A comparison of two micro-finance models in El Salvador
Northeastern University, Boston, USA
Micro-finance for both income-generation and housing construction has received increased attention from development practitioners, governments and official banking systems since the 1970s. Internationally recognized models of micro-finance lending include the communal banking system of the Grameen Bank in Bangladesh with over US$ 1.5 billion in loans and a 97 per cent repayment rate, as well as the ACCION micro-finance network which includes BancoSol, a commercially successful bank for low-income men and women in Bolivia (Bornstein 1996).
Over time, a number of debates have evolved questioning best practice, the bench-marks of successful programmes and priorities for funding. This debate has revolved around the merits of ‘finance-only’ and ‘finance-plus’ programmes and between financial sustainability and socio-economic impact. Each side has its own proponents. While the World Bank, USAID and representatives from the official banking system argue for finance-only programmes, other more progressive agencies such as Oxfam (UK-Ireland), Oxfam America and Bread for the World advocate programmes that facilitate micro-finance growth and community development. The World Microcredit Summit held in February 1997 promised to provide a forum in which these issues could be further discussed by participants who wanted to emphasize the importance of micro-finance as a development tool. However, summit organizers chose to concentrate upon minimalist finance-only models, thus producing a simplification of the best approaches and models for micro-finance lending.
The limits to the micro-finance debate are problematic for a number of reasons. First, while the finance-only approach is attractive to conservative donors given that the sustainability of the programme loan portfolio is guaranteed by