8/9/2019 Micro Financing and Grameen Bank

1/28

MicrofinancingAnd Grameen Bank

April 19, 2010

8/9/2019 Micro Financing and Grameen Bank

2/28

What do you think

Microfinancing is ?

8/9/2019 Micro Financing and Grameen Bank

3/28

Microfinance is the supply of loans, savings,

and other basic financial services to thepoor

8/9/2019 Micro Financing and Grameen Bank

4/28

Moreover

Microfinance is the provision offinancial services

to low-income clients, including consumers and the self-employed, who traditionally lackaccess tobanking andrelated services

8/9/2019 Micro Financing and Grameen Bank

5/28

What is the differencebetween

microfinance and microcredit?

8/9/2019 Micro Financing and Grameen Bank

6/28

Microcredit refers to very small loans for unsalariedborrowers with little or no collateral, provided by legallyregistered institutions. Currently, consumer credit providedto salaried workers based on automated credit scoring isusually not included in the definition of microcredit,

althoughthis may change.

Microfinance typically refers to microcredit, savings, insurance,

moneytransfers,

and o

ther fin

anci

al produc

tsta

rgeted

atpoor

andlow-income people

8/9/2019 Micro Financing and Grameen Bank

7/28

Whyareth

ey small ?

8/9/2019 Micro Financing and Grameen Bank

8/28

What is an MFI ?

A microfinance institution (MFI) is an organization that

provides microfinance services, ranging from small non-

profit organizations to large commercial banks

8/9/2019 Micro Financing and Grameen Bank

9/28

Why don'tthe poorjust go to a

bank?

8/9/2019 Micro Financing and Grameen Bank

10/28

Y

ou don't hav

ea

ny moneyt

o opena

sav

ingsa

ccount

with

You don't have any collateral to secure a loan with

You don't have a credit record as you have never beenformally employed and you've nevertaken outa loan

before You might even be unable to complete the necessary

paperworkas you are illiterate

Fora momentpretend that you are a poorgoatherderwalking into abank:

8/9/2019 Micro Financing and Grameen Bank

11/28

So what dopoorpeople do?

Credit is available from informal commercial and non-commercial money-lenders but usually atavery high costto

borrowers. Savings services are available throughavarietyofinformal relationships like savings clubs, rotating savingsand creditassociations, and mutual insurance societies that

have atendency to be erratic and insecure

8/9/2019 Micro Financing and Grameen Bank

12/28

Why don'tbanks accommodatepoor

people?

Grameen Bankin Bangladesh was formed out ofa project

providing small loans to women in the village of Jobra.

Bancosol, a commercial bank in Bolivia, is also a bank which

provides microfinance services forthe poor of Bolivia.

8/9/2019 Micro Financing and Grameen Bank

13/28

Why are microcredit interest rates so

high?

The nature ofmicrocredit small loans is suchthat

interest rates need to be high to return the cost ofthe loan.

8/9/2019 Micro Financing and Grameen Bank

14/28

Three kinds of costs the MFI has to cover

The firsttwo, the cost ofthe money that itlends and the

cost of loan defaults, are proportional to the amount lent

The third type of cost, transaction costs, is not

proportional to the amount lent.

8/9/2019 Micro Financing and Grameen Bank

15/28

Whatare the effects ofmicrofinance?

Microfinance helps very poorhouseholds meet basic needsand protectagainst risks;

The use of financial services by low-income households isassociated with improvements in household economicwelfare and enterprise stability or growth;

By supporting women's economic participation,microfinance helps to empower women, thus promoting

gender-equity and improving household well-being

Foralmostall significant impacts, the magnitude of impact is positively

related to the length oftime that clients have been in the programme

8/9/2019 Micro Financing and Grameen Bank

16/28

Can microfinancebeprofitable?

It is true that programs serving verypoor clients are somewhatlessprofitable than those reaching better-off clients, butthis may saymore about managers' objectives than an inherent conflict betweenserving the very poorand profitability. MFIs serving the very poor

are showing rapid financial improvement.

8/9/2019 Micro Financing and Grameen Bank

17/28

Is microfinance

the solu

tion

to po

verty?

No. Microfinance is but one strategy

battling an immense problem.

8/9/2019 Micro Financing and Grameen Bank

18/28

Microfinancing in [Pakistan]

8/9/2019 Micro Financing and Grameen Bank

19/28

In recent years, Pakistans relatively young and underdeveloped

microfinance sectorhas benefited from new initiatives launched bythe Pakistan government, notably, the creation ofa microfinance

retail bank, the Khushhali Bankand an apex organisation, thePakistan Poverty Alleviation Fund (PPAF) set up to serve retail

microfinance organisations.

There are currently three primary methodologies followed

in Pakistan; first the community-based methodology (used

by Rural Support Programs), the Grameen/solidarity group

model and a hybrid mixing individual lending and

community-based methodology

8/9/2019 Micro Financing and Grameen Bank

20/28

8/9/2019 Micro Financing and Grameen Bank

21/28

Commercial Banks in Microfinance

Despite half of commercial bank (CB) branches being

located in rural areas, commercial banking involvement inthe Pakistani Microfinance sector remains underdeveloped

However, two commercial banks have significant

involvement in the microfinance industry, the Bank of

Khyberand the FirstWomen Bank Ltd.

8/9/2019 Micro Financing and Grameen Bank

22/28

8/9/2019 Micro Financing and Grameen Bank

23/28

Grameen Bank's positive impact on its poorand formerly poor borrowershas been documented in many independent studies carried out by

external agencies including the World Bank, the International FoodResearch Policy Institute (IFPRI) and the Bangladesh Institute of

DevelopmentStudies (BIDS).

8/9/2019 Micro Financing and Grameen Bank

24/28

The Grameen Bank Project(Grameen means "rural" or "village" inBanglalanguage) came into operation withthe following objectives:

extend banking facilities to poor men and women

eliminate the exploitation ofthe poor by money lenders

create opportunities for self-employment forthe vast multitude ofunemployed people in rural Bangladesh

bring the disadvantaged, mostly the women from the pooresthouseholds, within the fold ofan organizational format whichthey canunderstand and manage by themselves and

reverse the age-old vicious circle of "low income, low saving & lowinvestment", into virtuous circle of "low income, injection of credit,investment, more income, more savings, more investment, moreincome.

8/9/2019 Micro Financing and Grameen Bank

25/28

Is Grameen BankDifferent FromConventional Banks ?

Grameen Bank methodology is almostthe reverse ofthe conventionalbanking methodology. Conventional banking is based on the principle

thatthe more you have, the more you can get

Gra

meen Ba

nk sta

rt

s with

th

e beliefthat

credit

sh

ould bea

ccept

eda

sa

human right, and builds a system where one who does not possess

anything gets the highest priority in getting a loan

8/9/2019 Micro Financing and Grameen Bank

26/28

Grameen credi

t

General features of Grameen creditare : It promotes creditas ahuman right. Its mission is to help the poor families it is not based on any collateral, It is offered for creating self-employment for income-

generating activities and housing forthe poor It was initiated as a challenge to the conventional

banking It provides service atthe door-step ofthe

poor

8/9/2019 Micro Financing and Grameen Bank

27/28

The challenge-Grameen Bank

The industry has been growing rapidly and there have been

concerns thatthe rate of capital flowing into microfinance is

a potential risk unless managed well.

8/9/2019 Micro Financing and Grameen Bank

28/28

ThankThankYouYou!!