22/16/16
DEFINITION OF MICROFINANCEDEFINITION OF MICROFINANCE
STAKEHOLDERSSTAKEHOLDERS
MICROFINANCE BEST PRACTICESMICROFINANCE BEST PRACTICES
SUSTAINABILITY AND RISKSSUSTAINABILITY AND RISKS
SNAPSHOT OF MICROFINANCE TODAYSNAPSHOT OF MICROFINANCE TODAY
Agenda
33/16/16
Mrs. Israel, 48 years old
• Unemployed husband • 4 children• No savings• Good cook
• Mrs. Israel decides to start a small catering service at home
• Mrs. Israel goes to the bank and makes a demand for a loan at her bank
MRS. ISRAEL’S DEMAND IS REJECTED
Case study
44/16/16
Why are people excluded from certain financial services?
Justification and definition of microfinance
• Lack collateral or guarantors
• A bad credit history
• Gap in the communication / lack of confidence in the Banks
• Doubt of the bank of the repayment capacity
• Lack of access to financial infrastructure and services in remoted areas
WHAT IS THE ALTERNATIVE?
MICROFINANCE
55/16/16
Justification and definition of microfinance
FINANCE MICRO
• Micro-entrepreneurs
• Self-employed
• Low income populations
• Excluded populations
• Business & educational loans
• Savings
• Micro-insurances
• Remittances
• Micro-entrepreneur training
• Coaching & workshops on health, hygiene, etc.
66/16/16
Microfinance is a tool against poverty by enabling the beneficiaries to :
• Create sustainable activities to increase their incomes
• Reduce external shocks
• Improve the living conditions of entrepreneurs and of their families
• Empower people and mainly the women
Definition
Microfinance is the offer of financial & non-financial services to people excluded from the traditional banking system.
The services are adapted to the needs of the target populations
77/16/16
Yunus’ idea Prof. Muhammed Yunus
Founder of the Grameen Bank, Bangladesh
Introduction to Microfinance: History
How did all start?
On the field Prof. Yunus saw that• Even poor people and women need loans• They can have an activity and repay
• Set up financial institutions with a social mission• Listen to the needs and constraints of the
excluded & offer them adapted financial tools to empower themselves ( solidarity groups)
Spirit: SUSTAINABILITY
88/16/16
MICROFINANCE MICROFINANCE INSTITUTIONS (MFIs)INSTITUTIONS (MFIs)(NGO, ASSOCIATIONS & BANKS)
Commercial Banks
COMMERCIAL BANKS & INVESTMENT FUNDS
FOUNDATIONS & DONORS (incl.
enterprises)
GOVERNMENT & LOCAL BODIES SUPPORT
ORANIZATIONS (e.g. PF)
BENEFICIARIESBENEFICIARIES
Actors & Mechanisms
99/16/16
44 Final Repayment 12 weeks later
Demand for a 2nd loan over
NIS 1500 to buy a fridge)
22 Purchase of the ingredients
Start of cooking & sale
(Daily benefits amount NIS 100)
11 Visit of Mrs. Israel to the MFI
Meeting wit the Loan Officer
Convinced, reception of a loan of
NIS 1,000 (+ NIS 30 interest rate)
33 Weekly Repayment ( 86 NIS)
Remaining money is used to buy food
Regular contact and Regular contact and follow up between the follow up between the
MFI and the clientMFI and the client
Micro-credit Best practices (1/4 ): microcredit
Mrs. Israel needs NIS 1,000Mrs. Israel needs NIS 1,000
1010/16/16
Microfinance is not philanthropy!• Clients need to pay for the services• Microcredit clients need to repay the loans• Interest rate to cover the costs
Why is repayment important?
• Offer new loans and extend the client base• Ensure correct functioning and growth of the institution • Cover office & operational costs • Cover for non-payments when they occur• Avoid financial loss and loss of credibility for the institution
REPAYMENT ON TIME GUARANTEES THE SUSTAINABILITY OF THE PROGRAM
Microcredit Best Practice (2/4 ) Repayment
1111/16/16
Prejudices
• The social mission should consist in a free loan
• Interest Rate, perceived as a burden to the client
Reality
• Micro-credits allow for the creation or expansion of an income generating activity and the generation of profit
• Interest rates are no burden if the business plan is solid and good evaluation has been done
Micro-credit Best practices (3/4 ): Interest Rate
1212/16/16
Methodology
• Regular follow up
• Requirement of good repayment for future access to a bigger loan
• Local loan officers familiar with local culture
Adapted products and procedures
• Small and short term credits
• Repayment capacity assessment
• Adapted collaterals / group solidarity guarantee
Business Development Services
• Compensation for lack of education of loan beneficiaries
Microcredit Best practices (4/4): Key success factors
1313/16/16
Sustainability: the conceptual framework
OUTREACH
IMPACT
How do we measure the impact?
SUSTAINABILITY
Why few MFIs are sustainable?
• Need to make trade-off sometimes
• Need to reduce the internal and external risks to maximize the success
1414/16/16
• 10,000 MFIs manage a global portfolio of US$30 Billions
• In a range from 150 US$ to 7,000 US$, the average loan size is US$ 450
• 150 Mio micro-credit active clients
• 300 Mio micro-saving active clients
• 50 Mio micro-insurance active clients
Sources : CGAP, BIT, Microcredit Summit, PlaNet Finance
Microfinance in the world today
1515/16/16
• Development of MF in industrialized countries (e.g. Israel, France, USA) thanks to the adaptation of the tools and methodologies
• Commercialization of the stakeholders
• Use of new technologies as a new development tool
New trends
1616/16/16
Thank you!Thank you!
www.planetfinancegroup.orgwww.planetfinancegroup.orgelevy@[email protected]
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