microfinance

what does it take to start your own business?

how do you support your family when you are poor?

what are “financial services?”

• financial services allow people to:– have a savings account （預金口座）– take out a loan （ borrow money)– make an investment ( 投資 )

a need for financial services

• economic security– rural farmers with seasonal crops – risk of death or disaster (e.g. crop failure)

• fluctuation (=change) in expenses (=costs) over lifetime – investment in children’s education

what is a “market failure?”

• market failure: when there is a need that the conventional (=usual) market does not meet.

there is a market failure for financial services in

impoverished (poor) countries.

why?

why banks don’t give small loans

• higher risk– poor people lead riskier lives (poor health, not much money for emergencies)– political instability

• high overhead cost– many more people for same amount of money lent– bank does about the same amount of work for

each person as if loan is large– in rural areas, must travel long distances to reach

each borrower (person who borrowed money)

a little history

• around for 100s of years, but “rediscovered” in the 1970s in Bangladesh, India, Latin America

• grew in response to failed “agricultural banks”• mission: help rural development, replace loan sharks• early players: ACCION (1961), BRAC (1972), SEWA

Bank (1973), Grameen Bank (1983)• 1992 - Bolivia’s BrancoSol goes for-profit• 2006 - Muhammad Yunus gets nobel peace prize• Today a multibillion dollar industry

non-profit microlenders

• examples: grameen bank, kiva• low interest, subsidized by grants• group lending• mostly women• Sometimes additional services:

– healthcare information– assist local schools

for-profit microlenders• example: ACCION• much higher interest rates than non-profits• more focus on middle income clients• “Grameen Bank reaches 7 million clients and

that's amazing. On the other hand, it took Professor Yunus [Grameen Bank's founder] 35 years to do that... Can you imagine how many generations it will take to reach 150 million poor households in India if we took that approach? We have to scale more rapidly, and only commercial capital will meet our huge funding requirements.”

article discussion:

What are the pros and cons of

for-profit microfinance?

non-profit microfinance?

major controversies:

• microfinance is not a proven approach to poverty relief– Little conclusive evidence that it does what it claims

to do

• many controversies about how it should be done:– non-profit vs. for-profit?– lending vs. saving?– women vs. both genders?– group lending vs. individual lending?– interest rates - how high is “too high?”