Establishment of Credit Programme - Advantages and 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.


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