micro finance finaal
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8/7/2019 MICRO FINANCE finaal
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Seminar
on
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INTRODUCTIONINTRODUCTION
�� MicrofinanceMicrofinance servicesservices areare financialfinancial servicesservices thatthat poor poor peoplepeople desiredesire andand areare willingwilling toto paypay forfor.. TheThe termterm alsoalsorefersrefers toto thethe practicepractice of of sustainablysustainably deliveringdelivering thosethoseservicesservices.. MoreMore broadly,broadly, itit refersrefers toto aa movement movement thatthat
envisionsenvisions ³a³a worldworld inin whichwhich asas manymany poorpoor andand nearnear--poorpoorhouseholdshouseholds asas possiblepossible havehave permanentpermanent accessaccess toto ananappropriateappropriate rangerange of of highhigh qualityquality financialfinancial services,services,includingincluding notnot justjust creditcredit butbut alsoalso savings,savings, insurance,insurance, andandfundfund transferstransfers..´́
�� Microfinance consists of making small loans, usually lessMicrofinance consists of making small loans, usually lessthan $200, to individuals, usually women, to establish orthan $200, to individuals, usually women, to establish orexpand a small, self expand a small, self--sustaining business.sustaining business.
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EXA MPLEEXA MPLE
�� AA womanwoman maymay borrowborrow $$5050 toto buybuy chickenschickens soso sheshe cancan sellsell eggseggs..AsAs thethe chickenschickens multiply,multiply, sheshe willwill havehave moremore eggseggs toto sellsell.. SoonSoonsheshe cancan sellsell thethe chickschicks.. EachEach expansionexpansion pullspulls herher furtherfurther fromfromthethe devastationdevastation of of povertypoverty..
�� MicrofinanceMicrofinance includesincludes severalseveral supportsupport systemssystems thatthat contributecontributegreatlygreatly toto itsits successsuccess.. MicrofinanceMicrofinance institutionsinstitutions offeroffer businessbusinessadviceadvice andand counseling,counseling, whilewhile clientsclients provideprovide peerpeer supportsupport forforeacheach otherother throughthrough solidaritysolidarity circlescircles.. ForFor example,example, if if aa clientclientfallsfalls ill,ill, herher circlecircle helpshelps withwith herher businessbusiness untiluntil sheshe isis wellwell.. If If aaclientclient getsgets discouraged,discouraged, thethe supportsupport groupgroup pullspulls herher throughthrough..ThisThis contributescontributes substantiallysubstantially toto thethe extremelyextremely highhigh repaymentrepayment
raterate of of loansloans mademade toto microfinancemicrofinance entrepreneursentrepreneurs..
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BOUNDA RIES OF MICRO BOUNDA RIES OF MICRO
FINA NCEFINA NCE
WhetherWhether it·sit·s anan industryindustrysector??sector??
ItIt meansmeans thatthat anyany microfinancemicrofinance
projectproject shouldshould bebe financiallyfinancially viableviable toto covercover thethe
costcost of of creditcredit management,management,
costcost of of defaultdefault.. &&
costcost of of devaluationdevaluation fromfrom itsits
spreadspread (difference(difference betweenbetween thethecostcost of of borrowingsborrowings andand costcost of of lending)lending)..
�� Whether it·s a socialWhether it·s a socialsector??sector??
AccordingAccording toto developmentdevelopment
managementmanagement practitionerspractitionersmicrofinancemicrofinance cancan bebe oneone of of thethebestbest povertypoverty alleviationalleviation socialsocialprogrammedprogrammed butbut notnot aa businessbusinesslikelike entityentity wherewhere ultimateultimatemotivemotive isis toto sellsell itsits productproduct inin aa
competitivecompetitive environmentenvironment earnearn aaprofitprofit..
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MICRO FINA NCE MICRO FINA NCE
&&
MICRO CR EDITMICRO CR EDITMicrofinanceMicrofinance refersrefers toto loans,loans, savings,savings, insurance,insurance, transfertransferservicesservices andand otherother financialfinancial productsproducts targetedtargeted atat low low--incomeincomeclientsclients.. MicroMicro creditcredit refersrefers toto aa smallsmall loanloan toto aa clientclient mademade by by
aa bank bank oror otherother institutioninstitution.. MicroMicro creditcredit cancan bebe offered,offered, oftenoftenwithoutwithout collateral,collateral, toto anan individualindividual oror throughthrough groupgroup lending lending
OBJECTIVESOF MICR O FINANCEOBJECTIVESOF MICR O FINANCE
The basic objectives of microfinance are:The basic objectives of microfinance are:
�� Poverty alleviationPoverty alleviation
�� Women empowermentWomen empowerment
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K EY PRINCIPLES OF MICRO FINA NCEK EY PRINCIPLES OF MICRO FINA NCE
�� Poor Poor peoplepeople needneed aa varietyvariety of of financialfinancial services,services, notnotjustjust loansloans..
