Establishment of Credit Programme

Advantages / Limitations:

Poorer sections of the population become bankable, i.e. are able to save and bear the full costs of commercial financial services; Enables the expansion of existing businesses; Increase of business activities, production, and trade volume; Refinancing of businesses short of working capital; Support for purchasing new equipment; Provides a good motivation for women to enter into business; Indirectly increases employment opportunities and creation of new job opportunities; Increases income opportunities; Contributes towards improving the livelihoods of poor families: increases finances means they can afford investments such as children’s education and medical treatments; Eventually leads to an increase of tax payments due to higher income and increase of production and trade volume.

Credit Programmes are confined to lending and are not sufficient to meet the demand for comprehensive financial services (e.g. deposit services, payment transactions, insurance). Limited repayment capacity of the target group due to poor management capabilities, production methods, technological standards and marketing opportunities. Appropriate deposit services are limited due to the banking laws in many transition countries. Financial institutions entitled to take savings require a banking license. Limitations as a result of the overall financial sector environment, e.g. banking laws, currency fluctuations, prevailing interest rates, and the presence of refinancing facilities, significantly influences the success of the Credit Programme. As an independent measure, it is doubtful whether Credit Programmes can make an effective contribution to improving livelihoods, many additional measures are needed at the same time. .