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MICROFINANCEBY :IOBM Pakistan
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Microfinance objective
Microfinance Features
Microfinance Clients
List of Microfinance Institutions
MFI and Commercial banks
Microfinance Globally and in Recession
Funding of Microfinance
Shortcoming of Microfinance
SBP initiatives for Pakistani MFI
Actions for Pakistani MFI
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Microfinance 0bjectives low-income households: permanent access high
quality financial services
to finance their income-producing activities, buildassets
stabilize consumption
protect against risks
not limited to credit, but include savings, insurance,
and money transfers.
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Microfinance Features
financial services : poor & low-income clients.
very small loan : unsalaried borrowers-collateral
include group lending and liability
pre-loan savings requirements
gradually increasing loan sizes
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Examples OF Microfinance
Features
Micro Business Loan
Micro Agri Loan
Micro Assets Loan
Livestock Loan
New Micro Business Loan
Loan Amount : 10,000 - 40,000Loan Tenure :3 24 Months
Loan Amount3, 000 5,000Loan Tenure3 6 Months
PAK OMAN MICROFINANCE BANK
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Example of Microfinance clientsTAMEER MICROFINANCE BANK
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Institutions deliveringmicrofinance?
MFIs started as not-for-profit organizations
MFIs are now organized as for-profit entities
Because: license from banking authoritiesto offer savings services.
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Examples of Institutions deliveringmicrofinance?
Pakistan : Khushali Bank
India : SEWA Bank
Chile : BancoEstado
Mexico : CompartamosBanco
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MFIs, Interest rates are highest?
administrative cost : making tiny loans is muchhigher in percentage terms than the cost ofmaking a large loan.
Credit decisions for borrowers who have neithercollateral nor a salary cannot be based onautomated scoring
Microcredit market matures in a given country,administrative costs usually drop
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Recession hits MicrofinanceGLOBAL FACTS,20TH MARCH 09
25% MFIs decreased lending
20% MFI reduced staff
37% MFI have reduced their growth plans
41% MFI have began charging higher interestrates
Cambodia, loan growth from 61% to 10%
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Recession hits Microfinance
EastAsia and the Pacific
KOREA
US$73 million in direct loans andguarantees to MFIs
MFIs in Korea should experience relativelylower liquidity
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Recession hits Microfinance
Eastern Europe andCentralAsia
Mongolia
larger MFIs, successfully met the newrequirements
less well-established MFIs may find thischallenging
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Recession hits Microfinance
Latin America and theCaribbean
Colombia
region lags in terms of deposit-taking
removing restrictions on foreignlending and lowering interestrates
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Recession hits Microfinance
Middle East and North Africa
operate in highly regulated & insulatedfinancial markets
we can expect less of an impact from theglobal financial crisis
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Recession hits Microfinance
South Asia
India
MFI , foreign lending restrictions to non-bank financial companies
Rupee depreciate to slow the outflow ofcapital
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Recession hits Microfinance
SouthAsiaIndia
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MFI fundedby?
Debt
Deposits,
Equity
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MFI fundedby?
DEBTbased:
depend upon fixed-income investment - greatest risk
less available debt capital & offered at higher interest rates
Foreign loans, requiring repayment in hard currency at a
moment of devalued domestic currencies
leaving MFIs to bear the foreign exchange risk
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MFI fundedby?
DEPOSITbased:
Challenged by inflation, food and fuel price volatility
decrease in remittance flows
local currencies in developing countries lose value, clients willfind it increasingly difficult to maintain savings levels
Deposits declines and non-performing loans increases - clientsrequire additional capital to cover basic needs.
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MFI fundedby?
Equity-based
Initially, low default rates andstrong profit margins
MFIs enjoyed higher netinterest margins
Now, compressed NIMs &higher lending rates
Impact - pressure on profitmargins and makemicrofinance less attractive toequity investors
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Shortcomings of Micro financing
# 1
industry Is still young
Dependent On donor assistance to grow, whichthough necessary at infancystage is an unsustainableapproach to long-termdevelopment.
