niamh goggin
Post on 13-Jan-2015
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Financial Exclusion Services Research:
The Supply Side
SMALL CHANGE PARTNERSHIP
Agenda
• Introduction
• Why This Research
• Demand Side Study
• Supply Side Study: Methodology
• Main Findings
• Implications: Microcredit Providers
• Implications: Government
• What Happens Next
Niamh GogginDirector
Agenda
• Introduction
• Why This Research
• Demand Side Study
• Supply Side Study: Methodology
• Main Findings
• Implications: Microcredit Providers
• Implications: Government
• What Happens Next
Why This Research
•Responsible for the sustainable economic development and regeneration of the South East of England – the driving force of the UK’s economy
•Central government transferred responsibility for CDFI’s to the Regions
•Tied in with Sustainable Prosperity Objective
•Stimulation of enterprise
•Support for locally-focused community-based businesses
•Importance of micro-business and home-based businesses..
Agenda
• Introduction
• Why This Research
• Demand Side Study
• Supply Side Study: Methodology
• Main Findings
• Implications: Microcredit Providers
• Implications: Government
• What Happens Next
Demand Side Study
• Demographic characteristics of those who are financially excluded within the South-East of England
• Measured financial exclusion and constructed a financial exclusion index
• Mapped financial exclusion in the South-East
Agenda
• Introduction
• Why This Research
• Demand Side Study
• Supply Side Study: Methodology
• Main Findings
• Implications: Microcredit Providers
• Implications: Government
• What Happens Next
Terms of Reference
• Availability of services for financially excluded in the region
• Assessment of gaps in provisions; and• Sustainability of Community Development
Finance Institutions, including microfinance organisations.
Methodology
• Compilation of primary and secondary sources– Access through CDFA to performance data
from CDFI’s– Questionnaires on coverage and sustainability
• Focus Groups– On coverage and sustainability
• Analysis
Services for Financially Excluded
• Personal Financial Services• Microfinance• Small Business Lending• Lending to Social Enterprises
Agenda
• Introduction
• Why This Research
• Demand Side Study
• Supply Side Study: Methodology
• Main Findings
• Implications: Microcredit Providers
• Implications: Government
• What Happens Next
Microfinance
• Seven microfinance providers operating in SE• Two national, one regional and four sub-regional• Provided a total of 518 loans in previous year• Estimated demand from start-ups and existing
micro-businesses 9,089 loans per year• Current providers meeting 5.7% of demand• No coverage for over-30’s in deprived areas
including Slough, Dover, Milton Keynes and Oxford.
Micro / Small Business Lending
• Average loan size £3,555• Ranges from £910 to £7,500• SE Community Loan Fund £15,000 - £50,000• Small market gap for borderline micro/small
business loans averaging £15,000• Estimated demand for almost 300 loans/year
Gap Analysis
• Coverage gap – borderline micro/small business lending
• Geographical gap – Slough, Dover, Milton Keynes and Oxford as well as in more prosperous areas.
• Product gaps – larger loans• Group or community gaps – products / marketing
targeting women, ethnic minorities, recent migrants and people with disabilities
What is Sustainability?
• Operational Sustainability: the extent to which the organisation can pay for its operating costs out of earned income (for example from interest income)
• Mission-Driven Sustainability: the extent to which the organisation can raise money from government or other stakeholders by demonstrating social impact
• Structural Sustainability: the extent to which the organisation can raise money to pay for the cost of operations because of its structure (e.g. through fund raising or cross subsidy from a more profitable venture)
Operational Sustainability
• No microfinance organisations came close to operational sustainability
• Fredericks Foundation came closest – 58.3%, but most income earned through non-lending activities
• Clear relationship between average loan size and term, portfolio outstanding and sustainability
• Portfolio outstanding over £300k – operational sustainability 20 – 60%
• Portfolio outstanding < £300k, op. sustain. < 20%
Mission-Driven Sustainability
• Indicator – Average loan size as % of Gross Value Added per head in the region
• Ranges from 4.9% to 40.33%• Some work with the most financially excluded
clients, with ratios of 5%• Few have adequate performance information to
demonstrate impact to funders
Structural Sustainability
• MFI’s as part of larger organisations• Find a prince to head your fundraising efforts• Charity with commercial subsidiary• Innovative fundraising – Hannibal’s Challenge• Wider network of Enterprise Agencies
Sustainability Model for MFI’sMICROFINANCE SUSTAINABILITY
Portfolio Outstanding 900,000
Av loan balance 3,000
No of loans 300
No of staff ( 3 LO, 1 Admin) 4
No loans/ staff 75
Loan losses 8%
Gross Portfolio Yield 16%
Interest income 144,000
Operating Expenses
Salaries and benefits 120,000
Admin expenses, rent etc 50,000
Loan losses 72,000
Total Op Expenses 242,000
Operating Surplus/ Deficit (98,000)
Sustainability 60%
Sustainability Model for micro/small business lender
MICRO/ SMALL BUSINESS LENDING
Portfolio Outstanding 2,062,500
Av loan balance 12,500
No of loans 165
No of staff 2
No loans/ staff 82.5
Loan losses 5%
Gross Portfolio Yield 12%
Interest income 247,500
Operating Expenses
Salaries and benefits 60,000
Admin expenses, rent etc 50,000
Loan losses 103,125
Total Op Expenses 213,125
Operating Surplus/ Deficit 34,375
Sustainability 116.13%
Agenda
• Introduction
• Why This Research
• Demand Side Study
• Supply Side Study: Methodology
• Main Findings
• Implications: Microcredit Providers
• Implications: Government
• What Happens Next
Implications: Microfinance Institutions
• Standalone MFI’s will not survive in the UK• Three models:
– grassroots, local CDFI’s offering personal credit, microfinance, money advice etc;
– larger, business lender offering loans from £5,000 up to £50,000
– part of larger economic development agency, offering wide range of business support and financial service
• Services focused at the financially excluded will struggle to survive
Implications: MFI’s
• Government attention already moving away• CDFI’s are not seen as having delivered• Outreach poor, low numbers, high write-offs• Need to focus on outreach and performance• Need to balance working with the poorest with
need for sustainability• Shortage of trained, committed, experienced staff• Work on impact measurement a priority
Agenda
• Introduction
• Why This Research
• Demand Side Study
• Supply Side Study: Methodology
• Main Findings
• Implications: Microcredit Providers
• Implications: Government
• What Happens Next
Implications: Government
• Financial exclusion is a problem even in the most successful regional economies in Europe
• Financial exclusion needs a holistic approach: access to credit, financial literacy, bank disclosure of its performance, Corporate Social Responsibility
• We need to present a united front to government – NGO’s, CDFI’s, MFI’s, Credit Unions etc – and a simple, clear message
• Government needs to take a long-term, strategic approach to the issue
Agenda
• Introduction
• Why This Research
• Demand Side Study
• Supply Side Study: Methodology
• Main Findings
• Implications: Microcredit Providers
• Implications: Government
• What Happens Next
Further Information
• Financial Exclusion in the South-East of England: Summary, Conclusions and Recommendations.
• Financial Inclusion Services Research: Supply Side
• Financial Exclusion: Baseline and Mapping
Small Change Research Partnership Reports
www.seeda.co.uk/Publications/Social_Inclusion
Niamh Goggin: smallchange@hotmail.co.uk
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