Microfinance—Elements of Success

The Power of Small Change Common Elements of Success Among Microcredit Organizations

… a year learning from the poorest of the poor

Lessons in finance from the slums of Egypt…

… slum huts in Ahmedabad, India

… villages in Bangladesh

… city slums & rural villages in Indonesia

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Leaving Poverty Indonesia: Bank Rakyat Indonesia’s small borrowers’ incomes increase 12.9% over 3 years. In a study, a control group’s income rose by 3% during a corresponding period.

Leaving Poverty Bangladesh: 5% of Grameen Bank borrowers leave poverty each year. More than 58% had crossed the poverty line as of June 2006.

Bangladesh India Egypt Indonesia
Focus on women! Why?
Women boast 95-98% repayment rates
Women reinvest their profits in feeding & educating their children
Repaid loans & interest create more money to lend to more women

BANKERS GO TO BORROWERS BANGLADESH: Grameen Bank - 7.41 million borrowers Group leaders collect loan payments and hand them to their bicycle banker—assuring complete transparence. Members of the group pledge to support one another.

EGYPT
Nat’l Bank for Development
• Loan officers recruit poor borrowers and collect loans at their workplace
• Loan sizes vary from $25–$500
• Loan officers trained
Loan Requirements
Established business ‘place’
National ID card
Signature or thumbprint
98% repayment rate
Sustainability = non-subsidized interest rates

INDONESIA
Bank Rakyat Indonesia
A microfinance ‘unit’
in EVERY village in Indonesia
DAILY collections
Uneconomical for borrowers to pay for transport to the bank
Loss of sales while away from the business
Transparent transactions
• Non-subsidized rates
Microfinance profitability masked rest of bank’s losses during country’s economic collapse!

INDIA: SEWA Bank
Bank workers go to the slums to serve their clients
Women repay loans and deposit savings in any amount
2003: 113,583 savings accounts; 50,849 loans outstanding
2007-08: 307,558 savings accounts; 103,679 loans outstanding

SIMPLE PROCEDURES
Illiterate borrowers can’t write their names…
A photo and a thumbprint identify them

Profit for the Bank is Good for Borrowers, Too Interest rates must support sustainability
Money Lenders 60% - 3000% per year
Wholesaler Credit 50% per DAY
Self-Employed Women’s Association: 17%
Grameen Bank: 20%
Bank Rakyat Indonesia: 32% in interest & fees
Egypt’s National Bank for Development: 35%

Successful Programs Offer Other Financial Products
Savings Repayment fund Dowry!
Insurance Health Life
Training, Education
These programs have greater sums in savings accounts than in outstanding loans!!

A GRAMEEN BANK
SUCCESS
April 1997: 40 phone ladies
May 1999: +100 phone ladies
Most recent data: 355,000 phone ladies
To be a phone lady
Long-term success
No loan defaults
Elected by center members
Approved by center banker
Meet Anwara

Leapfrogging Existing Technology
Phones link villagers to cities to learn fair pricing for products
Phones link villagers to members of their families working abroad
Cellular technology makes land lines unnecessary

Anwara is a widow
She is financially secure
She owns her own home, with title in her name — one of 670,00 homes purchased with Grameen housing loans
She has educated all her children, including her only daughter

Anwara refused to “marry off” Sikha.
Instead, she sent Sikha to Dhaka University.
Sikha wants to be a lawyer representing the rights of poor women.

Social changes under way in Bangladesh
Women running for local office
Grameen borrowers winning elections

Women being heard by women in civic disputes…

Egypt’s National Bank for Development
Microfinance began with 20 branches in Cairo — today serves 44 branches in 17 governorates.
Is self-sustaining.
Employs 367 young professionals.
Is expanding to NBD’s 68 branches and being financed from NBD’s own resources.
Features a popular credit life insurance feature and built-in financial incentives for the clients to repay in time, such as cash savings requirements, a refundable late payment assessment, and the likelihood of a large repeat loans.

Microfinance—Elements of Success

by Betsy Brill on May 13, 2009

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