Microfinancing Hope for Argentina’s Poorest

Microfinancing Small loans and small deposits for poor households left unattended by banks Helps small farmers and self-employed Uncollateralised loans to borrowers without a constant source of income from a wage job Increases costs for lenders to judge risk and enforce repayment Grameen Bank in Bangladesh Professor Muhammad Yunus

Rural Financial Markets Matter Agriculture More than ½ of foreign exchange earnings Sustained growth Increased domestic savings Poverty is deep and wide Between 37% and 55% of 37 million Efficient production is facilitated Equity is affected Investment is affected Creation of jobs (unemployment at 16%)

History of Populism Access to credit is a right. Equity under democracy requires that voters get what they think they deserve. Liberal democracy and capitalism defensible only if equal opportunity for all In education, financial services, etc.

Equity: Rich vs. Poor Government has responsibility to reduce the differences Wealthiest 5%  25% of national income Wealthiest 10%  40% Poorest 30%  7.5% Government should provide redress for the poor

Purpose/ Challenge of Microfinancing To reach the poor in substantial numbers To enable them to move out of poverty To create financial institutions that are sustainable

The Savings Equation ∞ ∞ s(t) = -∑ E t ∆Y(t + k) + ∑ E t ∆0(t + k) k=1 (1 + r) k k=1 (1 + r) k ∞ + γ ∑ Ω t (t + k) + ln(r - δ) 2(1+r) k=0 (1 + r) k r

The Triangle of Microfinance Macroeconomic and sectoral policy framework and socioeconomic environment Institutional innovations Impact Financial Sustainability Outreach To the poor

Outreach Breadth- serving more of the poor May be able to use loans more effectively Depth- serving the poorest of the poor May smooth their consumption Quality- making services affordable Lack of access May improve welfare, but not necessarily life out of poverty

Impact The alleviation of poverty Food security and economic growth Enhance through complementary services Business or marketing services Training of borrowers

Financial Sustainability Need lasting financial institutions Must have faith in permanence to entrust savings Crucial indicator of MFI performance Will influence decision of being worthwhile in LR Forces MFIs to think about client demand Induces to improve products, operations, outreach, etc.

Public Investment Failure of public development banks Justified from public policy perspective only if: Comparison of social costs with social benefits Opportunity costs Subsidy dependence index

Material Conditions Transaction costs and risks Rural, sparse populations No market days Lack of infrastructure High risk Seasonal cycles Not well-diversified Privatization of public development banks No national credit bureau No national pledge registry Constraints on loans

Argentine Macroeconomy Convertibility Plan of 1992 Tequila Crisis of Devaluation of Peso: Crisis of 2001

Fundación Emprender Argentina’s only significant MFI Patterned after Bolivia’s PRODEM Small, urban Outreach: deep, small, low quality Almost self-sufficient Not worthwhile social investment

Possibility of Microfinancing in rural Argentina? Needs improvement first