impact of microfinance on poverty alleviation

Impact of Microfinance on Poverty Alleviation

Presented By:Dipti Dhungel Nitesh KhatiwadaBipana Subedi Manish DashRanjita Mainalai Jamuna Acharya

4th March, 2016

Poverty

• People having daily income less than $2

• Not having access to basic requirements

• 25.2% live below poverty line

• Nepal ranked as 12th in South Asia

Sources of Poverty

• Lack of Income

• Vulnerability to Income Fluctuations

• Lack of Access

• Powerlessness

Microfinance

• Microfinance is the provision of access to high-quality and affordable financial services to low-income households

• Intended objective of Micro finance • Income-producing activities• Building assets• Stabilizing consumption• Protecting against risks• Fighting against poverty

(Brau and Woller 2004:3, Duvendack et al. 2011, Robinson2001, Yunus 1999)

It principally encompasses• Microcredit• Micro Savings• Micro-Insurance• Money Transfers for the poor

Microfinance

How Microfinance helps in Poverty Alleviation

Source: Systematic review of quantitative evidence on the impact of microfinance on the poor in South Asia, 2015

World Scenario

• Poverty reduction was institutionalized in 1944, with the establishment of the World Bank at the birth of Bretton woods system.

• MFIs are contributing significantly to poverty reduction in Bangladesh and other South East Asian countries by creating income generation and self-employment opportunities for the poor people by providing microcredit.

Poverty reduction through Microfinance

Emergence of MF in Nepal

• Started as rural credit in 1956

• Establishment of cooperatives by government in 1963

• 1976, launching of a Sajha Program

• Small farmers development bank by ADBN in 1975

• Enactment of cooperative Act in 1992


• Initiation of priority sector lending by NRB

• Establishment of western and far western grameen bikas banks in 1992

• Nirdhan and CSD launched microfinance program in 1993 and1994

• Enactment of financial intermediaries Act in 1998

• Introduction of BAFIA, classified microfinance as class D banks

• Establishment of RMDC and SKBBL in 1998 and 2001


MFIs in Nepal

• D Class Development Banks

• FINGOs• Swabalamban Bikas Kendra• Development Project Services Nepal (DEPROSC Nepal)• Jiwan Bikas Samaj• Sahara (Cooperative Society)

A Class Commercial Bank directly involved in Deprived Sector Lending• Bank of Kathmandu• Laxmi Bank Limited• Prabhu Bank• NMB Bank

MFIs in Nepal

MFIs in Nepal

• D Class Development Banks

• FINGOs• Swabalamban Bikas Kendra• Development Project Services Nepal (DEPROSC Nepal)• Jiwan Bikas Samaj• Sahara (Cooperative Society)

• Basis of operation• Wholesaler

• Rural Self-Reliance Fund (RSRF)• Rural Microfinance Development Center (RMDC)• Sana Kisan Bikas Bank Ltd (SKBBL)• National Cooperative Development Bank (NCDB)• Commercial Banks

• Retailer• It includes all 41 microfinance institution.

MFIs in Nepal

Microfinance Vs. Poverty

• Microfinance has helped in reduction of Poverty• A Story from Kathmandu

“Microfinance leads Sharmila out of Poverty Trap”

Source: State of Microfinance in Nepal, 2009

Change in Wealth StatusWealth Status Before After

Average Annual Income (Rs.) 8723 9417

Average Loan from Money Lenders(Rs.) 479 479

Average Landholding size (Ha) 0.396 0.394

Type of House Roof

ConcreteCorrugated SheetSlateThatchNot Specified

12.127.115.936.18.8

18.635.315.019.811.3

Household Possessing Radio (%) 50.5 55.1

Household Possessing Television (%) 19.6 28.4

Household Possessing Hand pumps (%) 13.8 20.3

Source: Impact Evaluation of Microfinance Programs in Poverty Reduction

Change in Principal OccupationPrincipal Occupation Before (%) After (%)

Agriculture Farming 56.0 48.0

Wage Labor 13.8 11.9

Service 8.0 5.6

Petty Trade 11.1 23.2

No Occupation 2.3 2.5

No Response 3.1 5.6

Trade allows high frequency of cash inflow, affects income


Change in Food SufficiencyFood Sufficiency Before (%) After (%)

Less than 3 Months 15.9 7.7

3-6 Months 43.8 25.9

6 Months – 1 year 36.7 49.0

Surplus 3.5 17.3


Change in Literacy StatusLiteracy Status Before (%) After (%)

Illiterate 48.0 10.2

Literate 52.0 89.8

Change in Education LevelEducation Level Before (%) After (%)

