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Microfinance and street children

Microfinance and street children

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Published by serrokhb6171
Microfinance and street children. Thesis exploring how microfinance can be applied to street children.
Microfinance and street children. Thesis exploring how microfinance can be applied to street children.

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Published by: serrokhb6171 on Jun 12, 2010
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08/03/2010

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Microfinance and street childrenMicrofinance and street childrenMicrofinance and street childrenMicrofinance and street children
Is microfinance an appropriate tool to address the street children issue?
EXECUTIVE SUMMARY
 By Badreddine Serrokh,Solvay Business School (Free University of Brussels) ***June 2006
HERE ARE MILLIONS
of street children around theworld, floating and working here and there in thestreets of big metropolitan cities of the “South”. Witnessing the diversity characterizing such children andthe impossibility to define a “typical” street child, UNICEFtried to bring some light to the concept and proposed a binary terminology: the first category, termed “
children of  the streets 
”, live and work on the streets, 24h/24; thesecond category, labelled “
children on the streets 
”, spendmost of their daytime there, before returning to theirfamilies at night. However, the concept of street childrenis an umbrella term, and operational definitions varywidely among countries.Beyond the complexity of finding an appropriatedefinition, the last 20 years demonstrated the intricateand harmful situations such children are facing. Highly vulnerable to hazardous working conditions,experiencing loneliness, medical problems, neglect andabuse, some governments and organisations started inrecent years to put jointly their effort in order to findeffective and sustainable solutions to the issue.This paper, mainly based on a field research of 45 daysamong street children of Bangladesh, is attempted toenrich the panel of solutions proposed, by focusing on anew intervention tool which revolutionized thedeveloping world: microfinance.Mainly based on the provision of credit and savingsservices to low-income people, microfinance is bringing hope to millions of poor households worldwide, who perceive access to financial services as an essentialcondition for getting away from the cycle of poverty inwhich they are trapped by giving them tools to taketheir own destiny on hand. Although considerable attention has been paid to adult people, little interest has been given to children, and a high research gap exists. Indeed, it is generally assumedthat, due to their young age, this population segmentdoes not need financial services; and, even if it might bethe case, providing them those services might createmore harm than good.Focusing on the particular segment of “street children”,this paper challenges these assumptions by structuringan analysis around two central questions:
1. What are the main demand drivers of streetchildren for financial services?2. How can we supply them those services in aneffective and sustainable way, in order toenhance street children’s well-being?
Our paper highlights a first requirement that needs to be considered before being able to answer those twocentral questions: the need to change our common beliefs about street children and child work. First,regarding street children, the common view perceivesthem as criminals, irresponsible, destitute and withoutany capacity, leading therefore to pity. Second, the verysensitive issue of child work has often been seen as adichotomy, where either the child does not work and istherefore well; either he does work and must be keptaway from any kind of work in order to be well.However, those two sets of beliefs seem to be toosimplistic regarding the complexity of the issue.
*** Thesis submitted in partial fulfilment for the degree of Management Engineer”, under the supervision of Dr. Daniel Traça,titular of the chair of sustainable human development at Solvay Business School, and the support of Pr. Marc Labie, from Warocqué School of Economics and Business in Mons-Hainaut, and Pr. Christian Platteau, from the Free University of Brussels and head of Proman Consulting 
 
2
First, street children are found to hold high moral principles, to be active policymakers for them, and todevelop high resilience and adaptability due to their
 
