Revision presentation on micro finance

1. Micro Finance and
Economic Development
A2 Macroeconomics, Autumn 2014

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. 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

4. 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

5. 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

6. 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
empower-
ment
Microfinance has long been used in developing countries to help
poor entrepreneurs who cannot access mainstream finance

7. 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.

8. The rapid growth of Grameen
The organisation now has 2,565 branches
Total lending stands at 6bn taka ($77m), with a 97% loan
recovery rate
Grameen 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

9. Grameen America

10. 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,
accounting for the
vast majority of
deaths of children
under five.

11. 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

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

13. 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

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

15. 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.

16. 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.

17. 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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