In Indonesia, a person living in a house with a stone floor and a corrugated iron roof asking for a microcredit loan can pretty much forget it. But in India, someone living under the same circumstances is not necessarily rich. What conditions does a small entrepreneur need to fulfil in order to be considered for a microcredit loan? A look at practices in various parts of the world.

Pooja Rai, Orissa, India
Pooja lives in the poor eastern half of India. She has worked hard all her life to feed, clothe and send her five children to school. Her husband's income is barely sufficient to cover the family's needs. Pooja wants to open a small grocery shop.

Gauke Andriesse, investment officer with Cordaid Microcredit:

"The local lender, the MFI, will have to find out something about her background. If that's not possible, the application will be automatically denied. That's why lenders talk to people who know the applicant. It would be even better if she were able to come with her bank book and show that she is capable of saving money. If she's homeless then the application will be automatically denied as well. They have to be traceable. There must at least be the possibility the loan will be paid back."

Too wealthy
If Pooja were to live in Indonesia and if her house had a stone floor and a corrugated tin roof, she would probably be considered 'too rich'. Wealthy is defined differently everywhere. Many people who apply for microcredit are considered too wealthy to qualify for microfinance, but they are also too poor to get a regular bank loan. It is a very difficult category to fall into. For the poorest of the poor, there's still charity.

Mr Andriesse: "Her business plan has to be clear and well thought out and her business has to have a reasonable chance of succeeding. It is highly unlikely that someone who wants to open a pineapple stand in a region where pineapples don't grow will get a loan. A microcredit loan is designed to help people like Pooja earn an extra 20 or 30 cents a day. That might sound like absolute peanuts but savings can help people survive the hard times. That's the aim of microcredit. It is not designed to help Pooja and her family be able to afford a big house with a swimming pool in five years time."

Pooja and her situation is a fictive example.

Surprise packet
Jessica van Egmond, Oudenbosch, the Netherlands:

Jessica van Egmond plans to develop a 'happy box' for companies. It's a surprise package with goodies and samples sent from one company to another. It is an original way of making contact. After years of working for other people, she's dreaming of her own company. The young mother can't wait until her 2500-euro loan has been deposited into her account. The money is to cover her start-up costs, which include advertising and samples.

The figures don't lie. Eighty percent of Dutch applicants are denied microfinance. However, those who use the services of intermediary Henk Ras of Microkredietloket West-Brabant have a greater chance of success. Mr Ras and his colleagues succeed in getting one out of every two requests approved.

Poor business plans
Henk Ras: "Jessica's plan has a number of strong points. I am sure she will succeed."

Mr Ras is extremely selective. "I immediately get rid of pipe dreams and poor business plans. Not that many people can devise a good plan. Specialists are often good in their own profession, but more is involved when it comes to setting up a business. Some fields are doing so poorly that lenders are extremely critical when looking at plans. These sectors include transport, catering and real estate."

Debts?
Van Egmond’s bank gave her plenty of advice, but no credit. "Banks regard such small investments as a total waste of time," Henk Ras says. "They do not want to have anything to do with them. They also investigate your past. Have you ever had debts or fallen behind in your payments? Have you ever been arrested? If so, then you can most probably forget it. The credit service company Qredits and I prefer to look towards the future. Does he or she have it in them to be a good businessperson? This is our deciding factor."

Do you have experience in requesting microfinance? Was your business plan accepted or rejected?

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