Financial sector development - Sida

Box 6. Credits for urban poor in Nicaragua (PRODEL)
In 1993 about MSEK 50 were allocated as SIDA support to the Local Development Programme in Nicaragua,
PRODEL. The main objective of this programme is to improve living standards of poor inhabitants of five
urban municipalities in the north-western part of Nicaragua. The programme has been implemented in
collaboration with INIFOM, the Institute for Municipal Support. About 40 per cent of the funds have been
earmarked for two microcredit programmes of a revolving fund nature, one for housing improvement purposes
and the other for promotion of micro-enterprises. The stateowned commercial bank, BANCO POPULAR, was
selected as administrator of the two funds mainly because it had a network of offices in the region. In the first
two years of operation over 2 200 households and 1 300 microentrepreneurs have benefited from the services
of the bank. About 10 per cent of the households have benefited from both types of loans. Since the loans
have been revolved faster than expected, twice for the housing part and five times for the micro-enterprise
part, less than half of the budgeted funds have been released by Sida. Average housing loans have been
about USD 650 and the microenterprise loans USD 250. The experience of the two credit schemes are quite
promising. Although the bank was instructed not to select clients with household incomes above USD 150 per
month defaults have been very low, close to zero for the housing loans (at subsidised interests) and 3-4 per
cent for the microenterprise loans (which have been provided at markets rates). The remuneration formula of
the bank has been designed in a way to encourage a close appraisal of the clients as well as a fairly elaborate
system of loan recollection. For the administration of the PRODEL funds BANCO POPULAR has implemented
training courses for its staff and created a profit centre for the poor clients. For PRODEL-2 the bank is willing
to discuss a system whereby it shares the credit risk with INIFOM and Sida.
In Eastern and Southern Africa there are successful institutions set up according to the
Grameen model. Also here it seems that US NGOs have provided most of the inputs in
terms of concept, systems, initial management and finance. Pride Africa is a case in point
which now have operations, with a large number of branch offices, in Kenya, Tanzania
and Uganda - and in addition in Guinea - and is soon about to extend its programme to
Zambia and elsewhere. Africa Housing Fund has an entirely different background (and
does not operate on the Grameen model strictu senso) in that it is a combination of an
international organisation (with the diplomatic immunities which go together with that
status) and a multicountry NGO, operating microcredit programmes in some 30 African
countries. The promoter and current chief executive of AHF is a Swedish national, Ingrid
Munro.
7.5 Private capital flows to recipient countries in Sub-Saharan Africa
Private capital now accounts for more than 80 per cent of net long-term flows to
developing countries, totalling USD 285 billion in 1996 (Figure 1). These flows are now
reaching more countries over and above the dozen or so which have accounted for the
lion’s share in recent years. For example, private capital flows to Sub-Saharan Africa,
while still only around 10 USD billion, are now several times greater than they were at the
beginning of the 1990s.
FDI has increased from around USD 25 billion in 1990 to around USD 110 billion in 1996.
It is generally argued that these inflows have a positive overall impact on the growth
potential of the recipient host countries since they usually bring about invest-ments in
modern technology, improved marketing channels and export opportunities,
demonstration effects on other investors, and more generally the benefits of an increased
integration with world markets.
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