Credit unions and rural banks reaching down and out to the rural poor through group-based microfinance

Author: Dunford, Christopher

Source: Enterprise Development and Microfinance, Volume 20, Number 2, June 2009 , pp. 107-124(18)

Publisher: Practical Action Publishing

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Abstract:

Over the past 15 years, the experience of credit unions in francophone West Africa, Ecuador, Madagascar and the Philippines and rural banks in Ghana shows that adding group-based microfinance (village banking) to existing, locally owned financial institutions in provincial towns is a lower-cost, effective and sustainable alternative to building microfinance institutions de novo in order to extend microfinance to poorer women (many of them so poor their families are chronically hungry), especially in rural areas. The advantage of village banking (as an efficient form of group-based microfinance) may be simply that it keeps costs low enough to facilitate delivery of credit and other services to rural areas that are too costly for other methodologies to reach. The disadvantage of the strategy is that many credit unions and rural banks are relatively fragile institutions; this is compensated by the ability to spread risk across a large number of these relatively small institutions.

Keywords: RURAL OUTREACH; VILLAGE BANKING; GROUP-BASED FINANCE; CREDIT WITH EDUCATION; CREDIT UNIONS

Document Type: Research article

DOI: http://dx.doi.org/10.3362/1755-1986.2009.012

Publication date: 2009-06-01

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