Microfinance

- The users- Benefit

- Organizations- Profitability and reaching the poor, a

trade off?- Why high interest rate?

- When doesn´t microfinance work?-The role of regulation and supervision

- Governments role

Why microfinance?

• Poor people need diverese financial services• Poor people lack access to formal financial

services• Informal services, private moneylenders• Savings clubs, in items, savings associations• Formal banks have a tradition of not serving

the poor

Microfinance is;

• Basic financial services • Loans• Savings• Money transfer services• microinsurance

Poor people use it for;

• Run their businesses• Build assets• Smooth consumtion• Manage risk

Interest rates

• Average; about 28%• To onlend small amounts to many recipients is

more expencive than providing large sums to few recipients

• Number of employees• Product design• National financial situation

Who are the MF users?

• Vulnerable noon-poor• Upper poor• Poor• Very poor

Upper poor

• Financial active poor

• People that allready have some sort of income

• Microentrepreneurs

Moore about the MF users;• Women are a majority• 33% men• Some organizaions only women• Operating small business• Some are entrepreneurs by will others by

necessity

•What differens does it make?

What difference does it make?

•We dont´know!

Is microfinance a good tool?

• So far no study support the theory of upliftment of poor people by;

• Improving income• Growing capacity of small scale businesses

What is microfinance doing?

• Income smothening

• Important for the poorest

• Cash management on household levels

• Cost-effective aid

Poor people like MF

• Numbers of MFI increasing every year

• MFIs don’t have to advertice

• High repayment rates

• People return for more services

Poor people say

• They like microfinance

• They trust MFIs in general

• They find the services to suitable for their needs

Who are the organizations?

• NGOs• Commercial banks• Cooperatives• Government-owned organizations• Profit making• Non-profit making

Governement

• Cgap earlier message; governments should create good national structures for microfinance, not provide microfinance services themselves

• Today the ”tone” is less strict on this issue. This is due to the fact that there are governements globaly that are MF providers

The role of the government

• Pormoting financial access

• Protecting customars

• Providing financial services directly

Profitability and outreach

• Microfinance history• 1960; subsidized credit to farmers• 1970; Grameen Bank credit to women• 1990; CGAP commercial finance• 2000; commericial approach with doubdts

Poverty lending

• Poor people lack access to formal Financial services

• Subsidized loans instead of ordinary aid grants• Empowerment• Livelihood• Gendered poverty• Grassroot

Commercial microfinance

• Microfinance revolution• Increasing number of organization and users• Many poor still lack access to financial services• Povery lending: limited expansion, aid

dependence, less protection of poor people and their money

The bus and the passengers

• Much focus has been on the bus• A need to bring in the passengers, the road

and the destination• Women are good for MF organizations...• High interest rates• ”A school with no toilet...”

commercialisation

• Outreach!• Goal: to cover the cost • Interest rates has to be set according to this• The organization need a certain amount of

users • Repayment rates has to be keept high• It is easier to cover costs if the users are ”not

so poor”

Too poor for MF?

• It is expensive to be poor• Poor people still have costs to cover• Poor people do find ways to cover their

financial needs• Again; poor peoples alternatives are expensive• Still, if lack of shelter, food and cloths, credit

might not be the answer

Microfinance today

• Profit minded commercial actors• Non-profit actors and social investors• Commersial microfinance• New technique• Regulation

How many, how much?

• Hard to estimate

• Few are keeping reccords

• 80% (of 4.5 billion) lack access to formal financial insitutions

How many, how much?

• 2007, 154,8 million microfinance users

• Microfinance providers: 3,350

• Increasing by 30% and year

Microfinance is complicated

• It tries to combine poverty reduction with market oriented thinking

• What is good for the organisation and the development of financial systems does not necessary corrolate

Focus: outreach

• The general aim is to provide MF to people that are excluded from financial services

• Focus is on the services they might need• Especially credit• But the effects in macro levels as well as micro

levels is unclear• Microfinance in history, the Swedish case

Creating financial services to the poor

• First savings bank 1820• Lower the cost of the increasing number of

poor in the cities• Registered as ”self help organisations”• Non-profit, reinvestments in local society • Important providers of credit to entrepreneurs• Inside lending as logic

litterature

• www.cgap.org• M. Robinson ”The Microfinance Revolution”• M. Yunus ”De fattigas Bankir”• Hospe and Lontz ”Livelihood and

Microfinance”• D. Collins et al. Portfolios of the Poor• M. Harper ”What is wrong whit

Microfinance?”