Peer lending in Micro-Enterprise Programmes as a Strategy for Socio-Economic Change

1. Peer lending in Micro-Enterprise Programmes as a Strategy for Socio-EconomicChange Presentation of the Norwegian and US model of microfinance Unni Beate Sekkesæter Mikrofinans Norge/soon PhD student at RUC

2.     Centre / Network Centre / Network         Peer groups Peer groups             Peer Group lending Model 1 Lender 4 Organisation Bank 2 Programme Loan Fund Loans Micro entrepreneurs 3 • The lender may be: • The programme with an integrated loan fund • An external loan fund • A bank • The network group (Norway)

3. Microfinance Norway’soperationsOslo/Bærum/Drammen/Vestfold/Trondheim • First groups were formed in 1997 in Oslo for mainly immigrant entrepreneurs – still 90% immigrants • Based on the peer group lending methodology • Average loan € 4000 Interest: 6% • 200 persons have been part of network groups and started saving • 3 loan products • Peer group loans for start up and businesses with less than 6 months experience + Group loans for existing businesses • Individual loans for existing businesses • Linkage loans from banks – with or without partial guarantee from the project

4. Network Credit: Self managed groups • Peer groups are self managed and responsible for • Reviewing loan proposals • Giving loans from the group’s loan fund • Keep up the saving scheme • Ensuring that members repay on time • Function as bank and collection agency • Share experience of running business • Mutual support & training • Select topics for training • Join courses financed by the project/interest earnings of the group

5. Who are our customers? • Persons who want to start their own business • Persons who have already started their own business – but need more financial capital • Persons with minority background who came to Norway with a lot of resources and knowledge • Often highly educated, but without possibilities of getting their education recognised • Often employed in temporary positions or part time jobs • Often overqualified for the jobs they are doing • Persons who have been dependent on some sort of public assistance for a while • Those who have a willingness to get out of dependency on public assistance and make their own livelihood

6. Case: Hordaland Network Credit • A Local .Women’s Microfinance Programme in Hordaland County,Norway –was part of the Equal Credit EU project • Evaluation looked into these issues: • The member/business profile • The programme outcome and access to business finance • Stakeholder relations • Survey questionnaire (29 responses) = 50% of programme participants • 5 focus groups • 7 in depth interviews with employees • 6 months process – cost: £8000 • External consultant (student – less expensive)

7. Case: MFN 2006 • Evaluated by Student Pauline Chancellee, France • Evaluation looked into these issues: • The MFN member/business profile/characteristics • measures the economics and social effects of the microfinance programme services on its customers. • The programme outcome and access to business finance • Survey questionnaire (17 responses) • 2 focus groups • in depth interviews with management/others • External consultant (student)

8. Sources of business credit • Non-business sources of credit were used: • home equity loans: HNC -21% MFN – 18% • personal loans HNC -7% MFN - 59% • loans from friends and family HNC - 21% MFN 18% • In HNC 18% are now using bank credit for their businesses whereas 29% did before • In MFN 18% are now using bank credit for their businesses whereas 12% did before • 24% of HNCs and 6% of MFNs customers received loans from other business development programs (Innovation Norway)

9. Other summary findings • Legally registered businesses increased from 52% to 65% for HNC reflecting the increasing “formalization” of their enterprises • MFN members now prefer to keep their businesses as separate as possible from their private economy. 82.4% are now using a separate bank account for their businesses whereas 30% did before, • 46% reported substantially improved” record keeping • A total of 78% of the respondents had started their business at the time of the survey, an increase from 52% at the time of joining • 50% of HNC and 41% of MFN businesses are home-based • 44% have income from a job in addition to their business • 37% for HNC and 70% for MFN are single head of households • The HNC entrepreneurs with established businesses worked 32 hours per week on average

10. Evaluation outcome NCH & MFN Hordaland MFN

11. Mikrofinans Norge Type of business Hordaland

12. MFN Clientperceptionsof services

13. MFN findings –participation / support

14. In brief, the study documented: • The typical Hordaland Network Credit business owner is 30-50 years and female. • Among informants answering the questionnaire in this study, 18% were immigrants • 96% of those participating in the focus groups were born in Norway • 37% are single heads of households. • 50% were 30-39 years and 39% 40-49 years. • 82,4% have improved their quality of life since joining the programme • The income of Hordaland Network Credit’s customers has so far not changed in any measurable way since they joined, it must be said that even those with considerable profit from their business, choose to reinvest this in the business rather than take it out as salary. • The entrepreneurs with established businesses worked 32 hours per week on average. In addition, 46% reported “substantially improved” record keeping, and the percentage of legally registered businesses increased from 52% to 65%, reflecting the increasing “formalization” of their enterprises.

