Microfinance and street children: is microfinance an appropriate tool to address the street children issue ?

FREE UNIVERSITY OF BRUSSELS

THESIS

PRESENTED FOR THE DELIVERY OF THE MANAGEMENT ENGINEER DEGREE

by

Badreddine SERROKH

«Microfinance and street children»

Is microfinance an appropriate tool to address

the street children issue?

Supervisor : Pr. Daniel Traça

Assessor : Pr. Marc Labie

Assessor : Pr. Christian Platteau

Jury : Economy

Academic year 2005-2006

SOLVAY BUSINESS SCHOOL

ACKNOWLEDGEMENTS

I would like, first, to thank sincerely Mister Daniel Traça, professor of economics and titular of the Marie & Alain Philippson Chair in "Managing for Sustainable Development" at the Solvay Business School,. for having accepted to supervise this thesis. His constant support and precious expertise have been an extraordinary source of learning for me.

I also thank Pr. Marc Labie, expert in microfinance from the Warocqué School of Economics and Business in Mons-Hainaut, and Pr. Christian Platteau, psychologist and expert in development from the Free University of Brussels and at the head of Proman Consulting, for their constant support and help.

This thesis would have been nothing without the help of Padakhep Manabik Unnayan Kendra (PMUK), a Bangladeshi microfinance institution which made me discover the world of street children and microfinance. My gratitude goes particularly to Iqbal Ahmmed, the Executive director, as well as all the staff of the Child development section of the organisation, especially Prity Islam and Farhana Afroz, who supported me everyday. I also will never be able to thank enough the «street children» of Padakhep: you helped me, with your smiles and your tolerance, to complete my field research.

I thank sincerely Meindert Scharp, international expert on street children, for having reviewed and corrected the first part of our paper. I also express my gratitude to Stuart Rutherford and Nipun Sangma, from SafeSave, Mohamed Emrul Hassan from PLAN International, Dr. Imran Matin from BRAC, and Lauren Johnson from the World Bank (CGAP) for having supported me with their numerous advice; and Sophiane Belmiloud, from Ernst & Young Paris, for having reviewed and corrected this thesis.

Finally, I would like to thank the persons without whom this thesis and the 5 years of my Master would never have been completed: first and foremost my mother and father, who gave me everything; my sisters and my brothers who took care at me at every step; and all my friends.

I thank you for giving me patience, help and love.

TABLE OF CONTENTS

PRELIMINARY CHAPTER

INTRODUCTION AND METHODOLOGY 1

CHAPTER 1 : THE STREET CHILDREN ISSUE
RESEARCH QUESTION - »WHAT DO WE KNOW ABOUT STREET CHILDREN?»

1. DEFINING STREET CHILDREN 6

2. CHARACTERISTICS 8

2.1. About their family 8

2.2. About their gender 9

2.3. About their economic activities 9

2.4. About their vulnerability 10

2.5. About their capacities 11

3. CAUSES OF THE STREET CHILDREN ISSUE 12

4. CONSEQUENCES, OR WHY IT MERITS OUR ATTENTION? 13

5. SOME IDEOLOGICAL ISSUES: CAN (STREET) CHILDREN WORK? 15

5.1. Child labour and child work: definitions 15

5.2. Ideological considerations 16

CHAPTER 2: DEMAND ANALYSIS
RESEARCH QUESTION - «WHY DO STREET CHILDREN NEED FINANCIAL SERVICES?»

1. CONTEXT 20

1.1. Bangladesh in brief 20

1.2. Street children in Bangladesh 20

2. OBJECTIVES 20

3. METHODOLOGY 21

4. DATA ANALYSIS 22

4.1. Entering their financial world: the first steps... 22

4.2. Street children economic activities 25

4.3. Why do street children need savings? 27

4.3.1. The street life insecurity 27

4.3.2. Life-cycle needs: 30

4.3.3. Emergencies 33

4.3.4. Opportunities 34

4.4. Why do street children need credit? 35

4.4.1. For their income generating activities 35

4.4.2. For their families' income generating activities 36

4.4.3. For their future 36

4.4.4. «We do not need credit» 37

CHAPTER 3: DEMAND VS. SUPPLY
RESEARCH QUESTION -»HOW BEST TO MATCH MICROFINANCE WITH STREET CHILDREN? "

1. MICROFINANCE: A WAY TO SUPPLY FINANCIAL SERVICES TO POOR PEOPLE 39

1.1. Products: credit, savings and insurance nexus 39

1.2. Mechanisms 41

1.2.1. Group lending 41

1.2.2. Dynamic incentives 43

1.2.3. Frequent repayment schemes 44

1.2.4. Collateral substitutes 44

2. HOW BEST TO MATCH MICROFINANCE WITH STREET CHILDREN? 45

2.1. Prevalence of microfinance for street children 45

2.1.1. Introduction 45

2.1.2. Why do MFIs and YSOs avoid street children? 47

2.1.3. Case studies 49

2.2. Effectiveness and sustainability: the trade-off 55

2.2.1. Effectiveness 55

2.2.2. Sustainability 56

2.3. How best to match microfinance with street children? 57

2.3.1. Financial services 57

2.3.2. Supporting services: the need for vocational training 65

2.3.3. Operational requirement: social services 68

2.3.4. A comprehensive microfinance plus framework 68

2.3.5. Effectiveness, sustainability and provision model 70

2.4. Case study: Padakhep Manabik Unnayan Kendra (PMUK) 73

2.4.1. Program Profile 74

2.4.2. Program Effectiveness 89

2.4.3. Program sustainability 109

2.4.4. A cross-cutting issue: Outreach vs. Effectiveness vs. Sustainability 112

2.4.5. Some recommendations 113

FINAL WORDS: CONCLUSION AND FUTURE PERSPECTIVES 115

BIBLIOGRAPHY

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