Womens World Banking

Building Domestic Financial Systems that Work for the Majority

Womens World Banking

Affiliates, Associates, GNBI and AFMIN Members provide financial services to about 18 million low income entrepreneurs, in about 40 countries
Bosnia-Herzegovina Jordan Morocco The Netherlands Russian Federation Switzerland Europe, ME and North Africa Bangladesh India Indonesia Mongolia Nepal Asia Pakistan The Philippines Sri Lanka Thailand

USA

North America

Bolivia Brazil Chile Colombia Dominican Republic Ecuador Haiti LAC Mexico Paraguay Peru

Benin Burundi Ethiopia The Gambia Ghana Guinea Ivory Coast Kenya Mali Africa Niger Nigeria South Africa Togo Uganda

Why Microfinance Can Change the Way the World Works

1. 2. 3.
Better: Health 500 million poor entrepreneurs and producers, mainly women Microfinance: Lending Savings Insurance Housing Remittances Increases: Income Assets Security Confidence in future Population Education Community participation Banking for the majority

4.

Building Financial Services that Respond to What Poor Women Want

Service Asset Building, Risk Mitigating Products
Voluntary savings Health and life insurance Rapid, convenient access Respect, connection

Flexible Loans
Small initial loan sizes Larger loans over time Longer terms

Variety of Products
Housing loans Education loans Life cycle products Business development services

What Poor Women Want

Group

Individual Loans

No Traditional Collateral
Source: WWB research

Building Core Microfinance Services Focus on Income and Assets

Core Offerings Other Non-core Offerings in Inclusive Financial Systems Consumer Finance

Flexible Working Capital Loans

Education Loans

Housing Finance

Insurance

Transfer Payments

Savings

Remittances for Microfinance

Debit and Credit Card Facilities

Key Non-Financial Products and Services

Financial counseling and training Commercial linkages Health and education Business advisory services Dealing with legal barriers

What Low Income Women Need to Build Income and Assets Needs That Microfinance Can Meet Profitably
Market Penetration of Target Market in Most Countries

Credit to fuel growth of productive activities Ability to accumulate savings Ability to finance housing, education, health care Life and health insurance

<10% <10% <1% <1%

The Core Paradigm in Building Financial Systems that Work for the Poor Majority
1.
Encourage a range of financial institutions and methodologies:

2.
Adopt standards on performance in:

3.
Provide appropriate support modalities institutions that meet high standards need:

Commercial banks Regulated MFIs Microfinance NGOs Finance companies Coops, credit unions Grassroots organizations

Client reach Efficiency, profitability Financial integration Impact Portfolio size, growth Portfolio quality

Policies, regulations and legal structures that fit microfinance Access to finance that fits the institutions size and stage The ability to mobilize savings

Policy, Regulatory and Legal Frameworks are Needed for Microfinance Operations
Key Features of Microfinance
Transaction costs are high

Responsive Framework
Institutions need to be able to charge relatively high interest rates Microloans as loan class, with portfolio Quality and lending methods--not loan Collateralused to evaluate risk. Simple while rigorous reporting requirements with microfinance standards and benchmarks Ability for high performing MFIs to mobilize deposits from borrowers and from the public Ability to establish branches and agencies rapidly Flexibility in hiring, and performance-based incentives

Clients lack conventional collateral

Simple MIS, accounting

Savings important to client and MFI

Many small branches

Loan officers not traditional bankers

Focus for Country Actions in the Next Three Years

Retail capacity needs to be built in most countries Savings and other asset building products require attention Transaction costs need to be reduced Financing that fits different stages of MFIs is needed in many markets Country-level visions and strategiesbuilt by key stakeholders Policies, regulation, legal structures need to be implemented Key elements of institutional infrastructure need to be constructed Performance indicators and standards need to be implemented Increased attention is needed in measuring impact of microfinance Government and private sector have important roles to play

Building Blocks of Domestic Financial Markets That Work for the Poor Majority
Interest rates Financial sector policies Government Regulations, policy supervision Legal structures Legal systems
Performance indicators

