1 / 9

Microfinance and Urban Development

Microfinance and Urban Development. Presentation to the Urban Cluster Mike Goldberg October, 2004. Microfinance in Urban Settings: Why?. Linked to access to credit for productive opportunities (working capital si, fixed asset lending no!)

reid
Download Presentation

Microfinance and Urban Development

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Microfinance and Urban Development Presentation to the Urban Cluster Mike Goldberg October, 2004

  2. Microfinance in Urban Settings: Why? • Linked to access to credit for productive opportunities (working capital si, fixed asset lending no!) • Linked to land purchase and registration; urban infrastructure hookups • Linked to business formalization (maybe, but…) • Linked to employment generation (yes, but…) • Linked to business start-ups (no, but…) • Linked to social capital (but causation in reverse) • Linked to Competitiveness (maybe, but…)

  3. Financial Systems Approach: 5 Levels • Government (financial sector regulation, supervision, legal framework – taxation, equity concentration, savings mobilization) • Commercial banks, finance companies • Specialized microfinance non-governmental organizations • Community groups (sector-specific associations, community leaders) • Microbusiness operators

  4. Methodologies • Individual (character, collateral “lite”) – works best with larger micros with greater asset base, diversified clients with larger loans (US$250 – 700) • Solidarity groups (character-based joint liability mechanism, groups of 4 to 7) – works well in urban street markets with very small loans (starting at $50) • Community banks (character-based joint liability mechanism, groups of 20 to 40) – works best when social capital and organization is high. • Credit unions and S&L cooperatives (members hold shares, savings options, requires legal registration) – heavily dependent on member discipline; rarely effective when (I) more than 50 members, (ii) external financing 10%+ • Competition between methodologies in a market very useful

  5. Elements of Success in Urban Markets • Microfinance operational “basics” • Supportive or neutral legal framework • Private sector investment replaces donors, govt. • Commercial orientation of Board of Directors, management • Diversified source of commercially priced funds (not living on donations) • Mimic the local financial culture • Build on what’s there?? Or start from scratch??

  6. Performance Indicators in microfinance • Client level – user surveys to measure satisfaction, retention rates, on-time repayment performance • Financial institution level – trend toward financial sustainability (CGAP definition); AROE, AROA • Market level – increased coverage (first time users), increased depth of services, lower transaction costs, lower interest rates

  7. Leading institutions in urban markets • Specialized NGOs • Commercial banks • Finance companies (SOFOL in Mexico; Confia and Findesa in Nicaragua) • Combinations (MFIs with commercial bank investors, lenders) • The informal sector! (moneylenders, pawn brokers, check cashers, Western Union…) • Family and friends • Supplier credit

  8. What goes wrong? • Elections!!! • Economic downturns? Not really… • Financial mismanagement (inadequate reserves, poor MIS, lack of strategic approach, inadequate audits, human resource issues/corruption) • Donor dependence • Counter-productive changes in legal framework • Lack of clear supervision strategy

  9. Future directions • More commercial bank participation? • Specialized finance companies on the rise • Diversified service menu (moving beyond working capital) • Consumer credit meets productive uses • Microbusiness – infocenters and beyond • Bigger role for Superintendents of Banks and other financial institutions (against their will?) • Cooperatives on the rebound in several countries • Harnessing “cadenas productivas”

More Related