Understanding and Assessing the Understanding and Assessing the Demand for MicrofinanceDemand for Microfinance

for

Broadening the Access to Microfinance :

Challenges and Actors High Level Conference

June 20, 2005

Presented by

Graham A.N. Wright

MicroSaveMicroSaveMarket-led solutions for financial services Market-led solutions for financial services

Meet The Clients (1)Diversified and Informal Prudence

Prudence from Karatina in Kenya is using the following:• 2 RoSCAs• 1 ASCA• Informal funeral

insurance• Cash savings at home• In-kind saving• Loan from Faulu MFI

Diversified and Informal Prudence (i)

• RoSCA 1: 4 members daily contribution of $0.29. From this around $31.00 is paid out each month to each member in turn• Use: School fees for grandchildren

• RoSCA 2: 4 members weekly contribution of $2.90. From this $11.60 is paid out each week to each member in turn• Use: Re-stocking business (small market stall selling

basic commodities: salt, rice, biscuits, soap etc.)

• ASCA: 40 members save $1.03 a week, and can borrow from the fund. The ASCA is liquidated annually in December.• Use: Celebrating Christmas (savings) and emergencies

(loan)

• Informal Funeral Insurance Fund: 100 members contribute $11.40 per month – covers immediate family• Use: Risk pooling for “repatriation” to village

Diversified and Informal Prudence (ii)

• Emergency cash in the home: $3-$5• Use: Emergencies requiring immediate cash

• A cow back in the village: looked after by Prudence’s brother• Use: Provision for old age/social capital maintenance

• Working capital loan from Faulu MFI ($356)• Building a small room to rent out (to provide stable

income for old age)

Diversified and Informal Prudence (iii)

Meet The Clients (2)Resourceful and Collaborative Amina

Amina from Pathrail in Bangladesh is using the following:• Reciprocal borrowing and

from lending to neighbours • A savings club (or ASCA)

that is liquidated annually• Cash savings in a mud bank• Borrowing for business and

emergencies from BURO, Tangail

Informal Systems Continue to Dominate …

• In Bangladesh the average "turnover" (the total transaction flows of money through financial instruments) per household was $839 in the year.

• Only 15% of financial flows go through formal/semi-formal financial institutions

• The products/services MFIs offer are typically:

Not adequately flexible or diverse in nature (most MFIs only offer one type of loan and no savings service)

Not adequately reliable (state banks require many trips/bribes and NGO-MFIs “keep changing their rules”)

Source: Stuart Rutherford

… But Present High Risk To Their UsersAverage Amounts Saved and Lost in the Last 12 Months by Sector

0

50

100

150

200

250

300

350

400

450

Formal Semi-Formal Informal

Sector

US

Do

llars

(C

on

vert

ed a

t U

sh.1

,600

:$1)

0%

20%

40%

60%

80%

100%

120%

Annual savings

Annual Loss

% clients who lost

When A Flexible/Reliable Institution Arrives …

• Equity Bank offers a broad-range of financial services with a focus on customer service:

• Basic savings account• Contractual savings account (with emergency loan facility)• Business loan• Education/Medial loan• Agricultural loan• Salary advance• Money transfer

• Through 20 branches and 6 mobile banking LandRover 4x4 vehicles that tour the countryside

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

95 96 97 98 99 00 01 02 03 04

Year

# o

f C

ust

imer

s

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Pro

fit

($)

# of Customers Profit ($)

…the Results Are Breath-taking

Equity’s move to market-led financial services

• All clients pay full cost for the services they receive

• … and Equity has received very limited donor subsidy - almost exclusively as technical assistance

Broad Bank with Broad Based ClientsDeposits by account size*

64%9%

9%

11%

7%

$1-30

$30-70

$70-270

$270-$1000

Over $1,000

*Overdrafts and new accounts with 0 balances excluded

Average loan sizes**

$132$201

$922

$1,279

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Farm

ers

Salar

iedSm

all/M

icro

Develo

pmen

t

**Loans for medium businesses average $9,500

Source: Martin Holtmann

Broad Services, Clients and Needs

• Serving a range of clients allows cross-subsidy• Poverty is dynamic – need to think prevention as well as

cure to protect the vulnerable• Above all we need to build inclusive financial systems

DestituteDestitute PoorPoor Vulnerable Non-PoorVulnerable Non-Poor WealthyWealthy

Poverty Line

MFI’s ClientsMFI’s Clients

Diverse Services Driven By Diverse Needs

Education (C,S)

Birth (C,S,I)

Household Formation

Death (C, I)

Ongoing Financial NeedsWorking Capital (C,S)Productive Assets (C,S)

Investments (S,C)Asset protection (I)

Health (C,S,I)Shocks (C,S,I)

Old Age (I,S)

Marriage Ceremony (C,S)Source: Monique Cohen

MicroFinance & MDGs

• Thus microfinance has significant impact on the millennium development goals supporting:Reduction of poverty (and vulnerability)Increased educationReduction of ill-healthWomen’s empowerment

• Offers this on a truly sustainable basis

• … but is not a panacea

Microfinance in Asia

Largest and most profitable MFIs: BRI, ASA etc.

Large numbers of weak MFIs Cost efficient (best at 5% operating

efficiency) 528 million estimated clients But … 200-400 million un-served in India

and 200-400 un-served in China

Characteristics of the market

Average of 21 MFIs reporting to the MIX Efficiency: 21.7 % Operating expense/loan

portfolio Risk: 2.5 % Portfolio at risk > 30 days

• CGAP and Source: MBB 9, July 2003

Microfinance in Africa

Many diverse institutional models Most clients served by credit unions &

coops Rural and agricultural finance is

particularly challenging Only 8 sustainable institutions (MBB) 25 million estimated clients – this may be

an under-estimation International and domestic banks

starting to take an interest

Characteristics of the market

Average of 21 MFIs reporting to the MIX

• Efficiency: 50.3 % Operating expense/loan portfolio

• Risk: 2.6 % Portfolio at risk > 30 days• CGAP and Source: MBB 9, July 2003

Microfinance in Middle East and North Africa

Characteristics of the market

Mostly NGOs Heavy donor dependence In infant stages of development Mostly small working capital loans 48 million estimated clients

Average of 6 MFIs reporting to the MIX Efficiency: 34.0 Operating expense/loan

portfolio Risk: 1.1% Portfolio at risk > 30 days

• CGAP and Source: MBB 9, July 2003

Conclusions

• Microfinance can play a key, cost-effective and sustainable role in achieving the MDGs if …

• We build flexible and reliable financial services that respond to the real, diverse needs of the poor and vulnerable non-poor

• Billions of people are waiting for us to do so …

MicroSaveMarket-led solutions for financial services

Shelter Afrique Building, Mamlaka Road, P.O. Box 76436, Nairobi, Kenya

Tel: 254 (0)20 2724801/2724806/2726397

Fax: 254 (0)20 2720133

Email: info@MicroSave.org

Website: http://www.MicroSave.org