Non Formal 46 218

Primary 68 73

Lower Secondary 57 60

Secondary 42 43

SLC 23 23

Above SLC 13 13


Change in Schooling of ChildrenSchooling of Children Before (%) After (%)

Sending Son to School 80.4 84.1

Sending Daughter to School 76.4 76.4

Type of School

GovernmentPrivate

85.214.8

85.114.9


Change in Consumption of Nutritious FoodConsumption of Nutritious Food Before (%) After (%)

Fruits Consumption

Once in Less than a week 25.5 30.9

Once in more than a week but less than a month

32.4 34.7

Once in more than a month 42.2 34.4

Meat and Fish Consumption

Once in Less than a week 34.2 35.3

Once in more than a week but less than a month

38.4 42.2

Once in more than a month 27.3 22.5

Egg Consumption 23.8 28.2


Change in Social and Political ParticipationSocial and Political Participation Before (%) After (%)

Membership of Social Organization 7.8 9.8

Attending Meeting of Social Organization 6.5 7.5

Position Held in Political Parties 2.3 2.5

Elected/Nominated in Local Government Bodies

1.5 1.5


Changes

• Decision making role in Family

• Self Confidence

• Awareness of Social Issues

• Awareness in Health Issues and Sanitation

Poverty Alleviation in Nepal

• Microfinance is an effective tool for bringing positive impact on the economic status of the respondents along with their family members (Adhikari and Shrestha, 2013).

• Microfinance programs have made significant contribution to reduce poverty (Acharya, 2011).

• Micro-finance leads to social and economic changes in the borrowers after the participation in the programs (Sharma, 2010).

• There is changes in the wealth status after participation in the microcredit program (Center for Policy Studies and Rural Development, 2004).

Findings

• In Malasia: Microfinance has positive impact on household income of women borrowers who spent three years in the scheme as compared to new borrowers (Samer, Majid, Rizal, Muhamad, Halim, and Rashid, 2015).

• Africa: There is also no evidence of substantial gains along other dimensions of welfare, such as education and health in less then three years period (Banerjee, 2013).

• Africa: Poverty reduction can be achieved through alleviation measures through the use of microcredit and entrepreneurship development (Journal of Financial Services Marketing, 2011).

• The number of microfinance institutions has a negative impact on the Gini index in Central African countries (Journal of Development and Agricultural Economics, 2011).

• Africa: Extensive use of microfinancing has shown to reduce extreme poverty among the users of microcredit. (The Clute Institute International Business & Economics Research Journal, 2009).

• Bangladesh: Microcredit may be a more effective remedy against poverty and vulnerability if it is complemented by other interventions (Zaman, 2004).

Findings

• Pakisthan: Microfinance Scheme help people to improve their living standard and provide them financial opportunity to expand their business (Ayuub, 2013).

• India: Access and efficient provision of microcredit can enable the poor to improved quality of life (Bansal and Bansal, 2012).

• Bangladesh: Accessto microfinance contributes to poverty reduction, especially for female participants, and to overall poverty reduction at the village level (Khandker, 2005).

• Bangladesh: Study indicates that the extent of positive impact has not been equal for all program borrowers (Azad, 2004).

Findings

Conclusions

• Despite the apparent success and popularity of microfinance there has been mixed evidence on its effects on the social and economic wellbeing of the poor (Duvendack et al. 2011, Stewart et al. 2010, 2012).

• Microfinance is certainly not a medicine for poverty, it has proved itself as a useful tool to fight against poverty

• It has provided important contribution in the country like Nepal , Bangladesh and Malaysia but it is not fruitful in the most undeveloped countries of Africa

• Impact analysis of microfinance suggests that the majority of borrowers who already have some assets (or business skills and education) are more likely to succeed

• Development of microfinance has improved the living standard of rural people of Nepal

• Financial system approach and poverty lending approach both are beneficial for the poor

Conclusions

• Attempts to examine the impacts of microfinance (Gaile and Foster 1996, Goldberg 2005, Odell 2010, Orso 2011) have shown that the methodology, tools and techniques used for assessing the impact suffer from several drawbacks me recent studies have shown its significant effect on poverty using household survey data.

• Using panel data at both participant and household levels in Bangladesh, Khandker (2005) confirms that microfinance programmes have a sustained impact in reducing poverty among the participants, especially females and a positive spillover effect at village level, thus contributing to national economic growth.

Conclusions

• Other studies have shown that microfinance institutions (MFIs) have not reached the poorest of the poor in Asian countries (Weiss and Montgomery, 2005) or in Bolivia (Mosley, 2001).

• Thus the relationship between microfinance and poverty is still in question.

Conclusions

Thank You!!

impact of microfinance on poverty alleviation

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