best practices in microfinance and development - carmen velasco

8/7/2019 Best Practices in MicroFinance and Development - Carmen Velasco

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Best Practices in Microfinanceand Development

Carmen Velasco

PRO MUJER


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Microfinance an end in itself ora means for poverty reduction

Microfinance was born with thecommitment to become analternative to improve the living

conditions of excluded persons


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Human Development Index

1975-2003

0.6870.512BOLIVIA (113)

0.6900.587NICARAGUA (112)0.7590.630ECUADOR (82)

0.7620.643PERU (79)

BRAZIL

0.8140.689MEXICO (53)

20031975COUNTRY

2005 HUMAN DEVELOPMENT REPORT


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Population % and Poverty Levels

62.734.314.4BOLIVIA

47.979.945.1NICARAGUA

35.040.817.7ECUADOR

49.037.718.1PERU

17.422.48.2BRAZIL

10.126.39.9MEXICO

Threshold ofPovertyUS $ 2 perday

US $ 1 perday

COUNTRY



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MALNUTRITION IN LATIN

AMERICA

132128BOLIVIA

102730NICARAGUA1248ECUADOR

71342PERU6912BRAZIL

855MEXICO1995-20032000/20021990/1992

% < 5 YEARS WEIGHTBELOW MEAN

% MALNOURISHED PERSONSCOUNTRY



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ALPHABETIZATION AND NET

SCHOOL ENROLMENT RATE

84X959197.392.6BOLIVIA

6546867286.268.2NICARAGUA

74X1009896.495.5ECUADOR

84X1008896.894.5PERU

XX978696.691.8BRAZIL9380999997.695.2MEXICO

200219902003199020031990

CHILDREN ATTENDING 5TH.GRADE, % OF FIRST GRADE

PRIMARY EDUCATIONNET ENROLMENT RATE

ALPHABETIZATIONRATE, YOUNGSTERS %

(15-24 YEARS)

COUNTRY



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PARTICIPATION IN REVENUE OR

CONSUMPTION

32.049.141.3BOLIVIA

33.849.35.62.2NICARAGUA

41.658.03.30.9ECUADOR

37.253.22.90.7PERU

46.963.22.40.7BRAZIL

43.159.13.11.0MEXICO

WEALTHIEST10%

WEALTHIEST20%

POOREST20%

POOREST10%



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IT IS OBVIOUS THAT MICROCREDIT IS

AN INSTRUMENT OF SOCIAL POLICYRATHER THAN ECONOMIC POLICY

Fernando J. Cardim de Carvallo. Professor of the Institute of Economics of UniversidadFederal de Ro de Janeiro

This means that microcredit is an instrument to fightagainst poverty.It generates integral development processes (access to

financial and technical resources, basic services andtraining).

But what is even more important:

It generates SELF-ESTEEM among the excludedpopulation .


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Microfinance in Latin America

Some of the countries, among others, where

MFIs have attained high level of developmentare:

Bolivia, Peru, Ecuador, Nicaragua, Mexico,

BrazilHowever the scope thereof was unable to meetthe demand and needs of the mostimpoverished population.

For example: In Bolivia microfinance serves only 18%of the 3,000,000 EAP


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Microfinance in Bolivia

Bolivia has stood out in LA because of the excellence ofthe MFIs. By 2005 they served 544,544 clients and theircurrent portfolio totals US $ 620,878,160.

Bolivia is one of the poorest countries in Latin America

It has very high levels of social exclusion: 62%, andunemployment (9.5%)

The informal sector constitutes an important alternative

for the impoverished population. 63% of the total numberof people employed is informal.

An adequate financial regulatory framework has beendeveloped


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Microfinance in L.A.

Trend for the past 10 years:1. Territorial coverage: urban and rural

2. Greater access to FS for excluded population

3. Methodological and service diversification

4. Marketing of Microfinance

5. Development MFIs

6. Challenge to extend offer


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Microfinance Actors in L.A.

Entities Regulated by

SIBEF or CB, Private Financial

Funds

Cooperatives

Mutual Funds

Banks

Development

Microfinance Entities Non-profit

Civil Associations

Foundations


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Differences among actors

Foundations and CAs

For development Social object

Social Mission

Funding: commercialfunds, social investors

PFFs and Banks

Commercial For Profit

Shareholders

Mobilize deposits andsavings


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FINANCIAL NEEDS BY

POPULATIONPopulation

Large & medium

businessesEach

population

level hasdifferent

financial

needs

W.P.

