training, team work and group responsibilities. Members can have loans of 5000 to 50 000 mrks and financial assistance for training. If a group takes out a loan, the responsibility for the loan is divided between them. This is peer lending and thus requires solidarity. Groups meet once a month. Members must save monthly and all business is highly confidential. The leader/resource person reports to ARWE and empowers other group members. ARWE's board is formed of 6 women and 1 man. Examples of businesses include afternoon care service for children, crafts, leather-refining, organic farming, gardening, design, painting and furniture-making.

Lessons learned:

1. The basic idea has been difficult to digest.
2. The role of the group leader is very important.
3. The leader of the group must be very active.
4. Members are very cautious when it comes to taking out loans and to committing themselves.
5. The relationship between the four group leaders and the project leader (based in Helsinki), is also very important. Group leaders want to be very independent.
6. The role of the Association's Board has been a problem. Members have not understood the role of the Board fully.
7. The situation of support arrangements in Finland:

- Subsidies
- Free support - training and counselling
- Support for entrepreneurship
- Special loans for women entrepreneurs (Kera Corporation, state-owned).

Sharing of Microfinance Experiences

· Business Incubator in the city of Rijeka, video presentation by Ranko Tadic, Croatia

The Business Incubator in Rijeka started as a local government programme and is now becoming a national programme for encouraging and supporting start-up businesses. Services offered: credit; financial aid to start-up businesses; support and advice to entrepreneurs.

§ Aimed at all people (but run by women)
§ Based on individual entrepreneurs rather than business groups
§ Using their own capacity, but inspired from Bavaria and Slovenia.
§ "Help yourself and God will help you". The programme firmly believes that "Systematic" entrepreneurship provides employment
§ To quality for services, potential entrepreneurs must provide a realistic business plan
§ After making initial selection of potential entrepreneurs the programme extends credit for up to five years. The interest rate is 1% and the repayment rate is 100% The local government of Rijeka subsidies interest rates with the belief that this will be of long term benefit to the city in terms of future tax payments.
§ Partnership with the university

Requirements for acceptance in the business incubator:
§ New entrepreneur
§ No charges during the first year (phone, fax, PCs, etc.)
§ Access to entrepreneurial credit lines from the City of Rijeka

Requirements for credit:
§ Investment of 25% by entrepreneurs
§ Maximum 40 000 DM per client

Sharing of Microfinance Experiences

· Rural Development Programme by Elin Antonsdottir, Iceland

Iceland has a population of 260 000 of which 66% live in the capital. Ongoing official programmes in microfinance are supported by the Government. A good business plan will usually get finance from commercial banks. However, smaller companies run by women in rural areas encounter difficulties.

Explanations for women's reluctance to take out loans may be:

· lack of self-confidence
· low-level of education
· difficulty in placing value on their work
· women's work is often viewed as a hobby rather than a commercial concern
· domestic responsibilities
· access to finance.

In Iceland unemployment is growing, especially among women. In rural areas, unemployment is now decreasing but it still is a concern. Especially for women. It is difficult to assess the size of the problem because there is also hidden unemployment. Many women enterprises are based in local neighbourhoods because it is important for women to work at or near home.

Women's Fund
In 1991, 50 million Icelandic krons (US$200 000) were given to the project (Women's Fund). Since 1994, women from Rekjank and rural areas have been eligible to apply for funds. The project must be clearly defined, have a plan of action and financial estimates must be taken into account.

Selected projects are eligible for grants. The funded project must have an impact on employment opportunities for as many women as possible. Public financial support will not exceed 50% of the overall cost of the project. Grants are generally not given more than twice for the same projects. Projects in the same local area in competition with each other will not be awarded grants.

Since 1985, farmers forced to diversify their products were assisted by grants. Farmers are encouraged to look at alternative activities, e.g. farm by-products. Up to 30% of a project can be funded by non-reimbursable grants. A small project fund exists since 1991 to finance 50% of the cost of projects for rural women (in selected cases even 100%). Total amount does not exceed US$4 000 per project. Rural tourism is popular in the region. Entrepreneurship not only creates jobs but also builds people's self-confidence. The Institute has responsibility for strengthening development centres. Grants are given to initiators and business people. Loans bear interest rates.

Women's Credit Fund
Established in 1997 for 3 years. The objective is to promote job creation for women. Provides collateral for loans. This has sent a message to women that emphasis was being placed on women and women's business activities.

Microfinance at the intermediate level:
How to build sustainable microfinance institutions, presentation by Anda Boros

Examples of microfinance intermediaries:
- Banks
- Networks
- Financial NGOs
- Credit Unions
- Grassroot organizations

The cost of lending
The cost of lending is made up from: 1) cost of funds, 2) operating costs, 3) loan loss reserve and 4) inflation. Interest rates paid by borrowers have to cover in principle these costs thus enabling the microfinance intermediary to become self-sustainable in the long run. An additional small margin is necessary to be included in the interest rates to pay for further development of the programme. In reality, many microfinance programmes provide microloans at interest rates that do not cover all these costs. This is especially the case with programmes aiming to alleviate poverty which cannot charge very high interest rates. Practice has shown that microfinance institutions can reach self-sustainability within 3-5 years from their establishment.

