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PRESENTATION OF -MICRO CREDIT BUSINESS MODEL- By Kira Kay September 2009

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PRESENTATION OF -MICRO CREDIT BUSINESS MODEL- By Kira Kay September 2009

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    2. What is Micro credit? Provision of small loans (generally USD 50 USD 550 value in local currency) Repayment is made over a set period, usually less than one year Interest is charged (the rate varies with each country) No collateral is required, however most group guarantee

    3. Most recipients are women (as they are considered food providers of family) People below the poverty line (daily income less than USD $2) Generally recipients own no property Often seasonal or no regular income source Displaced persons (e.g. from flood relocation, rural to urban migration due to civil conflict)

    4. Advancement of entrepreneurship and self-employment, thus creating cash flow Supports individuals and families to climb out of poverty cycle. Enhancement of self-esteem and supports creativity Encourages participation and initiation in solutions in local community Increase of education options for both adults and children

    5. Micro Finance is the provision of financial services to low income clients Micro Finance includes Micro credit (provision of small non-collateral loans) Micro Finance includes provision of savings accounts, and additional investment options In some cases Micro Finance includes insurance (agricultural, health and death ins.)

    6. Rural areas Urban areas Emerging & Developing countries (e.g. Bangladesh, India, Columbia, Peru, Nepal, Mongolia). Restructuring countries (e.g. Eastern European countries; Ukraine, Bosnia, Azerbaijan). Developed countries urban poor unable to access standard banking due to poor credit rating (e.g. USA, Germany, UK).

    11. Complex example of self-sustaining MFI

    12. Sources of Funds into MFI: Shareholders: put in capital investment, and gain a dividend on the profitability of the MFI. Shareholders are generally local persons or companies, although some countries allow foreign ownership of shares. International Investors: (private or capital markets) loan investment at fixed interest rate and terms. Due to differential currencies between MFI and international investor, currency risk for one party depending on type of investment of international investor. Local Savings: available for all local clients including micro credit clients, providing interest on deposits. Generally a variety of savings instruments can be offered. Registration of MFI with local financial regulatory institution contingent. Interest paid on loans: both standard and micro credit types. This provides the capital available for the MFI to then make loans, both standard loans and micro credit loans.

    13. Output of Funds from MFI: Shareholders: dividend payments International Investors: interest payment on their deposit Local Savings: interest payment on their deposit Loans Standard (15-16%) Loans Micro credit (9-12%) Administration costs: accounting, salaries, building costs and various other fixed overheads.

    14. The inputs create capital to lend The outputs are the use of capital The spread of interest paid and interest earned creates the income for the MFI to pay its fixed administrative costs plus pay a dividend to its shareholders This is a basic business model which offers all stakeholders benefits (this example based on functioning MFI, Nava Udya Savings & Credit Cooperative Pty Ltd, based in Kathmandu, Nepal.)

    15. Provision of Microfinance, and specifically, Microcredit, changes lives - dramatically. It provides individuals and families with tools to help themselves. give the net, not the fish It is empowering and contributing to increased well-being and happiness of individuals and families. It contributes to the overall GDP and economic health of the country. It stimulates creativity and initiative, thus reducing social and civil unrest. A clear WIN-WIN Solution: Everyone benefits!!

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