Microlending as a form of foreign aid first became popular in the 1970s as a way to bypass bureaucracy and administration costs that frequently, though unintentionally, prevented money from reaching individuals and families in struggling countries. In contrast to traditional lending, which tenders large sums to lendees who have strong credit histories and steady employment, microloans are generally made for less than $1,000 and are available without collateral to individuals with questionable credit histories who may or may not be employed. The central qualification for approving a microloan recipient is that the individual have a clearly defined plan for a small business, whether that be a bakery, dairy, tailor shop, or retail store. Recipients are bound to use profits from their business to repay the loan, and lenders since the inception of microloan programs have reported surprisingly high returns on their investment: up to 96% of microloans are repaid on time.

Though there are several administrative options for microloan programs, one of the earliest has remained the most common. According to this approach, a branch of an established bank or a bank specially formed to issue microloans will locate in an area of need and begin issuing loans to local entrepreneurs. In the early years of microloan programs, banks frequently set up village committees, composed of financial advisors and bank staff, to host weekly progress meetings. This proved a difficult administrative strategy to maintain, however, when villagers began to default on their loans just to avoid the meetings and what they often perceived as interference in their businesses. Though most banks quickly revised this approach when they realized its negative potential, the trust vacuum created when they could not offer a return to investors led many banks to seek other forms of administration.

The author suggests that the rise of the “other forms of administration” mentioned in the highlighted text was due primarily to



* input from villagers gained during weekly progress meetings.
* disappointment in the ability of the village committee approach to insure repayment of loans.
* a desire to provide villagers with more direct feedback than that available during weekly progress meetings.
* the perception that weekly progress meetings were interfering in the businesses of villagers.
* the development of trust between villagers and bank staff, making weekly progress meetings unnecessary.