Microfinancing Presented by: Myasnik Poghosyan Ramiel Betnisan Kari Roth

Introduction Existence of extreme poverty Existence of extreme poverty Fight against global poverty Fight against global poverty Lack of traditional financing Lack of traditional financing Help poor to help themselves Help poor to help themselves A profound effect of microfinance A profound effect of microfinance

Defining Microfinance What is Microfinance ? What is Microfinance ? Microfinance is a proven “micro” financial solution that helps poor people to help themselves. Microfinance is a proven “micro” financial solution that helps poor people to help themselves. Provision of several financial services such as microcredit, microsavings, and microinsurance Provision of several financial services such as microcredit, microsavings, and microinsurance

Origins of Microfinance 1864-Friedrich Wilhelm Raiffeisen 1864-Friedrich Wilhelm Raiffeisen Village-bank movement in Germany Village-bank movement in Germany Reached 2 million farmers by 1901 Reached 2 million farmers by Alphonse Desjardins 1900-Alphonse Desjardins “Caisse Populaire” movement Quebec “Caisse Populaire” movement Quebec Member-owned financial co-operative Member-owned financial co-operative 1970’s- A new wave of microfinance 1970’s- A new wave of microfinance An early pioneer Akhtar Hameed Khan An early pioneer Akhtar Hameed Khan Revolutionary idea of “microcredit” Revolutionary idea of “microcredit”

The Key Role of MFI s Reaching out to the very poor Reaching out to the very poor Delivering microfinance services Delivering microfinance services Educating local communities Educating local communities Collecting weekly loan payments Collecting weekly loan payments Providing additional social services Providing additional social services

Models of MFIs The Grameen Bank model The Grameen Bank model Focus on women Focus on women Borrower group Borrower group Five members guarantee each other Five members guarantee each other The Village Bank model The Village Bank model Latin America and Africa Latin America and Africa External accounts and internal accounts External accounts and internal accounts Credit Unions Credit Unions Self-help Group Self-help Group

Grameen Bank Community Development Bank Community Development Bankmunity Development Bankmunity Development Bank Makes small loans without requiring collateral Makes small loans without requiring collateral collateral Accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and energy companies Accepts deposits, provides other services, and runs several development-oriented businesses including fabric, telephone and energy companies Founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006.[1] Founder, Muhammad Yunus, were jointly awarded the Nobel Peace Prize in 2006.[1]Muhammad YunusNobel Peace Prize2006[1]Muhammad YunusNobel Peace Prize2006[1]

Grameen Bank Self-help group Self-help groupelf-help groupelf-help group Group of five individuals are loaned money, but the whole group is denied further credit if one person defaults Group of five individuals are loaned money, but the whole group is denied further credit if one person defaultscreditdefaultscreditdefaults (97%) loan recipients are women (97%) loan recipients are women High payback rates—over 98 percent High payback rates—over 98 percent

Grameen Bank Of the total equity of the bank, the borrowers own 94%, and the remaining 6% is owned by the Government of Bangladesh Of the total equity of the bank, the borrowers own 94%, and the remaining 6% is owned by the Government of Bangladesh Total number of borrowers is 6.67 million, and 97% of those are women Total number of borrowers is 6.67 million, and 97% of those are women The Bank has 2,247 branches (as of May, 2006) covering 72,096 villages, with a total staff of over 18,795 The Bank has 2,247 branches (as of May, 2006) covering 72,096 villages, with a total staff of over 18,795 Since inception, total loans distributed amounts to (US$ 5.72 billion ) Since inception, total loans distributed amounts to (US$ 5.72 billion ) Out of this, Tk billion (US$ 5.07 billion) has been repaid. Out of this, Tk billion (US$ 5.07 billion) has been repaid.

Rural Telephone Programme Bangladesh has one of the lowest telephone densities of the world. Bangladesh has one of the lowest telephone densities of the world. Grameen Phone, a sister company of the bank, is already the largest mobile telephone provider of the country Grameen Phone, a sister company of the bank, is already the largest mobile telephone provider of the country Grameen Phone Grameen Phone Grameen Telecom, another sister company of Grameen Bank, brought radio- telephones and mobile phones to almost half of the villages of Bangladesh. Grameen Telecom, another sister company of Grameen Bank, brought radio- telephones and mobile phones to almost half of the villages of Bangladesh. Grameen Telecom Grameen Telecom Distributed loans to almost 139,000 poor women in rural areas to pay for the phones. Distributed loans to almost 139,000 poor women in rural areas to pay for the phones.

Woman and Microfinancing Economic development Economic development Reduce birth rates Reduce birth rates Improve health Improve health Improve nutrition Improve nutrition Improve education Improve education Types of Businesses Types of Businesses Weaving Weaving Embroidery Embroidery Raising Livestock Raising Livestock Basket making Basket making Growing fruits & Vegetables Growing fruits & Vegetables

Advantages of Microfinancing Easy to obtain Easy to obtain Do not need collateral Do not need collateral Offer development services Offer development services Used for any purpose provided it is business related Used for any purpose provided it is business related Microloans administrated on a local level, easier to develop a relationship with your lender Microloans administrated on a local level, easier to develop a relationship with your lender Opportunities Opportunities

Disadvantages of Microfinancing Big Lender MFI Total Amount to be lent $1,000,000$1,000,000 Cost of Capital 10%10% Number of Loans 110,000 Size of Loans $1,000,000$100 Administrative costs per loan $30,000$20 Default Risk 1%1% Resulting Interest Rate 10%+3%+1%= 14% 10%+20%+1%= 31% - Micro Institutions Lecture 7

Challenges/Recommendations Better accessibility Better accessibility Provide more formal training Provide more formal training Tax incentives Tax incentives Performance-based microfinancing Performance-based microfinancing

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