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Microfinance

Microfinance. The users Benefit Organizations Profitability and reaching the poor , a trade off ? Why high interest rate? When doesn´t microfinance work? The role of regulation and supervision Governments role. Why microfinance ?.

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Microfinance

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  1. Microfinance The users Benefit Organizations Profitability and reaching the poor, a tradeoff? Why high interest rate? Whendoesn´tmicrofinance work? The role of regulation and supervision Governmentsrole

  2. Whymicrofinance? • Poorpeopleneeddiveresefinancial services • Poorpeople lack access to formal financial services • Informal services, private moneylenders • Savingsclubs, in items, savings associations • Formal banks have a tradition of not serving the poor

  3. Microfinance is; • Basic financial services • Loans • Savings • Money transfer services • microinsurance

  4. Poorpeopleuse it for; • Runtheirbusinesses • Build assets • Smoothconsumtion • Manage risk

  5. Interest rates • Average; about 28% • To onlend small amounts to many recipients is moreexpencivethanprovidinglargesums to few recipients • Number of employees • Product design • National financial situation

  6. Who are the MF users? • Vulnerablenoon-poor • Upperpoor • Poor • Verypoor

  7. Upperpoor • Financial activepoor • People that allreadyhavesome sort of income • Microentrepreneurs

  8. Moore about the MF users; • Women are a majority • 33% men • Someorganizaionsonlywomen • Operating small business • Some are entrepreneurs by willothers by necessity

  9. What differens does it make?

  10. Whatdifferencedoes it make? • Wedont´know!

  11. Is microfinance a goodtool? • So far no study support the theory of upliftment of poorpeople by; • Improvingincome • Growingcapacity of small scalebusinesses

  12. What is microfinancedoing? • Incomesmothening • Important for the poorest • Cash management on householdlevels • Cost-effectiveaid

  13. Poorpeople like MF • Numbers of MFI increasingeveryyear • MFIsdon’thave to advertice • High repayment rates • People return for more services

  14. Poorpeoplesay • They like microfinance • They trust MFIs in general • Theyfind the services to suitable for theirneeds

  15. Who are the organizations? • NGOs • Commercial banks • Cooperatives • Government-ownedorganizations • Profit making • Non-profit making

  16. Governement • Cgapearliermessage; governments shouldcreategood national structures for microfinance, not provide microfinance services themselves • Today the ”tone” is less strict on this issue. This is due to the fact that there are governementsglobaly that are MF providers

  17. The role of the government • Pormotingfinancial access • Protectingcustomars • Providingfinancial services directly

  18. Profitability and outreach • Microfinance history • 1960; subsidized credit to farmers • 1970; Grameen Bank credit to women • 1990; CGAP commercialfinance • 2000; commericial approach with doubdts

  19. Povertylending • Poorpeople lack access to formal Financial services • Subsidizedloansinstead of ordinaryaid grants • Empowerment • Livelihood • Genderedpoverty • Grassroot

  20. Commercial microfinance • Microfinance revolution • Increasingnumber of organization and users • Manypoor still lack access to financial services • Poverylending: limited expansion, aiddependence, less protection of poorpeople and theirmoney

  21. The bus and the passengers • Muchfocus has been on the bus • A need to bring in the passengers, the road and the destination • Women are goodfor MF organizations... • High interest rates • ”A school with no toilet...”

  22. commercialisation • Outreach! • Goal: to cover the cost • Interest rates has to be set according to this • The organizationneed a certainamount of users • Repayment rates has to be keept high • It is easier to cover costsif the users are ”not so poor”

  23. Toopoor for MF? • It is expensive to be poor • Poorpeople still havecosts to cover • Poorpeopledofindways to cover theirfinancialneeds • Again; poorpeoples alternatives are expensive • Still, if lack of shelter, food and cloths, credit might not be the answer

  24. Microfinance today • Profit minded commercialactors • Non-profit actors and social investors • Commersialmicrofinance • New technique • Regulation

  25. Howmany, howmuch? • Hard to estimate • Few are keepingreccords • 80% (of 4.5 billion) lack access to formal financialinsitutions

  26. Howmany, howmuch? • 2007, 154,8 million microfinanceusers • Microfinanceproviders: 3,350 • Increasing by 30% and year

  27. Microfinance is complicated • It tries to combinepovertyreduction with market orientedthinking • What is good for the organisation and the development of financial systems does not necessarycorrolate

  28. Focus: outreach • The general aim is to provide MF to people that are excluded from financial services • Focus is on the services theymightneed • Especially credit • But the effects in macrolevels as well as microlevels is unclear • Microfinance in history, the Swedish case

  29. Creating financial services to the poor • First savings bank 1820 • Lower the cost of the increasingnumber of poor in the cities • Registered as ”selfhelp organisations” • Non-profit, reinvestments in local society • Importantproviders of credit to entrepreneurs • Insidelendingas logic

  30. litterature • www.cgap.org • M. Robinson ”The Microfinance Revolution” • M. Yunus ”De fattigas Bankir” • Hospe and Lontz ”Livelihood and Microfinance” • D. Collins et al. Portfolios of the Poor • M. Harper ”What is wrongwhitMicrofinance?”

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