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Microfinance, a profitable business
or a path to economic development
Jose Manuel Gonzalez
April 2011
Université of xxxxxx...
MICROFINANCE
• Microfinance is the variety of financial
services that target low income population.
• The services include...
MICROFINANCE
• Microfinance is not magical. It may be a long
process before improving peoples life
Micro
business
$
More p...
Employment and Microfinance
• Developing countries present very low rates of
formal employment.
• The future does not look...
Employment and Microfinance
• Employment rates will not recover their pre/crisis
level before 2015, the Gap ranks among 2 ...
Employment and Microfinance
• With formal employment rates of 62.5% of economically
active population and a fall during cr...
Employment and Microfinance
• Jobs lost, are absorbed by informal sector
• Sometimes, 1 job by family is not enough: The f...
Micro Entrepreneurs
• Poor people, mostly in
developing countries, are not
part of formal employment.
Estadistica
• Due to...
Micro Entrepreneurs
• Poor people, mostly in
developing countries, are not
part of formal employment.
Estadistica
• Due to...
Micro Entrepreneurs
• EMPLOYMENT. Poor people, mostly in
developing countries, are not part of formal
employment. Estadist...
Micro Entrepreneurs
• Según la OIT, en México
el empleo informal como
porcentaje del empleo
no
• agrícola es de 55%. En la...
MICROFINANCE
• How does MICROFINANCE get there
– Development of several methodologies to be able
to provide the financial ...
MICROFINANCE Methodologies
• Village Banking
– Groups of 12/ 50 women living in the same
community, generally rural or sem...
MICROFINANCE Methodologies
• Village Banking
– Savings plans of up to 20%
of credit, along loan term.
– Good behavior guar...
MICROFINANCE Methodologies
• Solidary Group
– Small 4 – 8 members groups.
– Each member own a microbusiness
– They have to...
MICROFINANCE Methodologies
• Solidary Group
– Each participant agrees to solidarily cover an
eventual default of any other...
MICROFINANCE Methodologies
• Solidary Group
– Each participant
agrees to solidarily,
cover an eventual
default of any othe...
MICROFINANCE Methodologies
• Individual Loans to business
– Profile of micro entrepreneur
• Established or semi fix busine...
MICROFINANCE Methodologies
• Individual Loans to business
– Deep analysis of a micro business to identify
possible risk so...
Individual loans
Scheme of business analysis issues
Business Family
Qualitative
• Experience
• Location
• Market
• Accessi...
MICROFINANCE Methodologies
• Individual Loans
Microfinance, a profitable business or a mean
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Microfinance, a profitable business or a mean

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Transcript of "Microfinance, a profitable business or a mean"

  1. 1. Microfinance, a profitable business or a path to economic development Jose Manuel Gonzalez April 2011 Université of xxxxxxxxxxxxxxxxx
  2. 2. MICROFINANCE • Microfinance is the variety of financial services that target low income population. • The services include, loans, savings, insurances, remittances in small amounts. • Microlendings are given for several purposes, usually Microenterprise development. • These small loans can make a big difference, by giving opportunity to invest in their business and improve their lives.
  3. 3. MICROFINANCE • Microfinance is not magical. It may be a long process before improving peoples life Micro business $ More productivity • Reinvestment • Growth • Increased loan capacity Saving Capacity Progresive Life improvement • Nutrition • Health • House • Education • Diversification Financial source Micro credit
  4. 4. Employment and Microfinance • Developing countries present very low rates of formal employment. • The future does not look any promising • Ande Recorte de pantalla realizado:24/03/2011 06:12 p.m.
  5. 5. Employment and Microfinance • Employment rates will not recover their pre/crisis level before 2015, the Gap ranks among 2 million jobs.
  6. 6. Employment and Microfinance • With formal employment rates of 62.5% of economically active population and a fall during crisis, people have to occupy by themselves.
  7. 7. Employment and Microfinance • Jobs lost, are absorbed by informal sector • Sometimes, 1 job by family is not enough: The family will have to self-employ in order to accomplish family earnings. • Low level of education, prevent poor people from getting qualified jobs • Poor people only have access to very low waged jobs, normally rural or handcrafting.
