A2 Macro revision presentation on aspects of micro finance and micro credit as a source of funding to stimulate economic development

1. Micro Finance and
Economic Development
A2 Macroeconomics, Autumn 2013

2. Basics of Micro Finance
Micro-credit - provision of small-scale
loans to the poor
Micro-savings – for example, voluntary
local savings organisations provided by
charities
Micro-insurance- especially for people
and businesses not traditionally served
by commercial insurance businesses
Remittance management – e.g.
transfer payments made through mobile
phone solutions

3. Aims of Micro Finance
Poverty
reduction
(the
original
aim)
through
financial
inclusion
Raising
domestic
savings in
lowest
income
countries
Protection
against
income
volatility
(insurance
)
Sustainabl
e finance
for new
enterprises
Gender
empowerment
Microfinance has long been used in developing countries to help
poor entrepreneurs who cannot access mainstream finance

4. Professor Muhammad Yunus

Started the
Grameen Bank
(GB) more than 30
years ago with the
aim of reducing
poverty by
providing small
loans to the
country’s rural
poor

At the end of 2009
in
Bangladesh, there
were 20.5 million
active borrowers
and the average
loan per borrower
was $114.

5. The rapid growth of Grameen
The organisation now has 2,565 branches and total lending
stands at 6bn taka ($77m), with a 97 per cent loan recovery rate
Grameen now has 30 companies to its name e.g. Grameen
Danone
Grameen
Danone
• produces yoghurt
with added
nutrients
Grameenphone
• Subsidiary with
Norway’s Telenor
Grameen
America

6. Grameen America

7. Micro Finance in Action
The World Health
Organisation says
2.5bn people lack
adequate
sanitation. This
undermines
development and
spreads illness –
an estimated 1.8m
die every year
from diarrhoeal
diseases, accounti
ng for the vast
majority of deaths
of children under
five.

8. Micro Finance in Action
Sanergy is a
social enterprise
focused on
making
sanitation
accessible,
affordable and
hygienic in Africa
slums. Their
work is being
piloted in
informal
settlement in
Nairobi, Kenya

9. Critics of Micro Finance
Debt
• Sub-prime style lending, charged high rates of
interest
• Coercive collection practices by some lenders
• Sustainable savings more important in long run Saving real incomes need to rise
• Credit just one factor in lifting income or output
s
Cash
Invest
• Esther Duflo - direct cash transfers and better
funding of skills training have bigger effect
• Credit is often used to finance consumption
• Micro-finance cannot compensate for inadequate
healthcare, education or infrastructure

10. Verdicts on Micro Finance
Microfinance can't operate in a
vacuum, it must be part of a
broader strategy. There is a
strong argument for supporting
small and medium-sized
enterprises for which
microfinance institutions have
no demonstrated comparative
advantage.
Maren Duvendack, lecturer in
development
economics, University of East
Anglia

11. Micro Insurance
Risktaking
behaviou
r
Safety net will
envourage less
risk averse
behaviour
Schoolin
g, Death
and
Saving
More children
from poorer
families will be
able to continue
their education
Insurance can be
a spring-board as
well as a safety
net
Many of the
poorest spend
large sums of
funerals insurance reduces
this burden
Insurance can
help smooth
volatility in income
and spending
Life insurance
schemes promote
small scale saving

12. What are some of the Limits /
Risks from Micro Insurance?
Moral hazard
• The chance that the insured will be more
careless and take greater risks because he
or she is protected,
Adverse selection
• When individuals buying a particular
insurance policy have a much higher than
average chance of making a claim
Asymmetric information
• When different parties have unequal
access to information in a market.

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14. Follow Up Videos

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