�� MicrofinanceMicrofinance cancan paypay for for itself,itself, andand mustmust dodo soso if if itit
isis toto reachreach veryvery largelarge numbersnumbers of of poor poor peoplepeople..�� MicrofinanceMicrofinance isis aboutabout buildingbuilding permanentpermanent locallocal
financialfinancial institutionsinstitutions..
�� TheThe jobjob of of governmentgovernment isis toto enableenable financialfinancial
services,services, notnot toto provideprovide themthem..�� TheThe keykey bottleneck bottleneck isis thethe shortageshortage of of strongstrong
institutionsinstitutions andand managersmanagers..
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OF
Personal
Emergencies
Investment
Opportunities
Lifecycle
Needs
Disasters
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Why don't they just go to a bank?Why don't they just go to a bank?
³The³The poor poor rarelyrarely accessaccess servicesservices throughthrough thethe formalformal financialfinancialsector sector.. TheyThey addressaddress their their needneed for for financialfinancial servicesservices throughthrough aavarietyvariety of of financialfinancial relationships,relationships, mostlymostly informalinformal..´́
Why is this?Why is this?
± ± You don't have any money to open a savings account withYou don't have any money to open a savings account with
± ± You don't have any collateral to secure a loan withYou don't have any collateral to secure a loan with
± ± You don't have a credit record as you have never been formallyYou don't have a credit record as you have never been formally
employed and you've never taken out a loan beforeemployed and you've never taken out a loan before± ± You might even be unable to complete the necessary paperwork You might even be unable to complete the necessary paperwork
as you are illiterate.as you are illiterate.
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TY PES OF MICROFINA NCETY PES OF MICROFINA NCE
�� MICR OMICR O CREDITCREDIT-- MicroMicro creditcredit isis thethe extensionextension of of smallsmall loansloans toto
entrepreneursentrepreneurs tootoo poorpoor toto qualifyqualify forfor traditionaltraditional bank bank loansloans..
�� MICR O SAVINGSMICR O SAVINGS-- These are the deposit services that allowThese are the deposit services that allow
people to store small amount of money for future use, often withoutpeople to store small amount of money for future use, often withoutminimum balance requirements.minimum balance requirements.
�� MICR OMICR O INSUR ANCEINSUR ANCE-- MajorityMajority of of thethe ruralrural poorpoor dependsdepends onon
agricultureagriculture forfor theirtheir livelihoodlivelihood.. AgricultureAgriculture isis alwaysalways subjectsubject toto
nationalnational risksrisks soso thethe poorpoor peoplepeople theythey areare facilitatedfacilitated byby micromicro
insuranceinsurance toto getget theirtheir crops,crops, livestock livestock insuredinsured.. TheThe otherother typestypes of of micromicro insurancesinsurances includeinclude lifelife insurance,insurance, healthhealth insurance,insurance, propertyproperty
andand assetasset insuranceinsurance..
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SUPPLY ,DEMA ND&POTENTIA LSUPPLY ,DEMA ND&POTENTIA L
OF THE INDIA N MA R K ETOF THE INDIA N MA R K ET
UrbanUrban sector sector hashas traditionallytraditionally beenbeen lessless attractiveattractive toto thethemicrofinancemicrofinance institutionsinstitutions asas comparedcompared toto thethe ruralrural areasareas::
�� HighHigh migrationmigration inin urbanurban areasareas increasesincreases thethe defaultdefault risk risk of of
microfinancemicrofinance portfolio,portfolio, especiallyespecially sincesince loansloans areare unsecuredunsecured..
�� MFIsMFIs operatingoperating inin urbanurban areaarea suffer suffer comparisoncomparison withwith commercialcommercialbanksbanks onon interestinterest ratesrates..
�� VariousVarious methodologiesmethodologies of of groupgroup formationformation andand peer peer pressurepressure areare notnotasas successfulsuccessful inin urbanurban areasareas asas inin ruralrural areasareas..
