Microfinance (1)


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  • There are 40 women in each center; 5 women in each group. The women evaluate one another’s businesses and loan requests. The first loans in a new group go to 2 women, successfully repaid, then another 2; then last one. 2007 data
  • The size of the loans varies from $25 to $500, depending on the business. These are administered through a separate, microenterprise, division of the National Bank for Development. USAID underwrote equipping the special division and guaranteed the loans. With a 98% repayment rate, the guarantee has never been tapped. Features Weekly visits by credit officers to: - follow-up the loan utilization & collect payments - assure development of client’s activities - assist in solving any problems - promoting the project to increase the program outreach - Upper management commitment requires: - Financial methodologies that follow up low income clientele - Belief in recruiting, training & retaining large number of specialized staff (450 at this time) - Reach sustainability and cost–effectiveness through non-subsidized interest rates - Increases productivity and rapid expansion of microenterprises
  • Operating in its present form since the early 1970s As of December 2001, 21.2 million MILLION savers! 3.5 million borrowers… The poor CAN save once they are freed from usurious interest rates… Note that in the four microfinance institutions, there are MORE savers than borrowers! $5.65 savings 2007 4,345 When the Indonesian banking system collapsed, BRI’s microbanking division remained profitable. Return on assets hardly budged, declining from 5.7% in 1996 to 4.7% in 1997, but, at the height of the crisis, recovering to 4.9% in 1998 and 6.1% in 1999. The BRI microfinance operations are the prime component of BRI’s survival after 1998 and BRI’s success as the most profitable bank of Indonesia in 2007 BRI units the world’s largest and most successful commercial microfinance network, with a predominantly rural outlook.
  • This bank is part of a Union representing independent workers like basketweavers, vegetable vendors, incense rollers… the poorest of the poor. Independent of the Grameen Bank but at about the same time, in the mid-1970s, the bank was established by the union. We may be poor, but we are so many. Why don't we start a bank of our own ? The banks offers services based on the life cycle needs of the poor: Savings for the events which they can plan, Insurance for uncertainties credit for business needs; and counseling for planning ahead. For example,
  • Microfinance (1)

    1. 1. “ Self realization and self initiative are the two most powerful weapons to wash poverty out from the world” – CHANAKYA ( World’s Greatest Ancient Economic and Political Scholar).
    2. 2. <ul><li>Siddhesh Kadam (9119) </li></ul><ul><li>Swapnil Lalwani (9128) </li></ul><ul><li>Amol Mohite (9136) </li></ul>
    3. 3. Lessons in finance from the slums of Egypt…
    4. 4. … slum huts in Ahmedabad, India
    5. 5. … villages in Bangladesh
    6. 6. … city slums & rural villages in Indonesia
    7. 7. What is microfinance? <ul><li>Microfinance is a service which offers poor people access to basic financial services such as loans, savings, money transfer services and micro insurance. </li></ul><ul><ul><ul><ul><li>CGAP (Consultative Group to Assist the Poor) </li></ul></ul></ul></ul>
    8. 8. Financial needs of poor people <ul><li>Types of financial needs:- </li></ul><ul><li>Lifecycle Needs : such as weddings, funerals, childbirth, education, homebuilding, widowhood, old age. </li></ul><ul><li>Personal Emergencies : such as sickness, injury, unemployment, theft, harassment or death. </li></ul><ul><li>Disasters : such as fires, floods, cyclones and man-made events like war or bulldozing of dwellings. </li></ul><ul><li>Investment Opportunities : expanding a business, buying land or equipment, improving housing, securing a job (which often requires paying a large bribe), etc. </li></ul>
    9. 9. <ul><li>Majority of poor are excluded from financial services. This is due to, the following reasons </li></ul><ul><li>Bankers feel that it is fraught with risks and uncertainties. </li></ul><ul><li>High transaction costs </li></ul><ul><li>Unfavourable policies like caps on interest rates which effectively limits the viability of serving the poor. </li></ul>
    10. 10. <ul><li>The solution to the financial requirements of poor is …….. </li></ul><ul><li>MICROFINANCE </li></ul>
    11. 11. ORIGIN <ul><li>In 1720 the first loan fund targeting poor people was founded in Ireland by the author Jonathan Swift. </li></ul><ul><li>Professor Yunus founded his Grameen Bank in 1976 i.e. first MICROFINANCE institute. </li></ul>Professor Yunus Pioneer of Grameen bank & microfinance.
    12. 12. 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.
