role of microfinance in poverty allevation

Presented By:

Dinesh Adhikari

MBA II

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ROLE OF MICROFINANCE IN POVERTY ALLEVIATION

Friday, December 12, 2014Role of Microfinance in Poverty Alleviation

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Give a woman a fish, she eats for a day.

Teach a woman to fish, she eats for a lifetime.

Provide credit and training, she opens a seafood stand, feeds the village, and becomes a leader in the community.

CONTENTS

Founder and history of microfinance

Introduction to microfinance

Key feature of microfinance

Developments in microfinance - Global

Developments in microfinance - Nepal

Some insights of povertyTransmission mechanism of microfinance to poverty alleviationSummary

Recommendation

References

Friday, December 12, 2014Role of Microfinance in Poverty

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FOUNDER OF MICROFINANCE


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2006 Nobel

Peace Prize

Winner

1998-99 Rotary

International

Award for World

Understanding

Dr. Mohammad Yunus

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HISTORY

In the late 1970’s, returning from the U.S. where Yunus obtained his Ph.D in economics, Yunus started an organization called GrameenBank. Back in his hometown in Bangladesh, Yunus saw the extreme poverty in his country. Yunus was angry with the formal institutions (e.g. the World Bank, commercial banks) who had failed to help his fellow citizens. Yunus believed that formal institutions “pronounced a death sentence on the poor” because they “rejected the poor as unworthy of credit,” imposing a “financial apartheid. Yunus decided he would help the poor by stepping outside of the formal institutions and providing small loans without collateral to groups of 5 borrowers; this became known as the Classical Grameen model. One village bank1 (of several groups of borrowers) grew to two, and two grew to three, until Grameen Bank became one of the largest microfinance organizations in the world. Yunus classical Grameen model came to be known as “microfinance.”


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INTRODUCTION

Microfinance is defined as financial service to

poor and low income household:


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Deposits Loans

Payment service Money transfer

Insurance

INTRODUCTION - CONTINUED

Micro-finance is termed asthe financial servicesrendered to the deprivedgroups of the people andsmall entrepreneurs insavings, credit, remittance,micro insurance, etc. tohelp them in developingself-employmentopportunities and variousincome generatingactivities.


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KEY FEATURES OF MICROFINANCE

Lend to the poor

Do not take

security

Prefer saving over

borrowing

Small short-term

loans

Cost covering interest rates


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DEVELOPMENTS IN MICROFINANCE- GLOBAL

MFIs have become more efficient; increased their clients base and expanding their services through different product such as micro savings,

flexible loan repayments and insurance.

MFIs applied their innovations in all processes from lending to the collection of deposits.

Microfinance institutions(MFIs) have also begun to seek out public and international financing.

The Grameen has spread numerous countries like Bolivia, Chile, China, Ethiopia, Honduras, India, Malaysia, Philippines, Thailand, United States

and Vietnam.

In 1976, the Grameen Bank has stablished by Dr. Yunus with promise of providing credit to poor people without collateral.


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DEVELOPMENTS IN MICROFINANCE- NEPAL

It was started evolve in 1950s for providing credit only to the agriculture sector, i.e. microfinance sector in Nepal.

The milestone was Small Farmer Development Program (SFDP) IN 1975 within ADB, which covers the entire country to provide credit without collateral to the farmers.

Co–operative bank was established in 1963.

NRB Introduced the Intensive Banking Program (IBP) in 1981

Grameen Bikash Banks Were initiated by the government sector, crossing a milestone in rural micro financing in Nepal in 1992


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What is “POVERTY”?

Elite – a small fraction of the population with

an ever-increasing and disproportionate share

of wealth

Wealthy nations – have poor populations but

generally not extreme poor, this is described as

Relative Poverty

Moderate economic development – now

includes much of China and India. In general

the standard of living is improving for these

populations worldwide

Moderate Poverty – basic needs are

met, but just barely - minimum means

exist to achieve self-sufficiency

Extreme Poverty – all assets and

energy go to daily struggle for survival;

exists mostly in Africa, Asia, and parts of

Latin America

Source :The End of Poverty by Jeffrey Sachs


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POOR: THEY HAVE THEY HAVE-NOTS

THE POOR HAVE: THEY LACK:

Intelligence

Resourcefulness

Community

Dignity

Motivation

Assets = Collateral =

Credit

Experience handling

finances and running a business


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MICAROFINANCE TO POVERTY ALLEVIATION – TRANMISSION MECHANISM


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Micro finance

Target poorest segment of society

Increase in employment

Rise in income level

Increase in training and education

cont...

CONTINUED…

Increase in savings

Improvement in living standard

Increase in consumption of goods and services. Aggregate demand increase

Increase in investment and employment opportunities. Aggregate supply increase.

Economy growth and poverty declines.


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CONCLUSION

Microfinance Programs extend small loans to very poorpeople for self employment projects that generate incomefor their survival, allowing them to care for themselves andtheir families.

Microfinance brings the bank (money/capital) to the poorwhere traditional banking system does the opposite andinvolves a lot of bureaucratic complications and hiddencosts like travel cost and sometimes bribing the bankofficials.

A sustainable micro credit system in the country is vital forthe long term development of micro credit mechanism andto provide credit to the poverty hit poor people.


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RECOMMENDATION

Poverty reduction is not only the task of the government and the whole society, but it is first of all the responsibility of the poor themselves to develop the capacity to escape from poverty.

First of all micro credit institutions should brief clients that what can be the best use of this credit.

Poverty reduction objectives should be consistent and visionary: the goal should be not only to improve the living standards of the people, but also to create opportunities in the financial market.


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REFERENCES

http://www.cbs.gov.np

http://www.nrb.org.np/mfd/mfdindex.php

http://www.ifc.org

http://www.kiva.org/about/microfinance

http://en.wikipedia.org/wiki/Muhammad_Yunus

http://en.wikipedia.org/wiki/Microfinance

http://www.microfinancegateway.org

Various articles regarding microfinance


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http://www.cbs.gov.np/




http://en.wikipedia.org/wiki/Microfinance

http://www.microfinancegateway.org/


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