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Microfinance
- The users- Benefit
- Organizations- Profitability and reaching the poor, a
trade off?- Why high interest rate?
- When doesn´t microfinance work?-The role of regulation and supervision
- Governments role
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Why microfinance?
• Poor people need diverese financial services• Poor people lack access to formal financial
services• Informal services, private moneylenders• Savings clubs, in items, savings associations• Formal banks have a tradition of not serving
the poor
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Microfinance is;
• Basic financial services • Loans• Savings• Money transfer services• microinsurance
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Poor people use it for;
• Run their businesses• Build assets• Smooth consumtion• Manage risk
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Interest rates
• Average; about 28%• To onlend small amounts to many recipients is
more expencive than providing large sums to few recipients
• Number of employees• Product design• National financial situation
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Who are the MF users?
• Vulnerable noon-poor• Upper poor• Poor• Very poor
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Upper poor
• Financial active poor
• People that allready have some sort of income
• Microentrepreneurs
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Moore about the MF users;• Women are a majority• 33% men• Some organizaions only women• Operating small business• Some are entrepreneurs by will others by
necessity
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•What differens does it make?
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What difference does it make?
•We dont´know!
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Is microfinance a good tool?
• So far no study support the theory of upliftment of poor people by;
• Improving income• Growing capacity of small scale businesses
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What is microfinance doing?
• Income smothening
• Important for the poorest
• Cash management on household levels
• Cost-effective aid
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Poor people like MF
• Numbers of MFI increasing every year
• MFIs don’t have to advertice
• High repayment rates
• People return for more services
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Poor people say
• They like microfinance
• They trust MFIs in general
• They find the services to suitable for their needs
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Who are the organizations?
• NGOs• Commercial banks• Cooperatives• Government-owned organizations• Profit making• Non-profit making
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Governement
• Cgap earlier message; governments should create good national structures for microfinance, not provide microfinance services themselves
• Today the ”tone” is less strict on this issue. This is due to the fact that there are governements globaly that are MF providers
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The role of the government
• Pormoting financial access
• Protecting customars
• Providing financial services directly
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Profitability and outreach
• Microfinance history• 1960; subsidized credit to farmers• 1970; Grameen Bank credit to women• 1990; CGAP commercial finance• 2000; commericial approach with doubdts
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Poverty lending
• Poor people lack access to formal Financial services
• Subsidized loans instead of ordinary aid grants• Empowerment• Livelihood• Gendered poverty• Grassroot
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Commercial microfinance
• Microfinance revolution• Increasing number of organization and users• Many poor still lack access to financial services• Povery lending: limited expansion, aid
dependence, less protection of poor people and their money
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The bus and the passengers
• Much focus has been on the bus• A need to bring in the passengers, the road
and the destination• Women are good for MF organizations...• High interest rates• ”A school with no toilet...”
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commercialisation
• Outreach!• Goal: to cover the cost • Interest rates has to be set according to this• The organization need a certain amount of
users • Repayment rates has to be keept high• It is easier to cover costs if the users are ”not
so poor”
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Too poor for MF?
• It is expensive to be poor• Poor people still have costs to cover• Poor people do find ways to cover their
financial needs• Again; poor peoples alternatives are expensive• Still, if lack of shelter, food and cloths, credit
might not be the answer
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Microfinance today
• Profit minded commercial actors• Non-profit actors and social investors• Commersial microfinance• New technique• Regulation
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How many, how much?
• Hard to estimate
• Few are keeping reccords
• 80% (of 4.5 billion) lack access to formal financial insitutions
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How many, how much?
• 2007, 154,8 million microfinance users
• Microfinance providers: 3,350
• Increasing by 30% and year
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Microfinance is complicated
• It tries to combine poverty reduction with market oriented thinking
• What is good for the organisation and the development of financial systems does not necessary corrolate
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Focus: outreach
• The general aim is to provide MF to people that are excluded from financial services
• Focus is on the services they might need• Especially credit• But the effects in macro levels as well as micro
levels is unclear• Microfinance in history, the Swedish case
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Creating financial services to the poor
• First savings bank 1820• Lower the cost of the increasing number of
poor in the cities• Registered as ”self help organisations”• Non-profit, reinvestments in local society • Important providers of credit to entrepreneurs• Inside lending as logic
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litterature
• www.cgap.org• M. Robinson ”The Microfinance Revolution”• M. Yunus ”De fattigas Bankir”• Hospe and Lontz ”Livelihood and
Microfinance”• D. Collins et al. Portfolios of the Poor• M. Harper ”What is wrong whit
Microfinance?”