street life experience.Second, a new movement of development psychologistsemerged the last few years by pointing out the necessityto change our perception of child work and to avoiddichotomy. Indeed, those theorists and practitioners highlight that this perception is mainly based on themainstream Western development psychology theories,where childhood is perceived as a phase which must only be dedicated to school and play, without any place forwork in their development. Although education and playare universal important elements for any child in theworld, the emerging theories point out the necessity to listen to children and to let the ones who wish to work todo that, except if the job is harmful. Therefore, under thisnew “subject-oriented approach”, work has a place inchild development and can have positive effects, such asincreasing his/her sense of responsibility and self-esteem.This framework, argues, moreover, that children must be listened, as they know what they want and what theyneed.Building on this new approach, our chapter 2 listens to79 street children who are part of Padakhep’sintervention, an innovative microfinance institution inBangladesh, in order to assess their needs for financialservices. Relying on powerful participative research tools(participative rapid appraisals and focus groupdiscussions), we extract their main demand drivers,articulated around two products: savings and credit.In terms of savings, we underscore three pillars of demand:
life-cycle needs
(such as supporting theirfamily or getting education),
emergencies needs
(suchas coping with the loss of their jobs) and
opportunitiesneeds
(such as starting a business)Moreover, street children express how the street lifeinsecurity is at the root of this demand, being thereforeobliged to use three techniques in order to secure theirmoney. First, keeping it in
short-term devices 
(i.e. hiding it in places such as pockets or shoes), but this hastwo disadvantages: it is insecure and only useful forshort-term periods. Second, using
informal financial intermediaries 
 ,
but this has two disadvantages too:a)a)a)a) The barrier to entry is high, as street children arenegatively perceived in the society and therefore can generally not be part of such informal savings schemes. b) b) b) b) The few children who can access it point out thefear to loose their money, as they do not trust peoplewho are responsible of these intermediaries.In terms of credit, three findings emerged. First, somestreet children need access to capital in order to starttheir own income generating activity, and the profileswere balanced between the ones who want to startseasonal businesses, and the others who wish to start a long-term business activity, as their preference for self-employment is extremely high. Finally, some streetchildren point out that they do not need access tocredit, as they just wanted to keep working asemployees.The street children demand characteristics beingstressed, we leave temporarily Bangladesh and turn, inour chapter 3, to a supply-side perspective, bydiscussing whether and how the microfinanceframework can match effectively and sustainably thestreet children demand. After highlighting the maincharacteristics of this framework, based on three principal products (savings, credit and insurance) andfour specific mechanisms (group-lending, dynamicincentives, frequent repayment schemes and collateralsubstitutes), we analyse the scope of this framework for addressing street children needs.
 
3
Taking a first glance at the prevalence of microfinancefor street children, by witnessing how traditionalmicrofinance framework was argued, since its origin, to be a process aimed at impacting positively childrenthrough the intermediary of their mothers, we find outthat the two potential providers (i.e. microfinanceinstitutions and youth serving organisations) are particularly reluctant to deliver financial services tostreet children. However, some few exceptions exist, andthe three most famous in three different continents are being taken as illustration. This helps us, first, to realizethat such programs emerge from youth servingorganisations who adopt a “subject-oriented” approach philosophy; second, such supply widens our previousfindings from Bangladesh and teaches us that streetchildren in other parts of the world need access tofinancial services. Lastly, this teaches us how those programs are far away from providing financial servicesalone.This preliminary review being done, we start ourmatching process by defining the two concepts whichwill frame our approach evaluation: “effectiveness” and“sustainability”. Indeed, a high trade-off may exist between these two requirements, as addressing streetchildren effectively would mean providing a package of financial and other services, but doing this increases thecosts and, hence, would hardly be financially sustainable.Keeping in mind this consideration, we propose aframework of analysis which contains the notion of “program sustainability”, defined by two parameters: theability of the program to minimize its costs (withoutdamaging the effectiveness), given a constant amount of subsidies, and the ability and commitment of theorganisation to keep delivering the appropriate servicesin the long-term.Those elements in mind, we turn to the main question of our paper: how best to match microfinance with streetchildren by seeking to reach a good balance betweeneffectiveness and sustainability? In order to give arelevant answer, we adopt a progressive processstructured in
three phases
.First, we build
a minimalist microfinance for streetchildren framework 
, incorporating the appropriatesavings and credit products. For
savings 
, we assert how essential is to deliver reliable, convenient andflexible savings services. This means essentially to guarantee the security of the savings places; to deliverquick and accessible services; to accept voluntarydeposits and withdrawal of any amount; to stimulatesavings deposits by providing non monetary returnsand to accept assets deposits of the children (such asworking materials).For
credit,
we propose a product
 
design
structuredaround three precise characteristics: small loan size,flexible loan term and low interest rate.Before discussing the adequate delivery process,considerable attention must be given to settle clear andcomplete
eligibility criteria
in order to avoidtargeting street children who might not need credit ornot able and committed to make a good use of the loanamount. The first important step is to target theadequate street children: those who have theappropriate age; who have been members since enoughtime; who are willing, motivated and able to start a business activity; and who propose a feasible business plan. Moreover, those criteria need to include somecollateral substitutes, such as compulsory savings (i.e.disbursing credit for those who have saved a minimumamount of money) and guarantors (such as ashopkeeper or another child)Those criteria being met, the credit needs to bedelivereddelivereddelivereddelivered by prioritizing three microfinancemechanisms:
a) a) a) a) 
Group-lending 
:
disbursing credit to individual streetchildren under supervision of the group members oreither broadens the notion of traditional group- lending by providing credit to settle group-enterprise
bb)  ) ) 
Progressive lending 
starting small and thenexpanding loan size with the child’s performance
c) c) c) c) 
Frequent repayment schemes 
 
dd)  ) ) 
Linking the guardians 
 
of street children

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