The document discusses microfinance and its role in providing financial services to low-income individuals. It outlines several methodologies used by microfinance institutions (MFIs) to lend to microentrepreneurs, including village banking, solidarity groups, and individual loans. Village banking involves women's groups that collectively decide on loans and repayment schedules. Solidarity groups consist of small groups where members guarantee each other's loans. Individual loans require an analysis of the microbusiness and entrepreneur's cash flow and repayment ability. The document emphasizes that microfinance aims to provide opportunities for investment, business growth, and life improvements among the poor through these small loan programs.

1. Microfinance, a profitable business
or a path to economic development
Jose Manuel Gonzalez
April 2011
Université of xxxxxxxxxxxxxxxxx

2. MICROFINANCE
• Microfinance is the variety of financial
services that target low income population.
• The services include, loans, savings,
insurances, remittances in small amounts.
• Microlendings are given for several purposes,
usually Microenterprise development.
• These small loans can make a big difference,
by giving opportunity to invest in their
business and improve their lives.

3. MICROFINANCE
• Microfinance is not magical. It may be a long
process before improving peoples life
Micro
business
$
More productivity
• Reinvestment
• Growth
• Increased loan
capacity
Saving Capacity
Progresive Life
improvement
• Nutrition
• Health
• House
• Education
• Diversification
Financial
source
Micro credit

4. Employment and Microfinance
• Developing countries present very low rates of
formal employment.
• The future does not look any promising
• Ande
Recorte de pantalla realizado:24/03/2011 06:12 p.m.

5. Employment and Microfinance
• Employment rates will not recover their pre/crisis
level before 2015, the Gap ranks among 2 million
jobs.

6. Employment and Microfinance
• With formal employment rates of 62.5% of economically
active population and a fall during crisis, people have to
occupy by themselves.

7. Employment and Microfinance
• Jobs lost, are absorbed by informal sector
• Sometimes, 1 job by family is not enough: The family will
have to self-employ in order to accomplish family earnings.
• Low level of
education, prevent
poor people from
getting qualified jobs
• Poor people only have
access to very low
waged jobs, normally
rural or handcrafting.

8. Micro Entrepreneurs
• Poor people, mostly in
developing countries, are not
part of formal employment.
Estadistica
• Due to lack of formal
employment, or the lack of
education and therefore, formal
skills, They have to start their
own small business.
• Very limited opportunities to
formal jobs, mostly in rural areas.
• Wages are extremely low

9. Micro Entrepreneurs
• Poor people, mostly in
developing countries, are not
part of formal employment.
Estadistica
• Due to lack of formal
employment, or the lack of
education and therefore, formal
skills, They have to start their
own small business.
• Very limited opportunities to
formal jobs, mostly in rural areas.
• Wages are extremely low

10. Micro Entrepreneurs
• EMPLOYMENT. Poor people, mostly in
developing countries, are not part of formal
employment. Estadistica
• Due to lack of formal employment, or the
lack of education and therefore, formal
skills, They have to start their own small
business.
• Very few opportunities for formal job,
mostly in rural areas
• Response, they become
MICROENTREPRENEURS to s
• They remain informal, that means>
– Are not registered in the contributors data bases
– Therefore, Do not pay taxes
– Usually they keep very basical registers of their
activities, or don’t keep them at all
– They might employee some people, buy in an
informal way > No social security, no retirement
fund

11. Micro Entrepreneurs
• Según la OIT, en México
el empleo informal como
porcentaje del empleo
no
• agrícola es de 55%. En la
India es de 83% y en
Brasil de 60%.

12. MICROFINANCE
• How does MICROFINANCE get there
– Development of several methodologies to be able
to provide the financial services under reasonably
risk controlled environments.
– The methodologies depend on few criterions.
• Geographical dispersion
• Sofistication of microbusiness.
• Assets and collateral disposition
• Availability of information (Credit Bureau, Level of
accountancy registries, etc…)

13. MICROFINANCE Methodologies
• Village Banking
– Groups of 12/ 50 women living in the same
community, generally rural or semi/rural.
– Women must know each other.
– Create their own organization. Name president,
secretary and treasurer.
– Decide by themselves amount of loan for each
member.
– Weekly meetings, previously appointed to collect
money. Treasurer makes payment to MFI
– Short term cicles: 16, 20 or 24 weeks

14. MICROFINANCE Methodologies
• Village Banking
– Savings plans of up to 20%
of credit, along loan term.
– Good behavior guarantee
extension and refinancing
of new cicle.
–– Solidary response. In case a member miss a
weekly payment, the group has to cover up the
default. Purpose: the group complies on time.
– Group default will damage every single member-
s future credit access.

15. MICROFINANCE Methodologies
• Solidary Group
– Small 4 – 8 members groups.
– Each member own a microbusiness
– They have to know each other, and belong to
same community.
– Each individual business is analyzed to determine:
• Periodical cash generation.
• Payment capacity
• Consistency between way of living and activity.

16. MICROFINANCE Methodologies
• Solidary Group
– Each participant agrees to solidarily cover an
eventual default of any other member.
– The group has to pay on time, regardless of who is
contributing.
– Group default means no future access to credit to
any member.

17. MICROFINANCE Methodologies
• Solidary Group
– Each participant
agrees to solidarily,
cover an eventual
default of any other
member.
– The group has to pay
on time, regardless of
who is contributing.
– Group default means
no future access to
credit to any member.

18. MICROFINANCE Methodologies
• Individual Loans to business
– Profile of micro entrepreneur
• Established or semi fix business
• Experience and empiric knowledge of business
• Basic assets, and possibility of basic collaterals
• Simple registry of activity.
– Deep analysis of a micro business to determine
• Payment capacity and cash flow generation
– Usually, no

19. MICROFINANCE Methodologies
• Individual Loans to business
– Deep analysis of a micro business to identify
possible risk sources.
– Field evaluation by specialized credit agent.
– Home visit to assess way of life vs. business
activity.
– Evaluation provides elements to structure a loan:
term of loan, amount, collaterals, guarantor, etc…

20. Individual loans
Scheme of business analysis issues
Business Family
Qualitative
• Experience
• Location
• Market
• Accessibility
• Demand Cyclicity
• Competition
• References
• Reputation
• Distribution
• Cohesion
• # of members
• Home ownership
• Years in town
• Dependents
• Health issues
• Access to services
• Education
• Possible addictions
Quantitative
• Sales
• Margins
• Cash flow
• Working Capital
• Inventories
• Assets
• Debt
• Inventory rotation
• Production cycle
• Family expenses
• Other income
• Variability of income
• Assets
• Debt
• Etc…
Credit behavior Records (Credit Bureau or other)

21. MICROFINANCE Methodologies
• Individual Loans