Microfinance provides financial services like loans, savings, insurance to low-income individuals working in the informal sector who lack access to traditional banks. Services are tailored to clients' needs and abilities to pay. Loans are typically offered through group lending models where members jointly guarantee repayment to reduce risk of default. Individual loans also exist but require more rigorous assessment of creditworthiness. The ultimate goal is to help the poor gain sustainable access to affordable financial services through inclusive and specialized microfinance programs.

1. Introduction to Micro finance - the
Lending Methodology
Ms: Heba Hassan +249906850429

2. • Microfinance provides a wide range of
financial services to low-income clients,
including self-employed and low earning
individuals who are working in informal
sectors.

3. • The core objective of microfinance is to create
a favorable environment for the low income
self employed and near-poor households in
which they have permanent access to an
appropriate range of high quality financial
services, including not just credit but also
savings, insurance, and general banking
services.

4. • Microfinance provides a comprehensive range
of financial services to the "unbanked people"
working in informal sectors which best fits
their needs and affordability.

5. Key points:
• Unbanked:The segment of the society who is
economically active and particularly consists
of poor or low income earning people and
does not have an access to commercial
banking services.

6. • Informal Sector
• The sector of the society which comprises of
typically low income individuals and self
employed persons running unorganized
businesses.
• • These businesses do not maintain financial
statements.
• • Usually not tax payers.
• • Do not have access to commercial banking
services.

7. • Range of Financial Services : These financial
services comprise of various loan products,
saving products, insurance and general
banking facilities.

8. • Needs and affordability: It is important to
design services and products that suit the
requirement of the target market. For this
purpose assessment of the client's need and
his / her financial worth should be carried out
in such a manner that paying back does not
become a burden.

9. Challenges faced by poor people:
• Does not have access to commercial banking
services because of the following facts
• • Commercial banks do not entertain clients with
little amount of cash.
• • Commercial banks do not offer specialized
products.
• • Transactional and service cost is unaffordable.
• • Unavailability of financial statements
• • Unable to provide collateral security.

10. Fallacy about poor people:
• Poor people do not save.
• • Poor people are reluctant to go to a formal
financial institution.
• • Poor people are not an unacceptable credit
risk.
• • Poor people do not plan for future.

11. Characteristics of Informal Sector:
• Do not maintain financial statements.
• • Usually not tax payers.
• • Do not have access to commercial banking
services.
• • Borrow money from informal money lenders
(friends, relatives, money lenders)
• • Save money in informal ways (domestic
money keeping, purchase cattle, Beecees /
Committees)

12. Need Analysis:
• Lifecycle Needs : such as weddings, childbirth,
education, homebuilding, widowhood, old age.
• Personal Emergencies : such as sickness, injury,
unemployment, theft, harassment or death.
• Disasters : such as fires, floods, and man-made
events like war or bulldozing of dwellings.
• Productive Purpose : expanding a business,
buying land or equipment, improving housing,
securing a job (which often requires paying a
large bribe), etc.

13. Microfinance Products
• Loans
• • Savings
• • Insurance
• • Guarantees
• • Money Transfer

14. Microfinance Lending Products:
• Microfinance lending products mainly includes
• Group Lending :
• Solidarity Group Lending
• • Group of Groups (Grameen Model)
• Individual lending:
• Individual / Business Loan
• Housing Loan

15. Group Lending:
• • Provide credit services to formerly
"unbankable"clients in the same community,
same profession or locality.
• • Work around the absence of collateral by
creating "peer pressure" through joint liability
for loan repayments.
• • Establishment of credit to the very poor on a
minute scale.

17. Solidarity Group Lending:
• Borrowers form groups, usually of three to
seven members to avail a loan.
• • MFI issues one loan to the group and holds
the group and each of its members liable
jointly and or separately for the repayment of
loan.
• • Groups go through several cycles, with loan
amounts increasing, in principle, during each
cycle

18. Group of Groups Lending: (Grameen
Model)
• Borrowers form group, usually of five
members.
• • A number of these groups (minimum of five)
come together to create a Center.
• • Center and group members screen and
qualify loan applicants.
• • MFI issues several loans to group members
and holds the group and each of its members
liable jointly and/or separately for the loan.

19. Individual Lending:
• • MFI lends to one borrower on individual
basis.
• • Loan does not have "protective layer" of
group to mitigate credit risk.
• • Precise assessment of the client's credit
worthiness and need is required to allow a risk
free loan.

20. Lending Methodology
• Eligibility Criteria:
• The key points to be considered are
• • Age of Business
• • Age of Client
• • Location of Business
• • Business Registration
• • Loan Purpose
• • Back ground check

21. • Assessment of Credit Worthiness:
• • Credit worthiness is the value of the
borrower to avail a microfinance loan.
• • It is a composite of gross income of the
prospect, less its business and personal
expenses, rational of his capacity to repay the
loan.
• • Loan size must be determined specifically to
fit the client's need.
• • Estimate capacity to repay.
• • Accurate assessment of the prospect is the
key to a successful relation with the MFI.

22. Relationship Building and Loan Follow
up:
• A Loan officer is assigned to a particular client who is
responsible for the account maintenance i.e sales and
collection of repayments.
• • Search of further references.
• • Maintain client contacts even clients in good standing
or when delinquent.
• • Provide incentive for regular repayment (extended
credit, access to preferred services, other incentives)
• • Quick response in case of non-payment. Start by
friendly reminders by loan officer and then tighten up
collection efforts.