When Credit Is Not Due: A Critical Evaluation of Donor NGO Experiences with Credit

Consider this chapter as a critical assessment of the involvement of operational and donor NGOs with credit activities. It is drawn from ACORD’s2 direct experiences with designing and implementing various microcredit systems in 10 countries in Africa and through association with several local and international NGOs. Africa is the one place where many foreign NGOs like ACORD still operate directly in the field. Many local NGOs are more or less created by donor NGOs in their own image, or encouraged to serve as conduit for aid funds. Therefore, drawing upon the lessons of ACORD may not only be applicable to other northern donor NGOs, but to many African NGOs as well. It must be emphasized from the outset, however, that observations in this paper do not represent the totality of ACORD’s experiences but only those from which ACORD has drawn its own lessons. Like many development efforts, these lessons are very much the benefit of hindsight -learning from doing. It is in support of continuous improvement in the learning curve that this paper is directed. There has been no shortage of conferences on credit within NGO circles over the past few years. In most of these conferences, there has been much discussion about how to improve mechanisms for delivering credit to the poor or, at least improve their access to credit. Fewer have explored how to make the poor “bankable”, meaning how to mobilize savings. Fewer still have discussed how and when not to provide credit, or how not to destroy the financial systems of the poor. It was not long ago that NGOs3 concentrated mainly on the provision of welfare services. From a hands-off credit attitude in the 1950s and 1960s, based partly on a belief that interest-earning credit was usurious and therefore unethical, the 1970s represented a major u-turn. There was a visible shift from emphasis based on the provision of welfare and relief services towards increasing production and incomes by which the poor would provide for themselves in the future (sustainability), enabling the donor NGO or organization to build in a “withdrawal” time-table. The shift towards production and income generation was also brought about by the realization that welfare services alone did not seem to be creating a fast enough impact on poverty alleviation. Credit became a central plank of this approach, together with skill training, organizational and marketing support. NGOs arguing that the poor are creditworthy, became vehicles for transmitting large volumes of financial services to the poor. According to international donor agencies, NGOs offer less risk, are closer to the poor and more trusted by them (Remenyi 1991; IFAD 1987). Others occasionally slapped a credit component onto an already complex set of activities as if credit was simply a bundle of used clothing meant to be briefly worn and rapidly discarded. Yet, while the role of NGOs in the provision of financial services is growing by the day, the evaluation of their performances has yet to be systematically undertaken. It is demonstrated in this paper that just as a “confession of ill is not the same as a conversion from ill”, NGOs remain unconverted to the idea of liberalizing financial markets. They remain averse to charging positive real interest rates, consciously or otherwise undermine traditional financial systems, and largely lack the discipline required for the provision of sustainable financial services. Donor NGOs are, after all, products of charity and have comparatively easy access to public funds. The urge to provide easy money to others is ingrained (see Seibel, chapter 2).