Many people and the general public as a whole, tend to place microfinance and microcredit in the same basket. Microcredit is a comprehensive plan drawn up to permit the granting of very small loans (“microcredits”) to low-income families. These loans help them to carry out productive or revenue-producing activities that, in turn, allow them to create small enterprises, often with only one employee: the founder or “microentrepreneur”.

As the sector has developed around the world, microfinance has expanded and now comprises a broader set of services that range from lending and savings to insurance and even money transfers. Microfinance also offers non-financial services, such as training for microentrepreneurs, and education in healthcare, hygiene and environmental protection.

The amount of the loans varies between several Euros and several thousand Euros. It differs according to country, as well as to the business created.

The rates of reimbursement are often very high; in 2004 in Morocco, for example, the five largest MFI recorded a reimbursement rate of 100%. The rate varies according to the financial institution and country, but it is quite common to see reimbursement rates of over 98% in well-established organisations.

People who are granted a loan benefit from it on several levels. First, the starting of a business enables them to improve their everyday lives: to eat better, care for their health, buy the equipment they need. In addition, the fact that they have been able to raise their standard of living through their own efforts is often a source of immense personal satisfaction and of regard from spouses and children.

It is important to remember that the people who benefit from microcredits (in general, people living under the poverty line) are people who have no access to financing from commercial banks as they do not have the assets required to secure a loan. There are three types of interest rates: The interest rates applied by Microfinance Institutions (MFI) stand between the bank base rate and the usurer rate and vary according to country. In India, MFI apply 17% annually, while banks charge 13% and certain usurers up to 360% yearly (with an inflation rate of 5% in 2003 – Source: Cofacerating). In Morocco, MFI apply an interest rate of 2 to 3% a month while usurers charge a 10 to 20 % monthly rate and commercial banks bill 12% annually (inflation rate 1.6% - Source: Cofacerating). In West Africa, MFI can apply an interest rate of up to 27% to 30% a year, with banks rates at 17 to 25% and usurers charging up to 20% a month! The interest rates of microfinance institutions are high as MFI grant many more small loans than traditional banks do, and as a result have higher operating and processing costs.On the other hand, although microcredits cost substantially more than “traditional” loans, MFI loan officers appear to be far more productive: in viable MFI, a loan officer manages an average of 359 microborrowers, according to the Microfinance Information Exchange (MIX).

If you wish to find out more about the subject, please consult the following websites: the CGAP website or the microfinancegateway site. You can conduct a search by keying in “interest rate”.

There are many different types and structures. Three main trends have developed:

• The first, inspired by the idea of cooperation, sought to set up or to reinforce entities where microentrepreneurs were both investors and borrowers. Its specificity is to try to build give-and-take organisations, which highlights their distinctly cooperative aspect. Grameen Bank is an example of one of the largest and most successful microfinance cooperatives.
• The second consisted in developing financial institutions into legally-established financial organisations. This is the case that occurs when banks restructure their activities or create specialised microfinance departments or subsidiaries. Among the examples of financial organisations specialized in microfinance: :
  1. Example of an existing Bank that restructured its activities: BRI in Indonesia;
  2. Example of a Bank that created a microfinance department: BancoDesarollo in Chile;
  3. Example of the creation of specialized financial subsidiaries: MicroCred PlaNet Finance Group’s MicroCred and ProCredit in Germany.
• The third consists of NGOs whose mission was to act directly as financial intermediaries. In Morocco, for example, roughly a dozen NGOs such as Al Karama, Zakoura, etc, were restructured into microfinance institutions. In addition, many MFI started as NGOs and subsequently became financial organisations. They include KREP in Kenya and Compartamos in Mexico, for example.

Providing financial services to people with modest incomes is a costly operation given the small amounts of money involved. In fact, this is one of the main reasons why banks do not grant loans for small amounts. A 100 € loan, for example, requires the same staff and resources for processing than a loan for 1.000.000 €, which significantly increases the cost per transaction.

In microfinance, loan officers must go see each client at his home or workplace, assess his or her solvency based on interviews with the family and neighbours and once the loan is granted, follow up through frequent and regular visits to encourage reimbursement.

