Ensuring Ethical Lending – APHEDA’s Responsible Microcredit Policy

In the last decade or so there has been a marked increase in the number of agencies utilising what can be termed ‘for-profit’ microcredit.

Responsible Microcredit can be a powerful tool, if managed well

That is, microcredit programs that charge high interest rates and focus on repayment as an indicator of success. The justification of this is that such programs can reinvest the 'profit' for relending. The reality is, however, that only an estimated 1% of such microcredit organisations are actually sustainable, meaning they are reliant on donor funding as well as charging exorbitant interest rates.

There are also, at best neutral, and at worst devastating, accounts of microcredit's results as a standalone development strategy. The poor can become entrenched in micro-debt, pushing people further into poverty and there is evidence that many borrowers have to take out other loans or sell property to meet the microcredit program's headline repayment rates.

To ensure that Union Aid Abroad-APHEDA maintains high ethical and ideological standards, we have released a Responsible Microcredit policy.

Union Aid Abroad-APHEDA has been utilising microcredit for many years now, primarily in the South East Asian context. Our programs have always been based on group solidarity, low interest rates and pairing with business, life and vocational skills training. Control of these funds has always been in our partners hands.

The Union Aid Abroad-APHEDA policy on Responsible Microcredit lays out for the first time our approach to microcredit lending and the situations where it may be appropriate. It lists nine key tests that should be applied before considering a microcredit program to ensure it does no harm. We do this to reaffirm our commitment to ethical and effective aid for the communities which we work with.

Over the coming year, Union Aid Abroad-APHEDA will be reviewing its development policies to reaffirm our and our member's ideological approach to development is codified and reflected in development practice.

Download File:
Union Aid Abroad-APHEDA's Policy on Responsible Microcredit [ pdf ]
Contact Details
Union Aid Abroad - APHEDA
Ph:  (02) 9264 9343
Fax: (02) 9261 1118
office@apheda.org.au

© Union Aid Abroad - APHEDA 2003.

Last Modified: Tuesday, 05-Apr-2011 12:11:51 EST
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