1. Welcome to class of Microcredit / Microfinance in Emerging Markets Dr
Welcome to class of Microcredit / Microfinance in Emerging Markets Dr. Satyendra Singh Professor, Marketing and International Business University of Winnipeg Canada

7. How does it work?

8. What is Microcredit Different from Conventional Banks
5 features
Loan size is small  b/w $100 - $500  average $100
Customers are rural poor, particularly women
Income activities  Self-employment, informal sector
No collateral required
Must have saving account linked to MC

9. Microcredit – Different from Informal $ Lenders
MC  No profit motives
NGO’s approach to poverty alleviation
Before the poor was blamed for personal failing
Now, poverty  deprives the poor of access to social resources  human rights issue
Non-judgemental
MC leaders  inspire social and economic revolution in the EM by organizing the poor under the banner of MC organization (NGOs)

10. Microcredit (MC) – Small loans
Why is MC important?
4bn poor people need access to financial services
Social justice
Only philanthropy is not enough
Women suffer the most
Development of informal sector  farmers, tailors…
Need to remove poverty in EM
↑ Demand  $50 bn per year for MC
↑ 15-30% growth annually
Moral responsibility of businesses

12. What is Microfinance: It is broad Loan, saving, insurance, money txfr…

14. Debate: Microfinance Sustainability Poverty alleviation
↑ Interest is ok to cover administrative cost & be profitable
Attract ↑ people to open MF venture
↑ Competition  ↑ innovation
↓ Interest rate for clients
Able to serve the 3-4 bn people
Poverty alleviation
↑ Interest is NOT ok because it exploits poor
↑ Profit will attract ↑ MF investors
Growth of new and uncertain sector
Profit-making venture

15. Microfinance (MF) Venture
Microfinance  Profit-making venture
But serves the poor
Self-financed  Savings > lending
Share Capital  collected from the public
Equity Capital  supplied by owners of the MF venture
Owners have little equity capital
Public has little interest in investing in the business
Problem of seed capital  not profitable at outset
Assistance from private firms, donors agencies for seed capital
Donors World bank, development banks, CIDA, USAID…

16. Justification for Assistance to MF venture
2 reasons for the justification
Social
Vast differences in wealth and education among people
MF Owners are not as greedy as banks (↑ interest rate from poor)
So, MF owners are different from traditional bankers
Economic
Need help/grants/seed  ↓ interest loan
MF entrepreneurs  able to deliver appropriate services & make $
Infant industries  subsidize initial phase of operation
↑ productivity  ↑ $  ↑ money mgmt skills  resource mgmt  ↓ transaction costs  ↑ MF entrepreneur’s skills to be market oriented  sound business decision  contributes to economy

17. Dr Yunus, President Clinton

21. Social Consciousness-Driven Capitalism Theory
Psychological Component  Dr. Md. Yunus
Capitalism  premise  we are selfish by nature  ↑ $
So, ok to develop capitalist enterprise (financial return) if fair to customers (social return/consciousness)
This premise creates 3 types of entrepreneurs
Traditional capitalist  Financial return/profit
Philanthropic organisations  Social return/NGOs
Microfinance enterprises  combine traditional and philanthropic activities/return in a way that financial return cannot be negative  social consciousness-driven capitalist enterprise F

22. SHG Self Help Group  10-15 women

23. Social consciousness-driven Microfinance…
Reasons for investing in the MF
Large market size
Unfulfilled demand
↑ Return on investment (ROI) despite ↑ admin cost
↓ Default rate of borrowers  1-5%
Success or failure is not linked to world political events
Appealing due to altruism
Helping poor directly and avoiding corrupt government
Feeling good by doing good
Investors may like the reasons to invest in MF venture

24. These firms donate X% to microfinance venture
IShop4Microfinance
These firms donate X% to microfinance venture

25. Social consciousness-driven Microfinance
But investors need to see sustainability of MF
Means of Entry  Mainly motivated by ↑ rate of ROI
Equity stakes
For-profit orgn buys equity in MF  difficult  ↓ confidence
Securitization
Ability to securitize loans and sell  access to cheaper capital for MF venture  pass on the savings to clients
Service provision partnerships  Insurance for loans
Donors  self-sufficient  $ should exit
Capacity building  leverage other successful MF venture
Regulatory infrastructure  credit bureau, rating, legal framework

26. www.kiva.org How Kiva works?

27. Forbes’s

28. Forbes’s top 50 MFI