Project number: CD-JEP 30003-2002

Title: "Micro Finance at the University"

The justification of our project lies in the fact that in the normal curricula of "Banking and Finance" in universities located in MEDA countries as well as in industrialised economies, students learn how "formal" financial systems work: the role of central bank, the activity of commercial banks and other specialised financial institutions, the functioning of stock exchanges, bond markets, foreign exchange markets, derivatives markets, the principles of financial management. Often this study (textbooks, examples and other teaching and reading material) refers to the situation of other countries, notably the United States. All this is useful but partial.

Our project intends to re-focus the topic "Banking and Finance" towards a local dimension, giving emphasis to the successful experiences of micro-credit in individual countries of Asia, Africa, Latin America and the Middle East.

Micro-finance refers to small-scale financial services - primarily credit and savings - provided to people who farm or fish or herd; who operate small enterprises or micro-enterprises where goods are produced, recycled, repaired, or sold; who provide services; who work for wages or commissions; who gain income from renting out small amounts of land, vehicles, draft animals, or machinery and tools; and to other individuals and groups at the local level of developing countries, both rural and urban.

Savings services allow savers to store excess liquidity for future use and to obtain returns on their investments. Credit services enable the use of anticipated income for current investment or consumption. Such services are rarely accessible through the "formal" financial sector, however. Credit is widely available from "informal" commercial moneylenders but typically at very high cost to the borrowers, especially poor borrowers. Banks generally assume that providing small loans and deposit services would be unprofitable.

It is widely believed - wrongly, as the experience of several countries demonstrates - that the cost of delivering small-scale financial services at the local level is too high for non-subsidised institutions and that the informal financial market satisfies demand. NGOs and other non-bank financial institutions have led the way in developing appropriate credit methodologies for low-income borrowers. But with few exceptions, these institutions are able to operate only on a very low scale. There are differences among countries and regions in the availability of micro-finance services and in the level of unmet demand for these services. Common to nearly all parts of the developing world, however, is a lack of commercial micro-finance institutions - a shortcoming that unnecessarily limits the options and lowers the financial security of poor people.

But this pattern is changing. The "micro-finance revolution" is emerging in many countries around the world. As it is used in our project, this term refers to the large-scale, profitable provision of micro-finance services to economically active poor people by sustainable financial institutions.
"Large scale" means coverage by multiple institutions of millions of clients; or, for small countries or middle- and high-income countries with low demand, outreach to a significant portion of the micro-finance market (as in the Middle East and North African countries).

Our project strongly believes that such a reality should be known and analysed at the universities, where students will open their mind to alternative forms of finance, so crucial for the fight against poverty and for the development of their economies.

The direct target groups are the professors and the students of the "Banking and Finance Area" of the various universities involved in the projects. We may estimate a number of a few thousand, taking into account the fact that some of the partners universities are quite big and offer a great variety of courses/seminars in finance.

The indirect target groups are: a) the managers and clients of the micro-finance institutions, who will benefit from the diffusion of the material prepared during the project and the exchange of ideas and solutions brought about by other experiences; and b) the professors and students of many more universities not directly participating in the project, through the dissemination of results and teaching material made available via Internet, the Pilot course and the Manual. We may estimate a number of several thousand.

The selection of the target groups is self-explanatory: by sensitising the academic world (both teachers and students) to this important new, successful development in finance, the project aims at achieving a strong multiplier effect, in order to have more public administrators, managers, credit officers, small entrepreneurs involved in this field in the future.

The selection of activities highlights the importance of the exchange of information across countries, regions and experiences, in view to make available the rich variety of concepts, organisational solutions and approaches to savings and credit, to all targeted parties.

Our proposal came into being on the initiative of the Project Coordinator SERGIO BORTOLANI, 58 years old, full Professor of Banking and Finance at the University of Turin. He has been involved for years in researches, field missions and consultancy works concerning micro-credit in numerous countries, among which Ethiopia, Syria, Burkina Faso, Morocco, India, Indonesia, Kenya, Rwanda, Somalia, The Gambia, Senegal, Bolivia, Argentina, Egypt. He and his team share the view that micro-credit is probably the first right answer in 50 years to the problem of financing small entrepreneurs in developing countries.

Prof. Bortolani took part in the Micro-Credit Summit meeting, recently (November 2002) held in New York and attended by more than 2000 delegates from all over the world. The numbers shown at the meeting (23 million of micro-credit clients, with a goal to reach 100 million by 2005) clearly demonstrate that micro-finance has achieved a sizeable dimension, thus positively affecting the social and economic development of many countries.

In this "micro-finance revolution" Universities should play their part, by exposing professors and students to this innovative way of financing.