The IMF has estimated the "credit crunch" will cost the global economy one trillion dollars.

But a quieter fallout has been the drying-up of corporate social responsibility (CSR) schemes, as businesses reduce their commitments to boost their profits.

It would appear to be a difficult time to begin fundraising.

But Sheetal Mehta and Olivia Donnelly, the women behind Shivia, a grassroots finance organisation, are looking to raise £3.5m ($6.9m) for a microfinance initiative that will make low interest loans available to poor communities in western Nepal, as well as Gujarat and West Bengal, in India.

One of the projects supported by Shivia: a womens'
savings group in Western Nepal [Shivia]
"The reason we've gone into this is because people with money have encouraged us to do this - people who want to give back to their communities," says Donnelly.

"That gives me a lot of confidence that we're not going to be running around fundraising and instead we will be able to concentrate on the work."

Both Mehta and Donnelly are from corporate backgrounds.

Mehta worked as director for venture capital relations at Microsoft and Donnelly was with the World Bank.

Conversation is littered with references to business plans, "rolling out" and "scaling up". But both have also had longstanding involvement with development work.

They say their finance backgrounds, combined with their contacts among London's financial high-flyers and in the local communities in which Shivia works, is allowing them to bring the village to the city, and vice versa.

"We've been working with communities on the ground for the last ten years but also with donors in London," says Donnelly.

"There's a lot of trust - the donors know what projects their money is going into and we know the communities are going to spend the money on what they've said they want."

Social conscience

The two have been outlining their ideas at Qatar's annual conference on democracy, development and free trade - made famous this year for an appearance by Tzipi Livni, the Israeli foreign minister.

Over breakfast at the Sheraton hotel, Mehta, who Success Magazine named as one of their top ten most successful Asian women in the UK, outlines their most recent project.

"It's going to be a donation-based business," she says.

"The returns they [the investors] are going to get are in terms of social conscience - that they are really getting their money to a grassroots project. There will be a return, but we'll be putting it back into the charity."

Shivia, which Mehta and Donnelly set up in January, works with local partners in West Bengal and in Gujarat, in India, as well as in Western Nepal where they support classes teaching adults to read and helping them gain skills that could make them more employable.

Microfinance institutions, made famous by the Grameen Bank in Bangladesh started by Muhammad Yunus, Nobel laureate and microfinance champion, and the Banco Sol in Bolivia, have proliferated in recent years.

The institutions provide small sums of money to those who fall outside the financial system to finance their businesses.

"Conventional" financial institutions lend money against security, typically a borrower's property.

But in many developing countries there is no formal system of property rights, leaving the poor outside of the financial system.

Collateral

Microfinance does not require traditional security in order to lend money, yet microfinance lenders have mostly found their loans are paid back.

Some projects teach adults skills that could
make them more employable [Shivia]
"In the communities we are working with, the collateral they have is their reputation," says Mehta.

"And because their reputation is so important within their community they would never do anything to jeopardise that."

Microfinance institutions also take a more "customer-centred" approach to structuring repayments and have proved extremely popular, leading the UN to declare 2005 the "year of microcredit".

Since then microfinance has gained even more supporters.

By 2007, it was estimated there were over 3,000 lenders, with 113.3 million people estimated to have received credit from them. Loans from microfinance institutions had totaled over $25bn.

But microfinance has come in for its share of criticism too.

Some analysts say it avoids tackling the main causes of poverty and the proliferation of organisations and 'middlemen' working in the industry can mean high interest rates and turn lenders into loan sharks.

More recently, the industry's success has prompted the big financial players to get involved.

Standard Chartered bank, Citigroup and Deutsche Bank have all become large corporate players in the microfinance world.

A 2007 report by Deutche Bank spoke excitedly of the sector: "Microfinance constitutes an emerging investment opportunity for institutionals and individuals alike. Investors have barely started to explore its full potential."

Credit fears

The banks' new-found concern for the poor is welcome but for many in the development community it is an uneasy relationship.

Nobel laureate Muhammad Yunus has become
the hero of microfinance [GALLO/GETTY]
"The banks see the poor as a commercial entity. They see that lots and lots of small loans and lots and lots of people means big money," Donnelly says.

Microfinance, though, is distinguished by the smallness of the amounts of money involved.

In fact, because loans can often be - as Donnelly points out wryly - "the cost of our breakfast", it means individuals can make a big difference.

It has started to change the nature of giving, and prompted the start up of websites such as Kiva, which allows individuals to make microfinance loans to projects they choose online and receive updates on the project's progress.

But as the economy experiences the credit crunch, will things change?

Richard Harrison, research director at the Charities Aid Foundation (CAF) in the UK, says that recessions tend to have only a minor impact on charitable giving by individuals.

Research by CAF shows that around the periods 1980-81 and 1992-93, when the UK went through economic recessions, charitable giving was only slightly affected.

"The evidence we have points to charitable giving not being largely affected by recessionary periods. It may be slightly dented, but only temporarily," says Harrison.

The CAF research will be welcomed by Mehta and Donnelly, who launched their new donor-only fund at the World Economic Summit on Social Enterprise in Thailand and last month secured a commitment of £250,000 (about $500,000) from a single donor.

Source: Al Jazeera