View
1.020
Download
1
Category
Tags:
Preview:
DESCRIPTION
An introduction to microfinancing as a developmental tool.
Citation preview
“Give a man a fish, he eats for a day. Teach a man to fish, he eats for a lifetime.”
Chinese ProverbBy
Emily Zender & Suhn Lee
MicrofinancingMicrofinancing The act of providing loans to the poorest people
in the world typically $10-$50 ◦ Lending◦ Insurance ◦ Savings Accounts◦ Leadership Training
History of MicrofinanceHistory of Microfinance
First Microfinance Institution (MFI)◦Grameen Bank 1976◦Founded by Muhammad Yunus ◦Today—Total Number of Branches:
2481◦Today—Number of members:
7,970,616
Abandoned By Abandoned By Normal Financial Normal Financial
InstitutionsInstitutions
Economic Scholar Jeffery Sachs: “The extreme poor are chronically hungry, unable to access health care, lack the amenities of safe drinking water and sanitation, cannot afford education…and perhaps lack rudimentary shelter…and basic articles of clothing, such as shoes.”’
1billion people live in extreme poverty, struggling to survive every day. An additional 1.5 billion people are classified as “poor” lacking the basic necessities to live
Over 1/6 of humanity currently lives in extreme poor
The Extreme Poor
The extreme poor are considered “unbankable” and left to survive in the slums
Barriers to Entry
Lack of Research High interest rates Market Sector Divide Credit Limitability Screening Loan Applicants Monitoring Borrowers Writing/Enforcing contracts Poor Infrastructure Transportation/
Communication Obstacles High Literacy Levels
Microfinancing vs. Normal Financial Institutions
Accessibility. Credibility. Sustainability.
Accessibility: Geographical
Poor Infrastructure Little-No Technology Frail Electricity Lack of Research Little Transportation Lack of Education Low Literacy Rates Government Corruption Disease
Number of MFIs by Country Asia: 1,727 Africa: 935 Latin America/
Caribbean: 614
Largest Amount of MFIs
Credibility
MFI collective default rates are
approximately 3% beating out default rates of the United
States
Obstacles:◦ No past credit history◦ Risky borrowers◦ High Interest Rates◦ No borrowing
experienceSolutions:◦ Group Lending◦ Individual Lending
Group lending◦ Groups consist of 3-8 members◦ 8-20 groups per community◦ Each member runs a
microenterprise
Individual Lending◦ Lending directly to an client◦ Must have credit history◦ Not all MFIs have individual lending◦ Collateral ◦ Incentives to repayment
Lending to the Poor Lending to the Poor
MFI Success:◦ Lowers interest Rates
◦ Increases credibility
◦ Increases payback returns
◦ Encourages responsible borrowing
“Safe customers will more likely group
together with other safe customers, leaving the
risky types to form groups by themselves” (Sengupta and Aubuchon 2006,
12).
Business Sustainability
Problems: Small loans Low interest rates High accessibility
costs Credibility Costs Client relations
Solutions: Emphasis on returning a
profit Grants Subsidies Other government
support FDI
“philanthropy is not a requirement of microfinance
—not all MFIs are non-profit organizations”
(Sengupta and Acubuchon 2008, 15)
Microfinance: Poverty Alleviation Tool?
Quick Facts There are approx. 3,552 MFIs worldwide
There are currently154,825,825 serviced clients
68% of clients are classified as extreme poor
Helping the poor, help themselves
Impact:Microfinance loans increase capital which increases labor for themselves and
sometimes others and gives them the opportunity to access technology
Accion. “Meet Microentrepreneurs from Africa.” Accion International.2007.http://www.accion.org/Page.aspx?pid=1373
Ghatak, Maitreesh. “Group Lending, Local Information and Peer Selection.” Journal of Development Economics. Chicago, IL. 1999.
Daley-Harris, Sam. “State of the Microcredit Summit Campaign Report 2009.” 2009 Microcredit Summit Campaign. Washington, DC. 2009.
Leonard, Herman & Epstein, Marc & Tritter, Melissa. “Opportunity International: Measurement and Mission.” President and Fellows of Harvard College. Boston, MA. 2006.
Sachs, Jeffery. “The End of Poverty: Economic Possibilities for Our Time.” Penguin Press. (2005)
Sengupta, Rajdeep & Aubuchon, Craig. “Microfinance Revolution: An Overview.” The Federal Reserve Bank of St. Louis. 2008.
Young, Robin & Drake, Deborah. “Banking at the Base of the Pyramid: A Microfinance Primer for Commercial Banks.” Development Alternatives, Inc. 2005.
Further Reading and References:
Recommended