8:29 AM Jan 28, 1997

NORTH CAN LEARN FROM THE SOUTH

London, Jan 24 (PANOS/Sue Wheat) - Microfinance institutions (MFIs) are not just a Southern phenomena -- increasingly, they are serving the poor and the unemployed in the affluent North as well.

With high street banks moving out of many poorer areas and long-term unemployment affecting millions, banks in the North are becoming less eager to serve low-income customers. A quarter of Britons, for instance, are without bank accounts.

Various MFIs which provide small loans plus savings facilities -- such as Credit Unions and community and social banking schemes -- are proving essential in plugging the gap between conventional banks and the disenfranchised 'unbankable' poor, the majority of whom are women.

"One hundred years ago there were poor working people, now there are poor workless people. It's a different situation," says Pat Conaty of the Aston Reinvestment Trust (ART), Britain's first local community reinvestment venture lending primarily to viable -- but not yet bankable -- social and community initiatives.

These include low-cost housing, small businesses and charities.

"The formal economy has disappeared in many inner cities -- shops are boarded up and banks have relocated," says Conaty. "In these areas it is not just self-help that is important, but mutual aid. We need to build up society again."

According to organisations like ART, Industrial Common Ownership Finance Limited (ICOF) and Triodos Bank, which lend to businesses with a community or environmental focus, the demand for microfinance is increasing.

"This is definitely boom time for us," says Martin Hockly of ICOF. "Banks are getting out of small sum lending because of the high overheads and no-one else is taking up the slack."

With a growing trend toward self-employment and 10 per cent of the unemployed in Britain aged between 18 and 29 years, youth-oriented start-up employment programmes focusing on microlending and training for young people are assuming importance.

In the last ten years, the Prince's Youth Business Trust (PYBT) has helped around 32,000 young people start their own businesses with loans of 500 to 5000 pounds sterling (750-7500 dollars), which are paid back over three years at modest rates of interest.

The PYBT targets young people from inner cities and deprived rural areas, disabled people and ethnic minorities. It says over 60% of all businesses supported by the Trust are still trading in their third year.

The industrialised North is also learning from Southern microfinance successes, such as the Grameen Bank in Bangladesh, which gives small loans to mainly women landless borrowers. As these borrowers have no collateral, a system of peer pressure and support is used to keep up repayments. Grameen's rate of repayment stands at an astonishing 98 per cent.

In the United States, 195 microloan funds have loaned over 44 million dollars and served 208,190 clients, 71 per cent of whom are on low-income, according to recently-released figures.

The Women's Self-Employment Loan Fund in Chicago provides training and one-year loans to low-income, mainly single mothers to help them start their own small businesses.

Its 'Full Circle Fund' is based closely on the Grameen peer lending approach. Borrowers from the same neighbourhood are formed into a small group or 'circle' which acts as a 'loan committee,' reviewing loan proposals and helping with business plans.

As with Grameen, if one member of a group defaults, the others lose access to credit.

Britain this year will see the first attempt to replicate the Full Circle Fund through the Women's Employment Enterprise and Training Unit (WEETU) in the eastern county of Norfolk, where women are the lowest paid in the country.

"There is little support for low-income women who want to start a small business and no attempt to help people doing work 'on the side' to form a business," says WEETU co-ordinator Erika Watson.

WEETU is working on a plan under which borrowers will be able to trade but still claim welfare benefits for a fixed duration. The so-called 'enterprise rehearsal' period, it is thought, will be a vital consideration, particularly for single mothers.

But not all poor people want to set up in business. Many merely need a facility to save or to take a loan every so often for domestic essentials so as to avoid loan sharks who are legally able to charge 75 percent interest, and are known to charge up to 20,000 percent.

This is thought to be behind the fact that Britain's 536 credit unions, which allows members to save and take low interest loans (at one percent per month), are seeing an upsurge in membership, although many are often run by voluntary staff and may operate only a few hours a week from neighbourhood community centres.

Members 'own' the credit union themselves and must have a common bond -- such as a profession or the area that they live in -- so commitment to the organisation is generally high.

Loans are given on the basis of shareholding at a rate of three times the amount saved. "We have a default rate of less than one per cent," explains Jim Dearlove, Coordinator of the Birmingham Credit Union Development Agency. "That says a lot about the effectiveness of the common bond and the localness of the project."

The Association of British Credit Unions predicts membership will reach 200,000 by the year 2000 from the current 166,000. But seed funding by local authorities or investors is essential if credit unions and community banking schemes are to make further progress, experts say.

"We definitely need to work together to find a more creative way of serving people who have fallen outside mainstream banking," says Erika Watson.