The objective of this BBL was to explore community involvement with Microcredit and discuss the implications of the CDD approach for the future developments in the Microcredit area.
 Microcredit refers to methodologies for making very small loans to low-income households. Microcredit can be offered through formal or informal financial institutions.
The characteristics of microcredit in ECA in comparison to other regions:
1. It is a new emerging industry in the region;
2. Has fewer microfinance institutions;
3. Is more focused on enterprise lending than financial services for the poor;
4. Has a higher-end clientele (e.g. globally microcredits average around $600, in ECA as high as $2,000); and
5. There are significant differences in the development in this sector between countries.
In comparison to other areas in the world, the scope of informal microcredit arrangements in ECA is more limited. In ECA there is a stricter interpretation of the law. Additionally, once governments' administrative capacity improves, they start imposing taxes and other regulations that make informal microcredit arrangements more difficult. In the ECA countries there is a strong demand for safe savings and deposits, and only formal institutions are generally allowed to offer savings services. Because the scope for informal financial institutions is more limited in ECA than elsewhere, assistance is needed to help informal financial sector institutions to formalize.
Informal arrangements built on community level structures would benefit from modification to a recognized legal form, in order to ensure their long-term sustainability. Credit Unions/Cooperatives offer a formal sector model with scope for community representation and relevance. Improved linkages between microcredit and CDD are needed, including inter-linked programming responses.
It is important to note that although microcredit has great potential to promote economic development, other interventions may be required first (such as entitlement payments, training and capacity building, infrastructure investment and maintenance, institution building.).
Albania Microcredit Project
For the project implementation, the main challenge has been that the implementing agency – an autonomous government foundation (Albanian Development Fund, ADF) – has not provided an institutional environment conducive to fiscal discipline or sustainability.
The main lessons learned from the project implementation are:
1. The credit delivery mechanisms have to be based on local context and tradition;
2. Community-based microfinance can overcome rural finance systemic weaknesses and withstand political/civil crises. For example, decentralized borrower appraisal and loan decision making resolves the "information barrier"; non-traditional collateral substitutes for traditional collateral and; the moral hazard is adverted because the reputation of borrower is at risk;
3. Early emphasis has to be placed on financial sustainability and institutional environment.
Community-based microfinance is the marriage of social and financial approaches.
 Presentation on Microcredit in ECA: Linkages with Community-Driven Development -The Consultative Group To Assist the Poorest (CGAP) (757k ppt)
Presentation on Albania Microcredit Project (152k ppt)
Focus note -Microfinance, Grants, And Non-Financial Responses To Poverty Reduction: Where Does Microcredit Fit? (73k pdf)
Notes from the BBL (9k pdf)
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