An analysis of credit union microfinance performance in Ecuador

Microfinance deals with the design, implementation, and performance of policies, programs, and services to strengthen the financial sector and build sustainable financial institutions that effectively reach the poor. Bennett and Cuevas (1996) summarize the importance of building sustainable financial service systems from three perspectives: 1) financial sector development to reduce the cost and risks of providing financial services to those who are not integrated into the formal financial sector because of low income, gender, ethnic identity, or remote location, 2) enterprise formation and growth resulting from access to credit and deposit services, and 3) poverty reduction as a result of access to reliable monetized savings facilities that help the poor smooth consumption over cyclical and unexpected crisis and, once some degree of economic security is attained, access to credit to improve productivity of their enterprises and new sources of livelihood.
• Microenterprise credit projects in the past targeted a specific number of beneficiaries. The new approach is based on institutional viability. If an institution is to be viable it must reach a large number of people. Many credit unions are community oriented, serving people of diverse economic activities and levels of poverty in the area where they operate. While microenterprise credit projects lent for one specific activity, the new view recognizes that microentrepreneurs have other uses of finance, for example, housing improvement. Credit unions do not specifically specialize in microcredit. They are demand oriented and therefore provide loans for personal, household, and business investments. Credit union management must provide the members with the services that they find useful.
• In the past, microenterprise credit projects were dependent on external funds. The new view focuses on developing and strengthening permanent institutional capability in order to become independent of donor subsidies and to tap local and even international capital markets and savings. Credit unions...

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