A New Microcredit Fund
On June 28, the German Ministry for Economic Cooperation and Development (DMZ) announced that it was creating a so-called Debt Fund, together with the state-owned German Development Bank (KfW), dedicated exclusively to "refinancing Asian (...) microfinance institutions." With this fund, up to US $100 million will be earmarked for so-called microcredit loans "to the smallest, small and medium-sized enterprises as well as private households with limited income." The fund will make the means available to local banks and microfinance institutions (MFI) in Asia. The German government is contributing up to 28 million Euros to this "Debt Fund." The rest will be provided by the EU, 9 million Euros and the World Bank's (WB) International Finance Cooperation (IFC) US $16.25 million. Other investors will follow over the next few years. Germany is using this to extend its leading role in international poverty credits trading.
Global Player, Germany
The microcredit business functions simply. The MFI, in the so-called developing countries, take credits at major international financiers and lend these financial means, usually at horrendous - often up to 40 percent - interest rates, to the local impoverished population. Germany is a "global player" in the microcredit trading business. According to a study published by the journalist Gerhard Klas, "the comprehensive total of the funds provided by the German government for microfinance projects" up to and including 2009 was about 2.7 billion Euros. The KfW, according to its own account, with its portfolio of 2.3 billion Euros, is one of the world's largest financiers in the poverty credits trading business. Recently, it made a large-scale investment in microcredits in Sub-Saharan Africa. (german-foreign-policy.com reported.) The current initiative, by this state-owned credit institution and the BMZ, is aimed primarily at gaining access to the Asian market. As KfW Banking Group board member Norbert Kloppenburg explained, the Debt Fund is aimed at the Asian countries with a poorly developed banking sector, for example countries such as Afghanistan, Pakistan, Kyrgyzstan, Tajikistan, Nepal and Mongolia.
Development Aid for the Banks
The KfW and BMZ have been financing Microcredits in Central Asia for a long time. In Afghanistan, for example, the KfW is engaged in the creation of the First Microfinance Bank (FMFB), providing microcredits to the Afghan population. The KfW provided 1.5 million Euros - 30 percent of the FMFB's equity capital - and an additional 3.5 million Euro credit line. It has also invested a million Euros to support the bank's becoming established in the business. In 2005, the KfW was already participating in the creation of a local microfinance institute in Tajikistan that is primarily extending credits to the rural population. In 2010, it was involved with the founding of Tajikistan's Access Bank, which focuses its loans on small and medium-sized urban enterprises. The KfW is supported by the BMZ. Since 2008, the German Association for International Cooperation (GIZ formerly GTZ) has been implementing a BMZ commissioned project entitled "Promotion of Microfinance in Central Asia." This project has the objective of "promoting the framework conditions of the microfinance sectors in Kyrgyzstan, Tajikistan, and Uzbekistan." By means of "advisory offers, training courses" and the "joint attendance at sectoral conferences" the GIZ seeks to transmit the necessary financial policy know-how to these Central Asian nations' decision makers, enabling them to guarantee a profitable microcredit business. The KfW and GIZ are applying a similar division of labor also in Sub-Saharan Africa. The KfW supplies regional MFI with the financial means for granting loans, while the GIZ imparts the necessary expertise to the financial policy institutions.
Not a Penny Written Off
German Minister of Development, Dirk Niebel (FDP) praised microcredits as "an established instrument" that places the population of "developing countries" in a position "to free themselves from poverty (...) through their own initiative." But in fact, the microcredit system deepens the impoverishment of the needy populations of the countries in the southern hemisphere. Often, the debtors have no other recourse, than to take out new loans, to pay off already existing credit. In countries, such as India or Bangladesh, considered to be the world's microcredit strongholds, it is nothing out of the ordinary for small farmers, suffocating under the weight of their debts, to be forced to sell off their last piece of property. When a major flood catastrophe struck Bangladesh in 1998, millions of small farmers were robbed of their means of livelihood - also because, even though their land had been ruined and could no longer produce crops, they were forced to continue to service their loans. Muhammad Yunus, the Bangladeshi "founder" of microcredits, Nobel Prize laureate and head of the microfinance empire, Grameen Bank in Bangladesh, considers this normal. In 1998, his enterprise was under constant pressure to waive the flood victims' debts, but it "remained steadfast." "Not a single penny was written off."
Market with Promise
The poverty credit business is profitable, particularly for the capital investors from western industrialized nations, who view this as an expandable market with promise. According to a study published by the World Bank, billions of impoverished people around the world are in possession of US $5 trillion in assets - a gigantic informal market "still to be tapped." And if the rates of the loans can no longer be serviced, there is still the debtor's property, to pay off the debt - for the prosperous capital provider, a win-win situation all the way around.