MFIs move toward deposit mobilization to
increase funds for on-lending
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Shortcomings of Micro financing
# 2
cost-efficiency is especially important in thecurrent environment of
the global financial crisis
cost of borrowing will eventually impact
cost of lending for MFIs andMFBs as they move towardscommercial funding
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Shortcomings of Micro financing
# 2
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Shortcomings of Micro financing
# 3
Resource deficiency exists for microfinance not only in theform offunding
Humanresourcecapacity
must also be strengthened toprovide quality microfinanceservices.
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Shortcomings of Micro
financing # 3
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Shortcomings of Micro financing
# 4
concerns over
gender
will have to be critically examined
and addressed in order tomake microfinances ability
to fight poverty more meaningful.
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Shortcomings of Micro financing
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Shortcomings of Micro financing
# 5
lack of
regulations
Mexican banks are charging
anyway from 50% to 120%annual interest on loans.
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Shortcomings of Micro financing
# 6
reaching
remote areas
due to limited infrastructure
and the complications ofreligious and politicalpressure;
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Facts about Pakistantill december 2008
MFI has 1.8 million customers
microfinance borrowers: 3 million by 2010 & 10 million
by 2015.
Pakistan , leader in the Asian region incommercialized microfinance
first country - to introduce a comprehensive legal,regulatory, and supervisory framework for formalmicrofinance in Asia.
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SBP initiatives for the Promotionof Microfinance
1)Sustainable cost-covering operating/business
model;
2) Mobilize private domestic capital;
3) Build human resource systems.
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SBP initiatives for the Promotionof Microfinance
4)
Financial Inclusion Program
aimed at eliminating market failures.
A 50 million program funded by the UK
for financial services for poor ,marginalized groupsand for small enterprises
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SBP initiatives for the Promotionof Microfinance
5) Branchless Banking Regulations -promotebanking in remote areas using technology.
6) SBP encouraged microfinance institutions to
transform into regulated entities
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SBP initiatives for the Promotionof Microfinance
7) SBP encouraged partnerships between the post office (PO)
network and MFI
Post Offices, manages 4 million savings accounts
small accounts below Rs 10,000, through more than 12,000branches.
There is scope for the Post Office and MF providers to joinforces
with the MFI acting as intermediaries for funds raised by POs
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SBP initiatives for the Promotionof Microfinance
8) International players including BRAC and
ASA who have already startedmicrofinance operations in Pakistan
9) Micro finance focal group - with anindependent head and qualified staff
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SBP ACTIONSFOR Microfinance
SBP in December08 launched :
1) The Microfinance Credit Guarantee Facility
2) The Institutional Strengthening Fund; and
3) The Improving Access to Finance ServicesFund
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SBP ACTIONSFOR Microfinance
The Microfinance Credit Guarantee Facility
expected to increase the flow of credit tomicrofinance sector
Commercial banks are allowed options to
undertake microfinance business directly and inpartnership with MFIs by providing wholesalefunds to them
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SBPACTIONSFORMicrofinance
The Microfinance Credit Guarantee Facility
standalone MF Branches, establishment ofindependent subsidiary MFB &linkage with NGO
build links between micro borrowers and formal
financial institutions.
provide partial Guarantee to minimize the perceivedrisk premium by covering part of the losses incurred
on funds made available to MFIs
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SBPACTIONSFORMicrofinance
The Institutional Strengthening Fund
build capacity of the microfinance sector
improving human resource quality, service deliveryand increasing service availability to potential
microfinance clients.
fund is established at the State Bank under the UK
Governments Financial Inclusion Program
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SBP ACTIONSFOR Microfinance
The Institutional Strengthening Fund
generate on-lending resources throughcommercial sources, equity investments ordeposit mobilization strategy
provide grants for employing cost reductionmechanisms
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SBP ACTIONSFOR Microfinance
Improving Access to Financial Services
promote financial literacy
Capacity building and training of Government andregulatory authorities
training of financial services providers to promoteexpansion into rural areas; product and serviceinnovation
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Globally , according to a survey, still 80% of theinvestors have theirmoney in MFIs.
Finally
In Pakistan , SBP initiatives have strongsupport of the industry simply because of the
partnership we have with the Pakistan Micro
Finance industry and network.