What is sustainability?
It can be defined in many ways, but it implies:
1. Continuation of activities after initial funding ends

2. Self-financing in the long run

How to measure financial sustainability?
Repayment rates are an important measure of success of microfinance programmes, as are the costs involved in running the programme. It is also necessary to consider the definition of the term "repayment rate". When is a loan in default? after a week, a month? Many microfinance programs use different definitions.
Sustainability Index = % of total costs covered by income or
= Total income from the credit programme/Total payment cost

Best practices for achieving sustainability at the intermediate institution level

- mobilize savings - this reduces the cost of loan funds
- include women clients (good payers; used to managing more)
- define appropriate loan size
- set realistic interest rates - depends on the development stage of the microfinance intermediary
- set realistic terms (up to one year) and repayment periods and intervals - daily, weekly? This depends on the nature of the business and on the structure of the institution. Sustainability ought to apply to clients as well as to microfinance institutions, therefore a measure of `success' must include not only the perennity of the microfinance programme but that of client businesses as well.
- offer credits, not grants/charity
- separate finance from other support activities of the microfinance intermediary
- build systems - to be able to monitor repayments and to identify needs for help
- introduce measurements - to be able to calculate costs accurately and frequently
- build in incentives - to staff (they know the clients and their needs) and to clients
- reach scale - it is necessary to have enough clients to achieve economies of scale and ultimately self-sustainability.

Key dimensions for institutional development:
· Process: nothing is static; there is constant change
· Capacity: structure and systems
· Impact
· Long-term - resources and linkages

How can MFIs reach long-term goals?

- good governance - practitioners believe that the most difficult issue is the relationship between the board and management and how to make the two work efficiently independently and with one another
- clear vision and strategy
- committed, capable leaders
- solid client - programme relationship
- strong client participation in decision making and to some extent running of microfinance institutions
- proximity to client.

Stages of Development of MFIs
1. Development stage - preparation and start-up
2. Sustainability stage - consolidation and growth
3. Expansion stage - policy impact and assistance to other microfinance institutions

Discussion

What are the minimum and maximum levels of lending in microfinance?
Response: It depends from the country, region, type of micro businesses financed, etc. Minimum can be US$30 per loan (ADOPEM, Dominican Republic) and maximum can be US$25-30 000 per loan (EBRD program with Russian banks). In Eastern Europe minimum loan amounts tend to be around US$500 and maximum amounts US$3-5 000.

Examining management and communication channels in microfinance institutions.

Following a mini exercise on communication the group proceeded to examine how lines of communication and decision making exist within their organization (see Annex 7).

Thursday 11 June 1998

All day study tour included visit to three small enterprises: jewellery maker, pasta shop and Greek sweet pastries.

Friday 12 June 1998

Sharing of microfinance experiences

· The NGO sector in Greece, presentation by George Tsobanoglu, Greece

This presentation focused on the NGO sector within the context of the Greek financial intermediaries and the specific Greek policy context. The presentation also highlighted the Greek situation relative to other EU member countries. The different meanings of the word NGO were reviewed. A link was made between the Greek context and the situation of the microenterprises that participants visited earlier that week as part of the study tours organized by the Greek hosts to the Summer School. The silversmith visited in Stemnitsa as part of the study tour was quoted as an example. This family business withdrew from the formal system and had to establish itself with money from the family.

NGOs in Greece have vague definitions; they are linked with the concept of associations. It reflects the kind of state and civil society that exists in a country. NGOs exist between private and public sectors, they represent the `third' sector. This must fit within the established systems and jurisdictional order. In the 19th Century, private organizations developed to set up early welfare systems. The role of NGOs is linked with this early development. No new system yet exists to regulate the voluntary sector. Key questions arise in terms of control and accountability. Control may be through agreement, peer-evaluation or competition.

Credit unions are rare in Greece. The only exceptions are: the City of Heraklion in Crete (a credit union which has supported the agriculture sector and is based on the principle of a unique community) and the metal workers credit union.

Discussion

Points raised:
1. Do NGOs themselves want to establish laws to regulate their activities?

Response: There is a positive climate in this respect and change will come. There needs to be clarity with regard to donations for example. There is a move to see that the `third sector' needs to be empowered and needs self-organization. There is recognition that the state cannot do everything.

2. Are NGOs promoted as bodies that can provide services that the state cannot/does not provide? Is there not a danger that the state will provide less and less?
Response: Greece has its own sort of social policy which is in both public and private sectors. Social welfare from the state is being withdrawn.
3. How will NGOs contribute to social security at a local level?

Response: They provide cohesion where local authorities have insufficient funds.

