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MicrofinanceMicrofinance

A powerful tool to alleviate poverty

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Give a man a fish, feed him for a day.

Teach a man to fish, feed him for a lifetime.

What if he knows how to fish,What if he knows how to fish,but just can’t afford a fishing net?but just can’t afford a fishing net?

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Introduction to MicrofinanceIntroduction to Microfinance

Microfinance is the provision of financial services

to the poor. Such services can include loans, savings, insurance, transfer services and other financial products.

The poor are typically excluded by financial service providers for the following reasons:

No collateral; No credit history; Illiteracy; Located far from financial institutions; Stereotyped as unable to repay.

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MFIsMFIs

Microfinance Institution (MFI): A financial institution (e.g. nonprofit organization, regulated financial institution or commercial bank) that provides microfinance products and services to low-income clients.

Since the financial services of MFIs usually involve small amounts of money – small loans, small savings etc. – the term "microfinance" helps to differentiate these services from those which formal banks provide.

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Grameen Bank brought international focus

to the practice of loaning money to the world’s poorest inhabitants when its founder,

Muhammad Yunus, won the

Nobel Peace Prize in 2006.

(Grameen is Bengali for rural)

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Mohammad Yunus & Grameen BankMohammad Yunus & Grameen Bank

1976 – Muhammad Yunus, an economics professor loans $27 to 42 women in Jobra, a village near Chittagong University.

Founded by Yunus in 1983, Grameen Bank provides credit to the poorest of the poor in rural Bangladesh, without any collateral.

Today, 2545 branches serve 83,967 villages in Bangladesh.

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The Grameen Bank Model

Principal is repaid first. Interest, calculated weekly on the diminishing principal, is repaid only after the principal is paid off.

Repayment responsibility rests solely on the individual borrower, although each borrower must belong to a five-member group composed of fellow villagers. Yet there is no form of joint liability, i.e. group members are not responsible to pay on behalf of a defaulting member.

Borrowers must strive to abide by the “16 Decisions.”

In 1998, Grameen Bank stopped receiving donor funds. It finances 100% of its outstanding loans from its deposits... 54% of which come from the bank’s own borrowers! In fact, deposits amount to 142% of the outstanding loans.

Grameen Bank savings interest rates: 8.5% to 12%.

Today Grameen Bank is owned by the rural poor whom it serves. Borrowers own 90% of its shares, while the remaining 10% is owned by the government. In 2007, shareholders received a 20% dividend.

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Grameen’s ImpactGrameen’s Impact

A study conducted during an eight year period, showed that among the poorest in Bangladesh with no credit service of any type, 4% pulled themselves above the poverty line.

However, among individuals and families with credit from Grameen Bank, more than 48% rose above the poverty line.

And the incomes of Grameen members were 43% higher than incomes in non-program villages.

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MicrolendingMicrolending

Microcredit: the extension of small loans to entrepreneurs too poor to qualify for traditional bank loans. Microcredit can be offered, often without collateral.

Microloan: A loan imparted by an MFI to be used in the development of a borrower's small business. Microloans can be used for:

working capital in the purchase of raw materials and goods; capital for construction; the purchase of fixed assets that aid in production.

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Microlending ProcessMicrolending Process

Bank/NGO

Microfinance Institution

Entrepreneur

Microfinance institutions typically obtain the money that they lend from banks or non-governmental organizations (NGOs).

This can be expensive, as it is often borrowed with interest.

Application procedures may be difficult and time-consuming.

Some organizations are shut out if they operate in post-conflict regions.

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Kiva Kiva (Swahili for agreement or unity)

is the world’s first microlending website.

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Traditional Traditional vsvs KivaKiva

Traditional Microlending Process

Bank/NGO

Microfinance Institution

Entrepreneur

Kiva Microlending Process

You

Microfinance Institution

Entrepreneur

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Kiva FactsKiva Facts

Total value of loans: #of Kiva Lenders: # of loans funded through Kiva: % of borrowers who are women: Average loan size:

Repayment rate:Repayment rate:

$64,621,585 464,856 92,273 77.88% $424.48

97.92%97.92%

Current as of March 20, 2009

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Grameen Facts

Total amount of loans since 1983: Projected loan amount for 2009: # of microcredit borrowers: Average loan amount: % of borrowers who are women:

Repayment Rate:Repayment Rate:

$7.68 billion $1.091 billion 7.75 million $348.85 97%

97.93%97.93%

Current as of March 9, 2009

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MFI FactsMFI Facts

# of MFIs worldwide: # microcredit borrowers: Amount of outstanding loans:

Repayment rate: Repayment rate:

7000 13 million $7 billion

97%97%

Current as of February 25, 2009

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Impact of Microfinance

By reducing vulnerability and increasing earnings and savings, financial services allow poor households to make the transformation from "every-day survival" to "planning for the future."

In India, 50% of SHARE clients graduated out of poverty. In El Salvador, the weekly income of FINCA clients

increased on average by 145%. In Lombok, Indonesia, the average income of Bank Rakyat

Indonesia (BRI) borrowers increased by 112%, and 90% of households graduated out of poverty.

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Microlending Concerns

Though women appear to benefit most, studies indicate that many loans awarded to and paid back by women are in fact used by men.

Microcredit interest rates can be as high as 60% in some areas.

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The Future of Microfinance

Microfinance is one of the poverty alleviation mechanisms that the UN Millennium Development Project has adopted to meet its goal to eradicate poverty.

Grameen Bank has branched out to housing and education loans, as well as scholarships to high-performing children of Grameen borrowers, with a priority on girls.

Microlending is growing at a rate of 30% annually.

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The Microcredit Summit estimates that $21.6 billion is needed to provide microfinance to 100 million of the world's

poorest families.

Incredibly, the world's seven richest men could provide this amount and wipe out global poverty.

Their combined wealth is more than enough to provide the basic needs of the poorest quarter of the world's people.

We can wait around for them to act.

But…

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“I have come out of the crowd of women who are looked down upon. Today I'm a very respected woman in the community.

Due to the loan that I received... you have made me to be a champion out of nobody.“

- Rose Athieno, Produce Reseller, Uganda

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…there are millions of women like Rose who would leap at the opportunity to grow a business, ensure the survival of their families, and take back the dignity that poverty and oppression have stripped them of.

How long do we tell them to wait?

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Resources

KIVA www.kiva.org

Grameen Bank http://www.grameen-info.org/

Microplace: Invest wisely. End poverty.

https://www.microplace.com/ FINCA: Small loans – Big changes.

www.villagebanking.org CGAP: Advancing financial access for the world’s poor.

http://www.cgap.org/p/site/c/home/