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LECTURE INTRODUCTION TO MICROFINANCE May 6th, 2009 Emilie Levy, Executive Director

LECTURE INTRODUCTION TO MICROFINANCE May 6th, 2009 Emilie Levy, Executive Director. Agenda. DEFINITION OF MICROFINANCE STAKEHOLDERS MICROFINANCE BEST PRACTICES SUSTAINABILITY AND RISKS SNAPSHOT OF MICROFINANCE TODAY. Case study. Mrs. Israel, 48 years old Unemployed husband

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LECTURE INTRODUCTION TO MICROFINANCE May 6th, 2009 Emilie Levy, Executive Director

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  1. LECTURE INTRODUCTION TO MICROFINANCE May 6th, 2009 Emilie Levy, Executive Director

  2. Agenda DEFINITION OF MICROFINANCE STAKEHOLDERS MICROFINANCE BEST PRACTICES SUSTAINABILITY AND RISKS SNAPSHOT OF MICROFINANCE TODAY

  3. Case study 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

  4. 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 Why are people excluded from certain financial services?

  5. Justification and definition of microfinance MICRO FINANCE • 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.

  6. 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 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

  7. Introduction to Microfinance: History Yunus’ idea Prof. Muhammed Yunus Founder of the Grameen Bank, Bangladesh 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

  8. Actors & Mechanisms FOUNDATIONS & DONORS (incl. enterprises) COMMERCIAL BANKS & INVESTMENT FUNDS MICROFINANCE INSTITUTIONS (MFIs) (NGO, ASSOCIATIONS & BANKS) GOVERNMENT & LOCAL BODIES SUPPORT ORANIZATIONS (e.g. PF) Commercial Banks BENEFICIARIES

  9. Micro-credit Best practices (1/4 ): microcredit Mrs. Israel needs NIS 1,000 Regular contact and follow up between the MFI and the client

  10. Microcredit Best Practice (2/4 ) Repayment Microfinance isnot 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

  11. Micro-credit Best practices (3/4 ): Interest Rate • 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

  12. Microcredit Best practices (4/4): Key success factors 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

  13. Sustainability: the conceptual framework OUTREACH SUSTAINABILITY Why few MFIs are sustainable? IMPACT How do we measure the impact? • Need to make trade-off sometimes • Need to reduce the internal and external risks to maximize the success

  14. Microfinance in the world today • 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

  15. New trends • 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

  16. Thank you! www.planetfinancegroup.org elevy@planetfinance.org

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