Paper

Micro-credit: A Reality Check

Assessing effectiveness of microcredit programs
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This paper describes a pension scheme that SEWA Bank started for its clients. SEWA Bank, which provides banking services to informal sector women workers, found that although these women were hard working, economically active and had good financial discipline, they lived on a day-to-day basis and did not plan for the future. They are not covered under any pension scheme at the national level either.

In 2006, SEWA Bank and United Trust of India designed a micro pension scheme that allowed clients who were 18–55 years of age to enroll. Members would be allowed to withdraw their money at the age of 58.

The scheme drew 40,000 members in its first year of operation. Lessons learned include:

  • It is possible to spread the micro pension movement amongst informal sector workers;
  • Such schemes should be linked with financial education, and facilitate collection of contribution;
  • Efforts should be made to change financial behavior of the poor and teach them the importance of planning for the future;
  • Explaining the power of collecting a lump sum, encouraging women to share their positive and negative views and experiences and individual counseling are some effective tools.