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LECTURE INTRODUCTION TO MICROFINANCE May 6th, 2009 Emilie Levy, Executive Director. Agenda. DEFINITION OF MICROFINANCE STAKEHOLDERS MICROFINANCE BEST PRACTICES SUSTAINABILITY AND RISKS SNAPSHOT OF MICROFINANCE TODAY. Case study. Mrs. Israel, 48 years old Unemployed husband - PowerPoint PPT Presentation
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11/16/16
LECTURE
INTRODUCTION TO MICROFINANCE
May 6th, 2009
Emilie Levy, Executive Director
22/16/16
DEFINITION OF MICROFINANCEDEFINITION OF MICROFINANCE
STAKEHOLDERSSTAKEHOLDERS
MICROFINANCE BEST PRACTICESMICROFINANCE BEST PRACTICES
SUSTAINABILITY AND RISKSSUSTAINABILITY AND RISKS
SNAPSHOT OF MICROFINANCE TODAYSNAPSHOT OF MICROFINANCE TODAY
Agenda
33/16/16
Mrs. Israel, 48 years old
• Unemployed husband • 4 children• No savings• Good cook
• Mrs. Israel decides to start a small catering service at home
• Mrs. Israel goes to the bank and makes a demand for a loan at her bank
MRS. ISRAEL’S DEMAND IS REJECTED
Case study
44/16/16
Why are people excluded from certain financial services?
Justification and definition of microfinance
• Lack collateral or guarantors
• A bad credit history
• Gap in the communication / lack of confidence in the Banks
• Doubt of the bank of the repayment capacity
• Lack of access to financial infrastructure and services in remoted areas
WHAT IS THE ALTERNATIVE?
MICROFINANCE
55/16/16
Justification and definition of microfinance
FINANCE MICRO
• Micro-entrepreneurs
• Self-employed
• Low income populations
• Excluded populations
• Business & educational loans
• Savings
• Micro-insurances
• Remittances
• Micro-entrepreneur training
• Coaching & workshops on health, hygiene, etc.
66/16/16
Microfinance is a tool against poverty by enabling the beneficiaries to :
• Create sustainable activities to increase their incomes
• Reduce external shocks
• Improve the living conditions of entrepreneurs and of their families
• Empower people and mainly the women
Definition
Microfinance is the offer of financial & non-financial services to people excluded from the traditional banking system.The services are adapted to the needs of the target populations
77/16/16
Yunus’ idea Prof. Muhammed Yunus
Founder of the Grameen Bank, Bangladesh
Introduction to Microfinance: History
How did all start?
On the field Prof. Yunus saw that• Even poor people and women need loans• They can have an activity and repay
• Set up financial institutions with a social mission• Listen to the needs and constraints of the
excluded & offer them adapted financial tools to empower themselves ( solidarity groups)
Spirit: SUSTAINABILITY
88/16/16
MICROFINANCE MICROFINANCE INSTITUTIONS (MFIs)INSTITUTIONS (MFIs)(NGO, ASSOCIATIONS & BANKS)
Commercial Banks
COMMERCIAL BANKS & INVESTMENT FUNDS
FOUNDATIONS & DONORS (incl.
enterprises)
GOVERNMENT & LOCAL BODIES SUPPORT
ORANIZATIONS (e.g. PF)
BENEFICIARIESBENEFICIARIES
Actors & Mechanisms
99/16/16
44 Final Repayment 12 weeks later
Demand for a 2nd loan over
NIS 1500 to buy a fridge)
22 Purchase of the ingredients
Start of cooking & sale
(Daily benefits amount NIS 100)
11 Visit of Mrs. Israel to the MFI
Meeting wit the Loan Officer
Convinced, reception of a loan of
NIS 1,000 (+ NIS 30 interest rate)
33 Weekly Repayment ( 86 NIS)
Remaining money is used to buy food
Regular contact and Regular contact and follow up between the follow up between the
MFI and the clientMFI and the client
Micro-credit Best practices (1/4 ): microcredit
Mrs. Israel needs NIS 1,000Mrs. Israel needs NIS 1,000
1010/16/16
Microfinance is not philanthropy!• Clients need to pay for the services• Microcredit clients need to repay the loans• Interest rate to cover the costs
Why is repayment important?
• Offer new loans and extend the client base• Ensure correct functioning and growth of the institution • Cover office & operational costs • Cover for non-payments when they occur• Avoid financial loss and loss of credibility for the institution
REPAYMENT ON TIME GUARANTEES THE SUSTAINABILITY OF THE PROGRAM
Microcredit Best Practice (2/4 ) Repayment
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Prejudices
• The social mission should consist in a free loan
• Interest Rate, perceived as a burden to the client
Reality
• Micro-credits allow for the creation or expansion of an income generating activity and the generation of profit
• Interest rates are no burden if the business plan is solid and good evaluation has been done
Micro-credit Best practices (3/4 ): Interest Rate
1212/16/16
Methodology• Regular follow up• Requirement of good repayment for future access to a bigger loan • Local loan officers familiar with local culture
Adapted products and procedures• Small and short term credits• Repayment capacity assessment• Adapted collaterals / group solidarity guarantee
Business Development Services• Compensation for lack of education of loan beneficiaries
Microcredit Best practices (4/4): Key success factors
1313/16/16
Sustainability: the conceptual framework
OUTREACH
IMPACT
How do we measure the impact?
SUSTAINABILITY
Why few MFIs are sustainable?
• Need to make trade-off sometimes
• Need to reduce the internal and external risks to maximize the success
1414/16/16
• 10,000 MFIs manage a global portfolio of US$30 Billions
• In a range from 150 US$ to 7,000 US$, the average loan size is US$ 450
• 150 Mio micro-credit active clients
• 300 Mio micro-saving active clients
• 50 Mio micro-insurance active clients
Sources : CGAP, BIT, Microcredit Summit, PlaNet Finance
Microfinance in the world today
1515/16/16
• Development of MF in industrialized countries (e.g. Israel, France, USA) thanks to the adaptation of the tools and methodologies
• Commercialization of the stakeholders
• Use of new technologies as a new development tool
New trends
1616/16/16
Thank you!Thank you!
www.planetfinancegroup.orgwww.planetfinancegroup.orgelevy@[email protected]