Statelessness and Microfinance 91 such projects have been, or could be, put in operation. An example of a successful microfinance project in Nepal is presented to illustrate the limitations and advantages of microfinance for the stateless. Similar programmes for two other stateless groups, European Roma and Kuwaiti Bidoon, are then sketched out and theoretically discussed. Finally, the potential effect of these projects and their role in the political struggle of the stateless are considered. 2 What is Microfinance? Unlike humanitarian aid, microfinance requires the participants to repay the funds provided along with any accruing interest. From this perspective, it supports those in the community who have clear ideas on how to productively utilise funds to build their enterprise or bridge temporary gaps in their income. In essence it is traditional finance but on a micro or small scale. The poor are often denied access to traditional banking due to their lack of formal collateral or due to the small size of the sums involved. Microfinance utilises alternative forms of collateral and monitoring to counteract these poverty-specific problems and reduce the administrative costs. Microfinance substitutes traditional material collateral for one consisting of human relationships, trust and social position. It also introduces individual dynamic incentives, conditioning access to higher credits on good performance at repaying the initial loans. Furthermore, individual loans are sometimes linked to each other to create interdependence among borrowers. All these factors comprise an alternative collateral that makes defaulting costly for debtors and serves as an incentive to repay the funds, just as a material collateral would. Since social relations play an important role in the alternative collateral, their strengthening is encouraged by the design of microcredit. Customers are organised in groups that are first trained together and then continue to meet regularly as they obtain, invest, and repay their loans. Microfinance Institutions (MFI) take advantage of information no bank could ever dream of having - that only neighbours or members of small close communities can have about each other. This serves to screen out any undesirable borrowers. Moreover, the risk of careless or deliberate default is reduced by the presence of social sanctions within the community. Another feature that reduces hazardous behaviour is borrowing predominantly for women, who have been shown to be more conservative investors. These factors greatly reduce the cost of screening and monitoring which traditional banks must engage in to assess the creditworthiness of any potential client. Further cost reductions are enabled by delegating part of the responsibilities to group leaders. This, together with high repayment tilburg law review 19 (2014) 90-97