  8. 8. Micro Entrepreneurs • Poor people, mostly in developing countries, are not part of formal employment. Estadistica • Due to lack of formal employment, or the lack of education and therefore, formal skills, They have to start their own small business. • Very limited opportunities to formal jobs, mostly in rural areas. • Wages are extremely low
  9. 9. Micro Entrepreneurs • Poor people, mostly in developing countries, are not part of formal employment. Estadistica • Due to lack of formal employment, or the lack of education and therefore, formal skills, They have to start their own small business. • Very limited opportunities to formal jobs, mostly in rural areas. • Wages are extremely low
  10. 10. Micro Entrepreneurs • EMPLOYMENT. Poor people, mostly in developing countries, are not part of formal employment. Estadistica • Due to lack of formal employment, or the lack of education and therefore, formal skills, They have to start their own small business. • Very few opportunities for formal job, mostly in rural areas • Response, they become MICROENTREPRENEURS to s • They remain informal, that means> – Are not registered in the contributors data bases – Therefore, Do not pay taxes – Usually they keep very basical registers of their activities, or don’t keep them at all – They might employee some people, buy in an informal way > No social security, no retirement fund
  11. 11. Micro Entrepreneurs • Según la OIT, en México el empleo informal como porcentaje del empleo no • agrícola es de 55%. En la India es de 83% y en Brasil de 60%.
  12. 12. MICROFINANCE • How does MICROFINANCE get there – Development of several methodologies to be able to provide the financial services under reasonably risk controlled environments. – The methodologies depend on few criterions. • Geographical dispersion • Sofistication of microbusiness. • Assets and collateral disposition • Availability of information (Credit Bureau, Level of accountancy registries, etc…)
  13. 13. MICROFINANCE Methodologies • Village Banking – Groups of 12/ 50 women living in the same community, generally rural or semi/rural. – Women must know each other. – Create their own organization. Name president, secretary and treasurer. – Decide by themselves amount of loan for each member. – Weekly meetings, previously appointed to collect money. Treasurer makes payment to MFI – Short term cicles: 16, 20 or 24 weeks
  14. 14. MICROFINANCE Methodologies • Village Banking – Savings plans of up to 20% of credit, along loan term. – Good behavior guarantee extension and refinancing of new cicle. –– Solidary response. In case a member miss a weekly payment, the group has to cover up the default. Purpose: the group complies on time. – Group default will damage every single member- s future credit access.
  15. 15. MICROFINANCE Methodologies • Solidary Group – Small 4 – 8 members groups. – Each member own a microbusiness – They have to know each other, and belong to same community. – Each individual business is analyzed to determine: • Periodical cash generation. • Payment capacity • Consistency between way of living and activity.
  16. 16. MICROFINANCE Methodologies • Solidary Group – Each participant agrees to solidarily cover an eventual default of any other member. – The group has to pay on time, regardless of who is contributing. – Group default means no future access to credit to any member.
  17. 17. MICROFINANCE Methodologies • Solidary Group – Each participant agrees to solidarily, cover an eventual default of any other member. – The group has to pay on time, regardless of who is contributing. – Group default means no future access to credit to any member.
  18. 18. MICROFINANCE Methodologies • Individual Loans to business – Profile of micro entrepreneur • Established or semi fix business • Experience and empiric knowledge of business • Basic assets, and possibility of basic collaterals • Simple registry of activity. – Deep analysis of a micro business to determine • Payment capacity and cash flow generation – Usually, no
  19. 19. MICROFINANCE Methodologies • Individual Loans to business – Deep analysis of a micro business to identify possible risk sources. – Field evaluation by specialized credit agent. – Home visit to assess way of life vs. business activity. – Evaluation provides elements to structure a loan: term of loan, amount, collaterals, guarantor, etc…
  20. 20. Individual loans Scheme of business analysis issues Business Family Qualitative • Experience • Location • Market • Accessibility • Demand Cyclicity • Competition • References • Reputation • Distribution • Cohesion • # of members • Home ownership • Years in town • Dependents • Health issues • Access to services • Education • Possible addictions Quantitative • Sales • Margins • Cash flow • Working Capital • Inventories • Assets • Debt • Inventory rotation • Production cycle • Family expenses • Other income • Variability of income • Assets • Debt • Etc… Credit behavior Records (Credit Bureau or other)
  21. 21. MICROFINANCE Methodologies • Individual Loans
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