1. Roy Mersland University of Agder, Norway
In a rapidly changing microfinance landscape – what is the way forward for Danish Microfinance?
Roy Mersland
University of Agder, Norway

2. Major forces influencing the future Idea and picture from C-GAP
Demographics
New international
funders
Migration and
urbanization
Climate change
Wireless
technology
Increase in
commodity prices
Schism debate
revived in industry
Activist
governments
BRICs
Social activism

3. Theories behind microfinance
Entrepreneurship theories
Capital is an ingredient in enterprise development
The theoretical origin of modern microfinance
Consumption smoothening theories
Variation in income is often more problematic than low average income (see chart)
Financial intermediation theories
Money out of mattresses
Monitor borrowers on behalf of depositors

4. What’s the main problem: Low average or high variation?

5. A very heterogeneous market:
10% of loan portfolios in Ecuadorian commercial banks are classified MICROCREDIT
NABARD in India
2,2 million groups reaching 33 million members (NABARD only)
500 million poor people have a savings account in postal banks, savings banks, public banks, SACCOs etc
M-PESA 14 million users and now M-KESHO in cooperation with Equity Bank
Equity Bank in Kenya
6.3 million accounts, accounting for over 57% of all bank accounts in Kenya
Access Africa, an initiative by CARE
Grow membership in Savings and Credit groups from 1,2 to 30 million
ROSCAs
Up to 95% of adult village population can be members (Bouman, 1995)
Consumer loans and credit cards in Brazil
138 million credit cards (2008 figure) and less than 0,5 million microfinance customers

6. Size matters Economies of scale

7. The microfinance innovations in the 1970-1980ties
The targeting of poor customers
The targeting of women
New lending technologies
New organizational solutions
New sources of funding
What will be their future?

8. Is Mission Drift a problem in microfinance?

9. Why are MFIs drifting? Profits or costs?

10. The targeting of women
Historically women have never before been targeted in pro-poor banking
25% in Irish loan funds an exception
3 arguments in favor of targeting women
Gender equality (the empowerment argument)
Poverty reduction (the “women are better than men” argument)
MFI efficiency (the repayment argument)
Additional argument: The female lobbies
More than 70% of customers are still women. Will this continue?

11. Lending methodology (our data)

12. New organizational solutions
NGOs in development
Most of the initial NGO-MFIs came out of existing development NGOs
Kind of similar to the 19th century savings banks
But these did not come out of existing organizations
New and more commercial ownership structures are taking over?
NGOs are transforming into shareholder MFIs

13. New sources of funding International donations International loans
Savings in developed countries are invested as loans in developing countries. A new paradigm.
But around 80% of microfinance funding is today from local sources
Excess liquidity in most developing countries today

14. Microfinance is not a recent phenomenon (Hollis and Sweetman, 1998)

15. Most important findings by Hollis and Sweetman, 1998
Organizations depending on charity were more fragile
Organizations depending on depositors were more sustainable
Ability to adjust interest rates to cover costs was important
Depositor based institutions served more borrowers than those depending on donations or government funds.
The key for long term sustainability is to get “the organizational structure right”.
The amount of capital available was less important
“A good institution can be successful in attracting local depositors, who in turn serve to protect the health of the organization.”

16. The history of savings banks
The history of savings banks? Will it also be the evolution of microfinance?
Growth
Time
Enthusiasm
Criticism
Pragmatism
Integration

17. What about the fierce critique?
Greedy investors
High interest rates
Over-indebtedness
Multiple borrowing
Lack of impact

18. High interest rates and high returns in microfinance?

19. Are the international promoters of microfinance about to be left behind?

20. Most MFIs do well without international partners

21. In what should we specialize?
Microfinance industry development?
Promotion of Savings and credit groups?
Livelihood development for vulnerable groups?

22. What about savings and credit groups?
Fits theory of consumption smoothening very well
Continues to be very popular
Grows very quickly
Some markets are becoming crowed?
More and more professionalized promoters
More and more specialized and thus more difficult to combine with other social services
Will eventually face competition from mobile based individual services

23. What about livelihood development?
We now have tools to smooth income and make capital available
The microfinance industry
Savings and credit groups
Back to basic – 1970ties – livelihood promotion
Smoother consumption and access to capital do often not assure livelihood improvement

24. The main challenge now is to increase poor people’s non-capital resources
Micro-entrepreneurs
Access to non-capital resources
HIGH
LOW
Access to micro-credit
Exemplars
Possibly in trouble
Immediate Potentials
Possible
Future
Potentials

25. Innovations needed in livelihood development – where are the Danish actors?
Value chains
Access to markets
Fair trade
International investments
International trade
Salaried jobs
Match savings program (peer to peer?)
Venture capital / equity capital
Small and medium enterprises
Agriculture
Capacity building
AND – still lot’s to do in Savings and Credit groups