· Agricultural Marketing Assistance Project (AMAP) in Armenia, presentation by Gayanne Petrossian

Several micro-credit projects are currently under way in Armenia and are using either local or international credit funds. They are run by different institutions including banks, NGO's, credit unions - the latter are in the process of development - and different international agencies. From 1992-1995 USAID provided financing to create with USDA an extension office within the Armenian Ministry of Agriculture; the aim was to provide support to farmers and agribusinesses in a market based economy. Office staff located throughout the country and well accepted by local farmers has become the grassroots foundation for building up the new USDA project.

The vision of the AMAP is to promote effective and efficient agricultural initiatives that increase employment, generate income and improve the living standards of Armenian farmers and the rural population in general. AMAP's mission is to support the development of agricultural institutions and enterprises through the provision of technical assistance and credit services. AMAP's goals are to create:

· accessible markets - locally and internationally
· effective extension services concerning the production and distribution of agricultural goods
· exportable foodstuffs
· sustainable institutions - including research and education
· an enabling environment at the macro-level

In 1996 AMAP established a small grant program to encourage product assembly, grading, processing, packaging and transportation on a cost-share basis. In 1997 the grant program became a loan program offering three types of loans, all in the agricultural sector: a) strategic loans (made to encourage production of strategic agricultural products and services that are missing in the Armenian economy), b) transactional loans (to encourage the distribution of products); and c) micro-enterprise development loans for businesses which are not considered "bankable".

· Agricultural Co-operative Bank of Armenia (ACBA), presentation by Inessa Gabayan

ACBA was established in 1995 by the Agricultural Co-operative Regional Unions of Armavir, Shirak and Ararat with the aim to support private farmers through microfinance.

The Bank grants loans for the following purposes:

- production of agricultural goods
- development of market relations
- introduction of advanced technologies in agriculture

ACBA is a co-operative bank with a three-level structure: a the bottom, 125 associations whose 6,250 members are farmers (11% are women). At the intermediate level there are three Regional Agricultural Co-operatives Unions and at the top, the General Assembly, consisting of 12 members.

To date ACBA has extended 5690 loans (11% to women). Those are small loans, maximum is US$1 500. Maximum term is one year, interest rate is 24% per annum in US$ terms. ACBA has no bad debts and is currently making efforts to attract savings.

· Department of Rural Home Economics, Ministry of Agriculture, presentation by Myrto Stamiri, Greece

This presentation outlined the activities of the Department of Rural Home Economics, in Greece, specifically their activities and training for rural women. The Department helps farmers use resources available at home in a more efficient way for their own purpose or to sell. This includes agro-tourism. The department attempts to link credit seekers to the Agriculture Bank of Greece. The department also supports production co-operatives run by women.

Participants were asked to write down the critical issues they face when dealing with microfinance services for low income rural women entrepreneurs. They were asked to list the three critical constraints they face in their work and obtain suggestions on how to overcome these constraints from other participants. The Margolis Wheel participatory tool was used for this activity (Annex 8).

How to create an enabling environment for microfinance at the macro level, presentation by Anda Boros

Policy Framework to Promote Efficient Financial Intermediation

1. Favourable Macro-economic Environment

1.1 Inflation controlled
1.2 Exchange rate - not wide fluctuations
1.3 Import/export regulations favourable
1.4 Farm product/input prices must be fair
1.5 Predictable economic policies
1.6 Law and order.

2. Favourable Financial Market Policies

2.1 Interest rates covering risks and costs of operation (often higher than commercial rates for sustainability)
2.2 Avoid high transaction costs
2.3 Legal framework defined so as to support microfinance
2.4 Prudential regulations especially in an organization attracting savings so that funds are protected.

3. Encourage Rural Markets to be Competitive

3.1 New banks
3.2 New organizations opening broad range of services e.g. insurance
3.3 New financial intermediaries
3.4 Experimentation.

Macro-level Legislative Framework

1. Banking regulation needs to be adapted to the informal sector e.g.:

- loan collateral
- savings
- regulations to enable and not to disable

2. NGO legislation
3. Credit unions/co-operatives/legislation

FAO
FAO supports member governments with:

- Financial policies
- Institutional structures
- Operative procedures
- Training

Within the former communist countries new legislation is now in the process of being created. As changing existing legislation is such a difficult and lengthy process, it is vital that information regarding microfinance reaches policy makers whilst legislation is being framed (see Annex 9 - Enabling environment at the Macro Level - Points/questions for discussion).

Saturday June 13 1998

Evaluation and future recommendations
(see Annex 10 for evaluation form) and discussions related to the theme for next year's edition of the Summer School.

In winding up the seminar, Anda Boros presented the emerging paradigm of economics and of business as formulated by Marilyn Ferguson and Fritjof Capra, stressing that microfinance is a good illustration of this thinking. The most important aspect of the new paradigm is that the shift from the old to the new paradigm requires the expansion of perceptions, ways of thinking and of values. As far as thinking is concerned, rationality, analysis, reductionism and linearity, will make way for intuition, synthesis, wholistic approach, non linearity. As far as values are concerned, competition, expansion, quantity, domination and hierarchy, will expand to include co-operation, conservation, quality, partnership and networks.