Joanna Buickians

Narine Mirzakhanyan
Econ 490
Professor Castillo
MICROFINANCING
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Key Points
Muhammad Yunus
Grameen Bank
Microfinancing
Micro-credit & Microbanks
Microfinancing Services
Women being targeted
Web Based Microfinancing
Borrowers & Lenders


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Muhhamed Yunus





Yunus is the 1st Nobel Prize winner from
Bangladesh
_________________________
Founder of Grameen (Rural) Bank in 1976
_________________________

Started microfinancing by giving out a loan of
$27 to 42 women in a village in Bangladesh.

Worlds Banker to the Poor
If society was structured for self-employment, there would be no
reason to fear being poor. - Dr. Muhammad Yunus
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Microfinancing
Supply of capital loans, consumer credit, savings,
insurance & other basic financial services to low income
households.
People need to run their businesses, build assets, stabilize
consumption & shield themselves against risks.
Its a service in which the poor people desire & are willing
to pay for.
Loans are typically less than $125 made to the rural poor
who normally do not qualify for traditionally banking
credit.

say NO to poverty
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Microfinancing is very beneficial; it is a combination of
financial and non-financial education.
Microfinancing used to be unknown, but it is now
worldwide.
World Bank estimates that there are 7,000
microfinance institutions worldwide.

Microfinancing (continued)
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Micro-Credits & Micro-Banks
CREDITS
The Grameen transactions take place at the village level, usually in a local hall or
temple.
The borrowers will use a loan to buy tools and equipment to set up on their own.
BANKS
Banks lend money to individual entrepreneurs in groups of five, each member
being responsible for their own loans before any one individual can re-apply for the
next level of funding.
they use each other as collateral for their loans.
This proven method has boasted over a 95% success rate in repayment and
flourishing businesses.


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Microfinancing Services
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_______________________________________________________________________
Why Targeting Women?
One billion people in the world are illiterate
and two thirds of those people are women.
- Muhammed Yunus

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Microfinancing is a step towards uplifting women.
The Grameen Bank has lend $$$$ especially to women so that they
can launch their own businesses.
Women gaining control over their lives.
Women achieving economic and political empowerment w/in their
homes
About 90% of the people that are on micro-credit are women.
Women are more reliable in paying back the money.
Reducing domestic violence by giving women
independence.

Why Targeting Women? (continued)
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Web Based Microfinancing
CELLPHONES
In poorer nations phones have help open up microfinancing.
In Dev. Countries where bank branches and ATM are few/nonexistent,
cell phones make the financial services practical.
Cell phones have the potential to take financial markets outside the
urban
areas.
I NTERNET
With $$$$ transfer one can do anything to help the poor and support
the economy.

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Web Based Microfinancing (continued)
_______________________________________________________________________
KI VA.ORG
Connects people to make chance
San Francisco based nonprofit that has taken a step further w/just few clicks of
the mouse, & now everyone can become a microfinancier.
Includes photos of loan recipients & stories about borrowers, lenders can choose
aspiring small-business owner and make their own loans.
Kiva has worked w/more than 20 microfinance institutions around the
world & enabled more than $1 million in loans for more than 2000 businesses.
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Borrowers & Lenders
microfinance is provided by non-governmental organizations
(NGOs), cooperatives, non-bank financial intermediaries and
commercial banks.
More than 10,000 microfinance institutions are in existence with a
loan portfolio exceeding $7 billion.
most of them are very small w/ clients base of less than 2,500
Some 1000 million people access microfinance services globally.
Clients are typically self-employed and w/a relatively stable source
of income.
while most borrowers are women, studies indicated that many loans
awarded to women and paid back by them are in fact used by men.
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Global change through Microfinance

Case Study #1:
Microloans in Iraq
Allaur Abd Mottar:
microentrpreneur,
Iraq
Business: used
$3,000 loan to start a
scrap metal business


Case Study #2
MFI helps Dedan Ireri in Nairobi,
Kenya
Street begger, lost leg
MFI gave him loan to start
business with his friends, it
failed
Got a bicycle, worked as
messenger for MFI
Will be in 2008 Para Olympics
It works best when there are middle-class
entrepreneurs who have business savvy but
do not have access to capitalUSAID Rep
Gary Robbins
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General Information
Micro-entrepreneurs:
Dont need collateral
Small and shorter loans
Group borrowing
Reputation and Peer pressure
Some criticism
Microfinance Institution:
Higher operating expenses
Rural costs are higher than urban
costs
High transaction costs
Because of the size of the loans
Higher interest rates
Overall:
Improves employment
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Different from traditional credit
http://www.microcapital.org/downloads/resourcepapers/IADB-VillagetoWallStreet.pdf
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Example: Financing urban structure Nepal
http://www.idrc.ca/openebooks/216-3/
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Sustainable development continuum for organic microfarming

http://www.idrc.ca/openebooks/216-3/
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The larger picture: Improves Employment
Income-generation
To start or expand micro enterprise activity
Helps entrepreneurs build assets and sustain
jobs
Risk-management and reduction of
vulnerability
Microfinance also plays a role for vulnerable
persons to cope with and mitigate risk.
Building up emergency loans for
unpredictable expenses and income
droughts.
Empowerment:
Mobilizing savings enables people to take
financial responsibility for their lives

As business income rises, businesses expand affecting the entire
community through employment and contribution to the economy

http://moderato.files.wordpress.com/2007/
06/diego.jpg
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Job Creation
MFIs do increase jobs in agriculture and transportation,
however they decrease construction and manufacturing
http://www.dallasfed.org/research/swe/2006/images/0605b_c1.gif
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Some negative results
Depend on microcrediting for
subsistence

Engage in "copycat" behavior
Thus leads to more sellers
saturating the market as more
microcredit is made available.
low "barriers to entry."

Largely, subsistence activities with
no prospect of comparative
advantage.

Child Labor
Child labor increases current income
but reduces future income

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The enterpriseWhat enterprise?
For the Lender:
The clients decision may diverge from
the agreed purpose.
Lending to people closer to the poverty
line is risky
For the Borrower:
Risk aversion restrains the propensity to
invest in new production technologies,
which would boost employment.

Is this true?
Researchers find limited technological
innovation and increased labor
productivity as a result of micro loans.

Credit and financing does not directly lead to employment.

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MFIs are successful
Increase profits and social prosperity
Decrease risks, thereby increase loans and the
number of investors
Number of lenders growing at 25% per year
Is the future bright?
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http://www.sinapiaba.com/links/arreas.html
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The Future
Source: http://www.microcreditsummit.org/pubs/reports/socr/EngSOCR2007.pdf
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Sources
http://www.microcreditsummit.org/papers/Assocsession/Balkenhol.pdf
http://www.cgap.org/docs/DonorBrief_06.pdf
http://pdf.dec.org/pdf_docs/Pnacl633.pdf
http://www.nytimes.com/2007/11/18/weekinreview/18deparle.html?_r=1&scp=12&sq
=microfinance&st=nyt&oref=slogin
http://www.economist.com/world/la/displaystory.cfm?story_id=10650663&CFID=1555
8859&CFTOKEN=3526b3b503e0171b-859DC346-B27C-BB00-012713530EF5EF4C
http://www.ft.com/cms/s/0/0d21e542-e8c4-11dc-913a-0000779fd2ac.html
http://www.ft.com/cms/s/0/f39adbe2-dc02-11dc-bc82-0000779fd2ac.html
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