Government role

Donor support

Policy

Industry Infrastructure

Domestic capital markets

Tech service providers

Wholesale financial institutions

MF networks, associations

Rating agencies

Credit bureaus

Tech applications

Payment systems

Business services

Financing Microfinance Domestic Capital Markets Retail Capacity, Supply

Savings mobilization

Wholesale financing

Bonds, securitizations

Grants for smaller MFIs

Guarantee mechanisms

Transparency

Healthy market overall

Commercial Banks

MicroFinance NGOs

Regulated MFIs

Cooperatives, Credit Unions,

Savings

Grass Roots Groups

Others

Savings

Product Offerings

Microloans Working Capital

Insurance

Remittances, savings, assets

Income

Assets

Impact in Poor Households

Education, Health

Womens Decisionmaking, Power

Community Participation

The nine most important measures for building the policies, regulations and legal structures for financial systems that serve the poor majority
1. Liberalized interest rates for microfinance, relying on competition and transparency to lower costs and rates 2. Inclusive financial sector policies that incorporate measures to ensure responsive, solid services to the poor 3. An explicit, supportive government policy and strategy for microfinance, with objectives, key policies and support, roles 4. Regulations and supervision capacities that respond to the characteristics of microfinance. 5. A range of suitable legal structures that enable organizations of different types and sizes to provide diversified microfinance products in a sustainable way. 6. Legal and judicial systems that support secured and unsecured lending 7. Common performance indicators, definitions and standards 8. Governments role as an enabler, not retail provider 9. Donor support to complement private capital, e.g., financing younger institutions, capacity building, innovation and policy change

Key institutions and services that need to be in place to support the build-up of solid, responsive retail capacity in microfinance

Technical service providers Wholesale finance institutions Microfinance networks, industry associations Rating agencies Credit bureaus IT platforms and application of technology Payment systems Information and business services for microentrepreneurs Domestic capital markets development

Key financial instruments and arrangements if the domestic financial market is to respond to the needs of MFIs

Domestic savings mobilization Domestic wholesale financing Bonds and securitization issues Grants and soft loans to enable high potential MFIs to reach sustainable scale, and to support capacity building and innovation for MFIs at all stages Guarantee mechanisms Enhanced transparency, ratings, credit bureaus, information disclosure Healthy domestic capital market

Role of Government
DO
Promote microfinance as a key vehicle in tackling poverty, and as vital part of the financial system Create policies, regulations and legal structures that encourage responsive, sustainable microfinance Encourage a range of regulated and unregulated institutions that meet performance standards Encourage competition, capacity building and innovation to lower costs and interest rates in microfinance

DONT

Have government agencies provide retail microfinance

Back one model

Place interest rate ceilings on micro loans

Support autonomous, wholesale structures

Paradigm Shift in Retail Banking with the Poor

Compliance Culture Sustainable Microfinance

Low interest rates Low repayments Low know your customer Minimal loan amounts Low, sporadic, and shallow outreach relative to demand

Interest rates that cover costs, enable profits Excellent portfolio quality Understand household economies, economic activities of the poor Financial products and processes that respond to poor households, enterprises High outreach, impact

Leading banks and microfinance institutions are innovating to provide efficient, responsive, sustainable services

Innovations

Cutting costs to clients and the institutions

Building new distribution channels

Helping clients build assets and mitigate risk

Mobilizing capital markets for microfinance

Moving to Customer Focus in Microfinance

Average loan US$ 900 Average savings account US$ $125 Cross-selling of 3.4 products per client First banking experience for 50% of new clients

Key areas for action

Build retail capacity in microfinance Build the depth and diversity of product offerings Build domestic financial markets for microfinance Utilize technology to cut costs and expand outreach Build permanent state policies and country strategies Mobilize new actors, help them learn the business and play effective roles

Mobilizing Key Actors to Focus on the Majority

Private Sector

WWB

Network Members

Low Income Women

Policy Makers, Donors

Building Enterprise Systems that Treat the Poor as the Top Priority
Low-Income Entrepreneurs and Households
LARGE ENTERPRISES

Middle Class

Wealthy