Small and micro

businesses

Threshold of

poverty

Subsistence micro

businesses

self-employment

Moderate and extreme

poverty


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MFIs in BoliviaClient Evolution

-

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

900.000

1990 1995 2000 2005

Clients

Bancos Nacionales Bancos Extranjeros Mutuales Cooperativas FFPs + Banco Sol y Los Andes IFDs


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Portfolio Evolution

-

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

4.500

1990 1995 2000 2005

US$

Bancos Nacionales Bancos Extranjeros Mutuales Cooperativas FFPs + Banco Sol y Los Andes IFDs

MFIs in Bolivia


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Average Portfolio per Client

-

50.000

100.000

150.000

200.000250.000

300.000

1990 1995 2000 2005

-

500

1.000

1.500

2.000

2.500

3.000

3.500

4.000

Bancos Nacionales Bancos Extranjeros

Mutuales Cooperativas

FFPs + Banco Sol y Los Andes IFDs

MFIs in Bolivia


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If MFIs are an Instrument of Social

Policy rather than Economic Policy

To comply with the Social mandate of MICROFINACE,MFIs must promote the self-esteem of their clients andtheir families enabling access to:

1. Financial Resources

2. Access to education

3. Access to health

4. Access to sanitation

5. Access to housing

6. Generation of sustainable production means


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Factors that Permit a Social

Approach to MICROFINANCE

1. Maintaining status as a non-profitorganization

2. The discipline to listen to the client3. Flexibility and innovations with

financial services

4. Offering integrated social services

5. Strategic alliances

6. Focusing on excluded populations


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Factors that permit a social

approach: 1. Maintaining statusas a non-profit institution

BenefitsNo pressure from

commercial investorsPotential to attract social

investors

Reinvestment of earningsInclusion of social

development services

Reduced risk of missiondrift

RisksDifficulties in

governanceDifficulties in raising

funds.

ChallengesAssure excellence and

efficiency

Achieve profitabilityAssure best practices


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approach: a commitment tolistening to the clients

A personal commitment to the mission

Continuous client assessments

Periodic impact evaluations

Adjusting services based on results Offering new services Demand driven

Demonstrate results with clear indicators and

impacts


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approach: Flexibility andInnovation with financial services

Develop and test new products

Adjust products based on the populationsdemands

Offer credit without guarantees

Work with the highest risk population

Include mandatory savings

Include the internal account


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Factors that permit a socialapproach: Offering social

development services

Financial & business training services

Social development training services:leadership, empowerment, health, legal

rights, etc. Basic health services

Day care centers


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approach: Establishingstrategic alliances

Facilitate access to additional financial

services (for example: FIEPRO MUJER) Social development services

Ensure the quality of services offered Leverage financial and human resourcesto achieve the greatest impact possible


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The basis of the socialapproach:

The social approach is

appropriate only if the institutionfocuses its services on the

population that lives inconditions of socioeconomicexclusion

TARGET POPULATION


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TARGET POPULATION

CHARACTERISTICSExcluded Population

* No or unstable business* Little or no business exp.

* Little or no access to health

* Little to no education

* Unstable income generation

* No assets

* Few contacts w/ suppliers

* Low confidence in business

* Lacks means to participate

INTEGRATED APPROACH


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INTEGRATED APPROACH

Social return not

achieved

Excluded Population

Educ.

Partici-

pation

Health

Power

Credit

Savings

CreditSavings

Social Return of

Microfinance

MICRO

FINANCE

SERVICES

MICRO

FINANCESERVICES

CHALLENGE FOR MICROFINANCE INSTITUTIONS


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CHALLENGE FOR MICROFINANCE INSTITUTIONSCOMMITTED TO THE DEVELOPMENT OF THEIR

TARGET POPULATIONS

INSTITUTIONAL SELF-SUSTAINABILITY

SELF-SUSTAINABILITY OF

THE BORROWERS

COST RECOVERY

PROFITABILITY

Increase IncomeImprove livingconditionsSatisfy clients needs

with new services

Reinvest in moreand new services


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Pro Mujers Social Impacts

Increased Savings Average savings balance of $143 Improved Food Security

65% of clients had no food shortages(versus 57% of non-clients)

Improved Health Care 55% of clients children receivedprescription medications (versus 46% of

non-clients)

P M j S i l I t


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Pro Mujers Social Impacts,

continued Improved Education

47% of clients attended educational centers forinstruction (versus 35% of non-clients)

92% of clients children received a basic orsecondary education (versus 87% of non-clients)

Improved Housing Quality 20% of clients performed major homeimprovements last year (versus 12% of non-clients)

Female Economic Empowerment and Increased Self-Esteem 44% of clients participate in social organizations,

31% as leaders (versus 20% non-clientparticipation, 13% non-client leadership)


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Thank you...

best practices in microfinance and development - carmen velasco

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