Understanding and Assessing the Understanding and Assessing the Demand for MicrofinanceDemand for Microfinance
for
Broadening the Access to Microfinance :
Challenges and Actors High Level Conference
June 20, 2005
Presented by
Graham A.N. Wright
MicroSaveMicroSaveMarket-led solutions for financial services Market-led solutions for financial services
Meet The Clients (1)Diversified and Informal Prudence
Prudence from Karatina in Kenya is using the following:• 2 RoSCAs• 1 ASCA• Informal funeral
insurance• Cash savings at home• In-kind saving• Loan from Faulu MFI
Diversified and Informal Prudence (i)
• RoSCA 1: 4 members daily contribution of $0.29. From this around $31.00 is paid out each month to each member in turn• Use: School fees for grandchildren
• RoSCA 2: 4 members weekly contribution of $2.90. From this $11.60 is paid out each week to each member in turn• Use: Re-stocking business (small market stall selling
basic commodities: salt, rice, biscuits, soap etc.)
• ASCA: 40 members save $1.03 a week, and can borrow from the fund. The ASCA is liquidated annually in December.• Use: Celebrating Christmas (savings) and emergencies
(loan)
• Informal Funeral Insurance Fund: 100 members contribute $11.40 per month – covers immediate family• Use: Risk pooling for “repatriation” to village
Diversified and Informal Prudence (ii)
• Emergency cash in the home: $3-$5• Use: Emergencies requiring immediate cash
• A cow back in the village: looked after by Prudence’s brother• Use: Provision for old age/social capital maintenance
• Working capital loan from Faulu MFI ($356)• Building a small room to rent out (to provide stable
income for old age)
Diversified and Informal Prudence (iii)
Meet The Clients (2)Resourceful and Collaborative Amina
Amina from Pathrail in Bangladesh is using the following:• Reciprocal borrowing and
from lending to neighbours • A savings club (or ASCA)
that is liquidated annually• Cash savings in a mud bank• Borrowing for business and
emergencies from BURO, Tangail
Informal Systems Continue to Dominate …
• In Bangladesh the average "turnover" (the total transaction flows of money through financial instruments) per household was $839 in the year.
• Only 15% of financial flows go through formal/semi-formal financial institutions
• The products/services MFIs offer are typically:
Not adequately flexible or diverse in nature (most MFIs only offer one type of loan and no savings service)
Not adequately reliable (state banks require many trips/bribes and NGO-MFIs “keep changing their rules”)
Source: Stuart Rutherford
… But Present High Risk To Their UsersAverage Amounts Saved and Lost in the Last 12 Months by Sector
0
50
100
150
200
250
300
350
400
450
Formal Semi-Formal Informal
Sector
US
Do
llars
(C
on
vert
ed a
t U
sh.1
,600
:$1)
0%
20%
40%
60%
80%
100%
120%
Annual savings
Annual Loss
% clients who lost
When A Flexible/Reliable Institution Arrives …
• Equity Bank offers a broad-range of financial services with a focus on customer service:
• Basic savings account• Contractual savings account (with emergency loan facility)• Business loan• Education/Medial loan• Agricultural loan• Salary advance• Money transfer
• Through 20 branches and 6 mobile banking LandRover 4x4 vehicles that tour the countryside
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
95 96 97 98 99 00 01 02 03 04
Year
# o
f C
ust
imer
s
-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Pro
fit
($)
# of Customers Profit ($)
…the Results Are Breath-taking
Equity’s move to market-led financial services
• All clients pay full cost for the services they receive
• … and Equity has received very limited donor subsidy - almost exclusively as technical assistance
Broad Bank with Broad Based ClientsDeposits by account size*
64%9%
9%
11%
7%
$1-30
$30-70
$70-270
$270-$1000
Over $1,000
*Overdrafts and new accounts with 0 balances excluded
Average loan sizes**
$132$201
$922
$1,279
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
Farm
ers
Salar
iedSm
all/M
icro
Develo
pmen
t
**Loans for medium businesses average $9,500
Source: Martin Holtmann
Broad Services, Clients and Needs
• Serving a range of clients allows cross-subsidy• Poverty is dynamic – need to think prevention as well as
cure to protect the vulnerable• Above all we need to build inclusive financial systems
DestituteDestitute PoorPoor Vulnerable Non-PoorVulnerable Non-Poor WealthyWealthy
Poverty Line
MFI’s ClientsMFI’s Clients
Diverse Services Driven By Diverse Needs
Education (C,S)
Birth (C,S,I)
Household Formation
Death (C, I)
Ongoing Financial NeedsWorking Capital (C,S)Productive Assets (C,S)
Investments (S,C)Asset protection (I)
Health (C,S,I)Shocks (C,S,I)
Old Age (I,S)
Marriage Ceremony (C,S)Source: Monique Cohen
MicroFinance & MDGs
• Thus microfinance has significant impact on the millennium development goals supporting:Reduction of poverty (and vulnerability)Increased educationReduction of ill-healthWomen’s empowerment
• Offers this on a truly sustainable basis
• … but is not a panacea
Microfinance in Asia
Largest and most profitable MFIs: BRI, ASA etc.
Large numbers of weak MFIs Cost efficient (best at 5% operating
efficiency) 528 million estimated clients But … 200-400 million un-served in India
and 200-400 un-served in China
Characteristics of the market
Average of 21 MFIs reporting to the MIX Efficiency: 21.7 % Operating expense/loan
portfolio Risk: 2.5 % Portfolio at risk > 30 days
• CGAP and Source: MBB 9, July 2003
Microfinance in Africa
Many diverse institutional models Most clients served by credit unions &
coops Rural and agricultural finance is
particularly challenging Only 8 sustainable institutions (MBB) 25 million estimated clients – this may be
an under-estimation International and domestic banks
starting to take an interest
Characteristics of the market
Average of 21 MFIs reporting to the MIX
• Efficiency: 50.3 % Operating expense/loan portfolio
• Risk: 2.6 % Portfolio at risk > 30 days• CGAP and Source: MBB 9, July 2003
Microfinance in Middle East and North Africa
Characteristics of the market
Mostly NGOs Heavy donor dependence In infant stages of development Mostly small working capital loans 48 million estimated clients
Average of 6 MFIs reporting to the MIX Efficiency: 34.0 Operating expense/loan
portfolio Risk: 1.1% Portfolio at risk > 30 days
• CGAP and Source: MBB 9, July 2003
Conclusions
• Microfinance can play a key, cost-effective and sustainable role in achieving the MDGs if …
• We build flexible and reliable financial services that respond to the real, diverse needs of the poor and vulnerable non-poor
• Billions of people are waiting for us to do so …
MicroSaveMarket-led solutions for financial services
Shelter Afrique Building, Mamlaka Road, P.O. Box 76436, Nairobi, Kenya
Tel: 254 (0)20 2724801/2724806/2726397
Fax: 254 (0)20 2720133
Email: [email protected]
Website: http://www.MicroSave.org
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