15. The case study & survey • The “Hordaland Network Credit Survey 2001” (Sekkesæter, 2002) was filled out by a random sample of 50% of the 60 members in Hordaland County, Norway. • 29 respondents participated in the questionnaire survey • 24 of them also participated in focus group discussions with the author. • The informants were all members of peer groups of 4-5 people who are planning their start-up (15%) or are currently in business (77%) or had been in business (8%). • THE SURVEY WAS DESIGNED TO EXPLORE THESE THEMES: • The characteristics of Hordaland Network Credit’s members; • Their level of participation in the program; • The characteristics and evolution of their businesses; • The changes in the sources of business credit they use; • The member’s assessment of the quality of Hordaland Network Credit services and the usefulness of the services offered; • The level of joint marketing and joint venturing among members; • The changes in self-confidence, community involvement and family relations encouraged through the group process.

16. Hordaland Evaluation outcome • 48% say Hordaland Network Credit has been very important • in helping the business grow;

17. Hordaland Evaluation outcome

18. MicroloanNeeded in USA • From LA to New York and Boston to Miami, low- to moderate-income entrepreneurs are unable to access the credit needed to build sustainable businesses and attain economic self-sufficiency. • 40 million households (106 million people) have limited access to mainstream financial institutions in the U.S. and 28 million people are completely unbanked. • Microenterprises (<5 employees) account for approximately 18 percent of employment in the U.S., and create 900,000 jobs a year. • Predatory lenders charge average annual interest rates over 300 percent— and accounted for over $42 billion in loan volume in 2008. • CDFIs Invested $3.5 billion in 2004 to create economic opportunity in the form of new high-quality jobs, affordable housing units, community facilities and financial services to low-income families and small businesses. 70% of customers are low income. • Grameen America started in 2008 and grow fast: 7000 loans

19. Comparisonswith US sample • Accion who took over WC have served over 23 000 micro-businesses and distributed nearly 19 000 loans, making Accion who merged with WC one of the largest micro-enterprise initiatives in the country. • Article based on member survey(2000) describing characteristics of Working Capital’s customers, and measures the impact of the programme’s services on its customers in Massachusetts and Rhode Island with a sample of 110 respondents (ibid, 2000). • It must be noted that since then, Working Capital in Massachusetts (now ACCION) has downscaled its peer lending activities and merged with ACCION which now have only individual loans of up to $50 000 • First State Community Loan Fund (partner with YWCA, my case study org): • The Micro Loan Fund (MLF) provides loans for individuals and microenterprises from $300 to $15,000. Loans are repaid over a four-month to three-year period. Most business purposes are eligible, including working capital, equipment and inventory.

20. Comparisonswith US sample

21. Group support and help

22. Comparisonswith US sample

23. “The social capital of a society includes the institutions, the relationships, the attitudes and values that govern interactions among people and contribute to economic and social development. Social capital, however, is not simply the sum of the institutions that underpin society, it is also the glue that holds them together. It includes the shared values and rules for social conduct expressed in personal relationships, trust, and a common sense of “civic” responsibility that makes society more than a collection of individuals” (The World Bank 1998, p. 1) Social intermeditation is financial intermediation with a capacity-building component, aimed at those sectors of society that lack access to credit and savings facilities.” (Edgcomb and Barton, 1998, p vii). Social intermediation involves the building of social capital in the form of groups that can generate an “information asset” and social collateral for future borrowing. Social and financial intermediation

24. Figure 1: Flowchart for research Contextual Variables Moderating Variables Outcome Variables Programme characteristics: Strategy/policy: Peer lending/individual Target group Training/Technical Assistance Effectiveness & impact 1. Programme 2. Peer group 3. Clients(micro-entrepreneurs) · Economic · Social 4. Local community Level of adaptation to local context Management qualities Funding strategy Shared values/vision of various stakeholders? Country: Norway, US and UK Original model - e.g. Grameen/ACCION Learning & Dissemination 1. Related to Programme Policy 2. Related to Peer Group Lending & social capital 3. Local /national micro- enterprise support/funding strategy 4. Further research needs Duration: Age of programme Local context (community) Level of financial exclusion Socio-economic indicators Minority/majority issues, culture Funding source: Banks Local/national government Small Business Administration Stakeholder rationality -Level of participation in programme & group decision making process: -Degree of self-management Financial/social exclusion Group dynamics/activity/loan process Stakeholders: Donors: Govt./Banks/Foundations Board member Staff/management Members (Focus groups and survey)