    13. 13. <ul><li>EGYPT </li></ul><ul><li>Nat’l Bank for Development </li></ul><ul><li>• Loan officers recruit poor borrowers and collect loans at their workplace </li></ul><ul><li>• Loan sizes vary from $25–$500 </li></ul><ul><li>• Loan officers trained </li></ul><ul><li>Loan Requirements </li></ul><ul><li>Established business ‘place’ </li></ul><ul><li>National ID card </li></ul><ul><li>Signature or thumbprint </li></ul><ul><li>98% repayment rate </li></ul><ul><li>Sustainability = non-subsidized interest rates </li></ul>
    14. 14. <ul><li>INDONESIA </li></ul><ul><li>Bank Rakyat Indonesia </li></ul><ul><li>A microfinance ‘unit’ </li></ul><ul><li>in EVERY village in Indonesia </li></ul><ul><li>DAILY collections </li></ul><ul><li>Uneconomical for borrowers to pay for transport to the bank </li></ul><ul><li>Loss of sales while away from the business </li></ul><ul><li>Transparent transactions </li></ul><ul><li>• Non-subsidized rates </li></ul><ul><li>Microfinance profitability masked rest of bank’s losses during country’s economic collapse! </li></ul>
    15. 15. <ul><li>INDIA: SEWA Bank </li></ul><ul><li>Bank workers go to the slums to serve their clients </li></ul><ul><li>Women repay loans and deposit savings in any amount </li></ul><ul><li>2003: 113,583 savings accounts; 50,849 loans outstanding </li></ul><ul><li>2007-08: 307,558 savings accounts; 103,679 loans outstanding </li></ul>
    16. 16. Is micro finance charity? <ul><li>NO!! Microfinance is not charity.. </li></ul><ul><li>Loan is not charity. </li></ul><ul><li>Microfinance org. provide loans to families who are poor now but will have the capacity to repay loans in future . </li></ul>
    17. 17. Types of organizations <ul><li>Microfinance providers in India can be classified under three broad categories: </li></ul><ul><ul><li>Formal </li></ul></ul><ul><ul><li>Semiformal </li></ul></ul><ul><ul><li>Informal. </li></ul></ul>
    18. 18. FORMAL SECTOR <ul><li>The formal sector comprises of the banks such as NABARD, SIDBI and other regional rural banks (RRBs). </li></ul><ul><li>They primarily provide credit for assistance in agriculture and micro-enterprise development and primarily target the poor. </li></ul><ul><li>Their deposits at around Rs. 350billion and of that, around Rs. 250billion has been given as advances . </li></ul>
    19. 19. SEMI FORMAL SECTOR <ul><li>The majority of institutional microfinance providers in India are semi-formal organizations broadly referred to as MFIs. </li></ul><ul><li>Registered under a variety of legal acts, these organizations greatly differ in values, size, and capacity. </li></ul><ul><li>There are over 500 non-government organizations (NGOs) registered as societies, public trusts, or non-profit companies. </li></ul>
    20. 20. MFI involved in microfinance <ul><li>Association for Sarva Seva Farms (ASSEFA) </li></ul><ul><li>Mitrabharati - The Indian microfinance Information Hub </li></ul><ul><li>Mysore Resettlement and Development Agency (MYRADA) </li></ul><ul><li>SADHAN - The Association of Community Development Finance Institutions </li></ul><ul><li>SEWA: Self-help Women's Association </li></ul><ul><li>SKS India - Swayam Krishi Sangam </li></ul><ul><li>Streedhan - Banking with Rural Women </li></ul><ul><li>Working Women's Forum, Madras, India </li></ul>
    21. 21. NGOs involved in microfinance <ul><li>CDF (Co-operative Development Foundation) in Andhra Pradesh </li></ul><ul><li>LHWRF (Lupin Human Welfare Research Foundation) in Rajasthan </li></ul><ul><li>UPLDC (Uttar Pradesh Land Development Corporation) in Uttar Pradesh </li></ul><ul><li>Group Enterprise Development Project of EDI (Entrepreneurship Development Institute of India) in Nagaland. </li></ul>
    22. 22. INFORMAL SECTOR <ul><li>Friends and family </li></ul><ul><li>Moneylenders, landlords, and traders constitute the informal sector. </li></ul><ul><li>While estimates of their importance vary significantly, it is undeniable that they continue to play a significant role in the financial lives of the poor. </li></ul>
    23. 23. Business model <ul><li>The Business Model on which most of the Microfinance works is SOLIDARITY LENDING . </li></ul><ul><li>Solidarity lending is a lending practice where small groups borrow collectively and group members encourage one another to repay. </li></ul><ul><li>Solidarity lending lowers the costs to a financial institution related to assessing, managing and collecting loans, and can eliminate the need for collateral. </li></ul>
    24. 24. Obstacles to build a sound commercial microfinance industry <ul><li>Poor regulation and supervision of deposit-taking MFIs </li></ul><ul><li>Few MFIs that meet the needs for savings, remittances or insurance </li></ul><ul><li>Limited management capacity in MFIs </li></ul><ul><li>Institutional inefficiencies </li></ul><ul><li>Need for more awareness and adoption of rural, agricultural microfinance methodologies. </li></ul>
    25. 25. Types of microfinance products
    26. 26. Bangladesh India Egypt Indonesia <ul><li>Focus on women! Why? </li></ul><ul><li>Women boast 95-98% repayment rates </li></ul><ul><li>Women reinvest their profits in feeding & educating their children </li></ul><ul><li>Repaid loans & interest create more money to lend to more women </li></ul>
    27. 27. PROVEN IMPACT OF MICRO-FINANCING <ul><li>Increase in Savings </li></ul><ul><ul><li>While most households given micro-credits were having negligible or no savings, this improved to Rs. 160-Rs. 460 and in some cases, the average household savings rose to as high as Rs. 1444. </li></ul></ul>
    28. 28. PROVEN IMPACT OF MICRO-FINANCING <ul><li>Changes in Borrowing Patterns </li></ul><ul><ul><li>With improvement in above two factors, people were more ready to borrow from the semi-formal and formal sector rather than their traditional creditors i.e. friends and family, moneylenders, landlords. </li></ul></ul>
    29. 29. PROVEN IMPACT OF MICRO-FINANCING <ul><li>Impact on income </li></ul><ul><ul><li>The average net income per household increased from Rs 20177 to Rs. 26889. (PER ANUM) </li></ul></ul>
    30. 30. Thank You