Credit unions : a formal sector alternative for financing microenterprise development

Moreover, they meet donor criteria for lending programs: they are, for the most part, sustainable institutions with a 20- to 30-year history in developing countries; their loan portfolios are financed from local savings; they are actively engaged in financial intermediation, particularly from urban to semi-urban areas, and between net savers and net borrowers; loan resources remain in the community from which the savings were mobilized; they operate with little external subsidy; and they serve client groups targeted by international donors. In spite of this, credit unions are seldom mentioned in discussions of microenterprise development. This paper aims to clarify some of the issues and misconceptions about credit union participation in the microenterprise sector. The report begins by establishing preliminary estimates of the extent of credit union participation in savings mobilization and small-scale enterprise lending. The paper then discusses the differences between credit union and non-credit union approaches to enterprise lending. Final sections predict the future role of credit unions in small enterprise lending, outline actions to increase credit union involvement in the small enterprise sector, and suggest future research needs. (Author abstract, modified)