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�� Loans,Loans, GuaranteesGuarantees andand EquityEquity ParticipationParticipation
�� SavingsSavings
�� SecuritizationSecuritization�� BondsBonds
�� EquityEquity andand otherother InvestmentsInvestments
�� WholesaleWholesale Fund/ApexFund/Apex InstitutionsInstitutions
Sources of FinancingSources of Financing -- Towards Solving theTowards Solving the
How of How of
MicrofinanceMicrofinance
�Grameen Trust
�GT Support
�Build,Operate and Transfer Program
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MICR OFINANCE INSTITUTIONMICR OFINANCE INSTITUTION
ItIt isis anan organizationorganization thatthat offersoffers financialfinancial servicesservices toto lowlow
incomeincome populationpopulation.. AlmostAlmost allall of of thesethese offeroffer micromicro creditcredit
andand onlyonly taketake back back smallsmall amountamount of of savingssavings fromfrom theirtheir ownown
borrowers,borrowers, notnot fromfrom thethe generalgeneral publicpublic..
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CREDIT DELIVERY MODELSCREDIT DELIVERY MODELS
�� AA self self--helphelp groupgroup (SHG)(SHG) isis aa groupgroup of of aroundaround fifteenfifteentoto twentytwenty poor poor individualsindividuals² ²usuallyusually womenwomen² ²whowhoprovideprovide financialfinancial supportsupport toto oneone another another inin thethe formform
of of pooledpooled savingssavings andand internalinternal creditcredit assistanceassistance.. SHGSHGmembersmembers generallygenerally useuse thethe loanloan for for bothboth consumptionconsumptionandand productiveproductive purposespurposes..
�� AA jointjoint--liabilityliability groupgroup (JLG)(JLG) isis aa smallsmall groupgroup of of
borrowersborrowers (typically(typically 44--55)) whowho areare jointlyjointly liableliable toto ananexternalexternal lender lender (MFI)(MFI) for for aa loanloan thatthat theythey receivereceive..UnlikeUnlike thethe SHG,SHG, thethe solesole purposepurpose of of existenceexistence of of aa
JLGJLG isis toto receivereceive aa groupgroup loanloan fromfrom anan MFIMFI
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When is microfinance NOT anWhen is microfinance NOT an
Appropriate tool?Appropriate tool?
�� ExtremelyExtremely poor poor peoplepeople whowho dodo notnot havehave anyany stablestableincomeincome² ²suchsuch asas thethe veryvery destitutedestitute andand thethe homelesshomeless² ² shouldshould notnot bebe microfinancemicrofinance clients,clients, asas theythey willwill onlyonly bebe
pushedpushed further further intointo debtdebt andand povertypoverty byby loansloans thatthat theytheycannotcannot repayrepay..
�� MicroMicro creditcredit servesserves bestbest thosethose whowho havehave identifiedidentified ananeconomiceconomic opportunityopportunity andand whowho areare inin aa positionposition totocapitalizecapitalize onon thatthat opportunityopportunity if if theythey areare providedprovided withwith
aa smallsmall amountamount of of readyready cashcash.. Thus,Thus, thosethose poor poor whowhowork work inin stablestable or or growinggrowing economies,economies, whowho havehavedemonstrateddemonstrated anan abilityability toto undertakeundertake thethe proposedproposedactivitiesactivities inin anan entrepreneurialentrepreneurial manner,manner, andand whowho havehave
demonstrateddemonstrated aa commitmentcommitment toto repayrepay their their debts´debts´..
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FINA NCIA L PERFOR MA NCE FINA NCIA L PERFOR MA NCE
�� Market Market leaders leaders
�� Efficiency, Productivity and Outreach Efficiency, Productivity and Outreach
�� Asset Quality Asset Quality
�� Leverage Leverage
�� Profitability Profitability
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MICR OFINANCEOUTREACHMICR OFINANCEOUTREACH &&
Micro Credit Summit
Campaign
(1997)
7.6 mn
Poorest Families
92 mn Clients
In 2004
IMPA
CT�Changes in social conditions
of poor women.
�Improved the livelihood of
Farmers.
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CONCLUSIONCONCLUSION
Microfinance has come a long way despite doubts expressed &
criticism launched about its viability, impact and poverty
fighting capacity. The pioneers in the field & the practitioners at
large with their commitment, determination & innovations havenot only demonstrated its power & success, but also accelerated
its growth.
Considerable work & continuous efforts are needed to diversify
the source of funding for microfinance, to attract more foreigninvestments for well established MFI¶s.
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