Microfinance means loaning money to very poor people for them to start and grow small businesses. Even the very poor need financial services, but most banks do not view the very poor as viable clients. Popular misconceptions are that the poor will not repay and that the poor will not have the discipline to invest the microloan in a business. The experience of Adelante and other microfinance institutions has proved otherwise. For example, a repayment rate of 97% among Adelante clients in 2011 confirms that lending to the poor is viable.
The Adelante Approach is based on the Grameen Bank’s methodology, which emerged from a poor-focused grassroots institution started by Professor Mohammed Yunus in Bangladesh. It essentially adopts the following lending model:
A bank unit is set up with a Field Manager and a number of bank workers, covering an area of about 15 to 22 villages. The manager and workers start by visiting villages to familiarize themselves with the local milieu in which they will be operating and identify prospective clientele, as well as explain the purpose, functions, and mode of operation of the bank to the local population. Groups of five prospective borrowers are formed; in the first stage, only two of them are eligible for, and receive, a loan. The group is observed for a month to see if the members are conforming to rules of the bank. Only if the first two borrowers repay the principal plus interest over a period of fifty weeks do other members of the group become eligible themselves for a loan. Because of these restrictions, there is substantial group pressure to keep individual records clear. In this sense, collective responsibility of the group serves as collateral on the loan