Micro Credit in Chiapas, México: Poverty Reduction Through Group Lending

Micro Credit (MC) programs lend money to poor borrowers using innovative mechanisms such as group lending under joint liability while successfully accounting for the presence of asymmetric information in underdeveloped financial markets. MC programs have achieved what the conventional financial institutions and the government have not been able to: lend to the poor, impressive loan recuperation, and a positive impact in poverty reduction. This article analyzes the performance of ALSOL, an MC program in Chiapas, México, for 2151 participants in urban and rural areas for the time period between July 2000 and July 2001. While loan recuperation is high (95%), administrative costs also remain high. Socially responsible lenders and donors play a key role in providing continuous funding to MC programs and assisting in reducing the level of poverty.