Joanna Buickians - PowerPoint PPT Presentation

Title: Joanna Buickians


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MICROFINANCING

• Joanna Buickians
• Narine Mirzakhanyan

Econ 490 Professor Castillo
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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
If society was structured for self-employment,
there would be no reason to fear being poor.
- Dr. Muhammad 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
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Microfinancing
say NO to poverty

• 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.

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Microfinancing (continued)

• 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.

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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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Why Targeting Women? (continued)

• 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.

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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.
• INTERNET
• With transfer one can do anything to help
  the poor and support the economy.

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Web Based Microfinancing (continued)
__________________________________________________
_____________________

• KIVA.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/resourcepape
rs/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

http//moderato.files.wordpress.com/2007/06/diego.
jpg
As business income rises, businesses expand
affecting the entire community through employment
and contribution to the economy
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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?

• Credit and financing does not directly lead to
  employment.

• 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.

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Is the future bright?

• 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

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http//www.sinapiaba.com/links/arreas.html
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The Future
Source http//www.microcreditsummit.org/pubs/repo
rts/socr/EngSOCR2007.pdf
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Sources

• http//www.microcreditsummit.org/papers/Assocsessi
  on/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/18d
  eparle.html?_r1scp12sqmicrofinancestnytore
  fslogin
• http//www.economist.com/world/la/displaystory.cfm
  ?story_id10650663CFID15558859CFTOKEN3526b3b50
  3e0171b-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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QUESTIONS