Microloans

The Netri Foundation in late 2006 started its journey to use microloans as a catalyst of change and tool in the fight against poverty. Our focus is on rural communities and more underserved groups in the poorer developing countries of the world, where it is estimated that up to 80-90% of their populations do not have access to formal employment opportunities. Providing microloans can help to generate income through self-employment.

The term “microloan” is undoubtedly very wide. It can mean a loan of €100 to €3,000. The Netri Foundation is dedicated to support microfinance institutions (MFIs), who focus on giving small-amount microloans. The average size of the microloans provided since our inception, is €607. With these loans, we try to stimulate the local economy and to break the vicious cycle of poverty, starting with the participation of the most marginalised in the economic life of their community.

We have witnessed changing trends, as during the first years, the focus of our activity was to provide guarantees to MFIs such that local banks would be willing to provide them with local currency loans. In most countries local banks were generally reticent to finance MFIs, so these guarantees served as a catalyst to stimulate local lending. These guarantees also provided a very positive leverage effect, as the local banks were willing to loan more than the value of our guarantees, given that they were denominated in dollars or euros. In the first three years of operations, the leverage of every €1 we provided in the form of a guarantee provided the equivalent of €1,5 in local currency lending to MFIs.


More recently, local MFIs have been finding it easier to source local currency loans and the need for such guarantees has declined. For this reason, our current focus is to provide direct loans to institutions that have been active in innovating their credit offering, and introducing additional services like savings and micro-insurance products that best suit their clients. Our target beneficiary lives in a world of highly unpredictable or seasonal earnings and requires tailored products as well as a broad range of financial services to sustain their livelihoods, manage their household financial needs, and to deal with emergencies.

Another area of focus to Netri is supporting MFIs with a strong commitment to providing financial literacy and who fully endorse client protection principles as outlined in The Smart Campaign.

Social Impact

Recent empirical studies, often performed using randomized control trials, confirm that access to credit and other financial services does have an overall positive impact on economic development, given that it does stimulate new business creation and benefits existing microbusinesses. The results are less clear on whether microlending leads to sustained improvements in profitability of these businesses.

These studies reveal that the greater freedom provided to households to manage and smooth their consumption and to deal with shocks and emergencies generates a very positive impact and sense of wellbeing.

From this growing body of evidence, it can be said that financial inclusion of the poor, may not have the miraculous transformative impact that some were claiming, but it has discredited the allegations that arose after the microlending crisis in India in 2010 that it can be potentially harmful to communities and does not lift people out of poverty.

See our result section for more details on our social impact.

For more details on these impact studies and results, see:

http://www.cgap.org/publications/financial-inclusion-and-development-recent-impact-evidence

http://www.povertyactionlab.org/publication/where-credit-is-due