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Page 1: MICRO FINANCE finaal

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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