As a result, the operating costs for a great many small loans are very high, requiring microfinance organisations to apply an interest rate that is usually higher than that in the banking sector.

Experience shows that clients are ready to pay relatively high interest rates to ensure permanent access to loans. In fact, as a rule, the return on investment realized thanks to the loan is far higher than the interest rates paid on the loan. Clients also realize that the alternatives – calling on pawnbrokers, for example, or usurers in the informal financial sector – or simply the lack of access to any source of credit is much more prejudicial to them. As an example, the interest rates in the informal sector can be as high as 20 % a day in some cases.

PlaNet Finance is made up of a network of non-profit organisations. These organisations have the following in common:

• They are all non-profit organisations set up under local law: Association Civil in Mexico, Oscip in Brazil, 501C3 in the U.S., Charity in India etc.
• They all share the same mission and adhere to the same Ethics Charter (see the PlaNet Finance Ethics Charter Statutes)
• They all sign a partnership agreement with PlaNet Finance that ensures they respect the common mission and ethics charter.

PlaNet Finance works only in partnership with organisations set up under the law of the country in which they are based. PlaNet Finance in Paris, like the other organisations in the PlaNet Finance network, all have established strong partnerships with local organisations. There are three types of partnerships:

• Partnerships with national Microfinance networks. In Benin, PlaNet Finance is a partner in the ALAFIA network, which brings together over 30 of Benin’s MFI; in Togo, PlaNet Finance is a partner in two local networks (APIMFT, and ALAFIA); in Morocco, PlaNet Finance is a partner in the FNAM; in China, PlaNet Finance is helping to set up CAM, a Chinese Microfinance network, etc… In addition, PlaNet Finance has partnerships in countries where it has no affiliated organisations. In fact, PlaNet Finance is also a partner in the Mongolian Microfinance network that it is helping to set up, the AFMIN (the African Microfinance network, based in the Ivory Coast), the REGUIPRAM in Guinea, etc.
• PlaNet Finance is a direct partner in the development of Microfinance Institutions. In Morocco, for example, PlaNet Finance works directly with the country’s 11 MFI with which it has partnership agreements by providing training and technical assistance. In Mexico, PlaNet Finance works with over 50 MFI with which it has partnership agreements. These partnerships exist not only in all the countries where PlaNet Finance has affiliated organisations, but also in countries where it has no permanent presence. For example, PlaNet Finance supports a Microfinance organisation in the Ivory Coast with which it has a partnership (CICA), another in Cameroon, and close to a dozen of institutions in Guinea.
• In certain cases, collaboration or partnership agreements are signed with organisations set up under local law that are not Microfinance Institutions. This is the case in West Africa in particular, where PlaNet Finance entered partnerships with associations set up under local law working in the areas of health, education, etc. within the framework of a Microfinance and Healthcare programme and an economic development Portal programme.

1- PlaNet Finance is organised as follows: As described in the organisation’s statutes, PlaNet Finance’s General Assembly currently comprises 4 member categories:- Ex-officio members, including experts, members of the Board of Directors and International Advisory Board, and honorary members;- Professional members, or microfinance institutions/organisations and local organisations that benefit directly from PlaNet Finance’s actions; - Donors and members: volunteers and members; - Members representing PlaNet Finance international offices (PlaNet Finance Mexico, PlaNet Finance Brazil, etc.)

2- Members are involved on several levels: They all receive a monthly newsletter listing the activities of the association, as do the more than 1500 other people who have requested it. They participate in the General Assembly of the association during the course of which they can elect a representative to the Association’s Board of Directors. Each member category presented above can elect its representatives to the PlaNet Finance Board of Directors: Founder and ex-officio members can have up to 22 representatives. Microfinance professional members can have five representatives. Donors and members can have two representatives. Members from PlaNet Finance international offices can have up to 15 representatives.

Members meet on a regular basis at events organized by the Association.

PlaNet Finance in a non-profit International Solidarity Organisation under French Law, whose mission is to fight against poverty by developing microfinance.The statutes of the Organisation can be consulted here.