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Joanna Buickians

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Micro-Credits & Micro-Banks. CREDITS ... About 90% of the people that are on micro-credit are women. ... Different from traditional credit ... – PowerPoint PPT presentation

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Title: Joanna Buickians


1
MICROFINANCING
  • Joanna Buickians
  • Narine Mirzakhanyan

Econ 490 Professor Castillo
2
Key Points
  • Muhammad Yunus
  • Grameen Bank
  • Microfinancing
  • Micro-credit Microbanks
  • Microfinancing Services
  • Women being targeted
  • Web Based Microfinancing
  • Borrowers Lenders

3
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
4
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.

5
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.

6
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.

7
Microfinancing Services
8
Why Targeting Women?
__________________________________________________
_____________________
One billion people in the world are illiterate
and two thirds of those people are women.
- Muhammed Yunus
9
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.

10
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.

11
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.

12
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.

13
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
14
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

15
Different from traditional credit
http//www.microcapital.org/downloads/resourcepape
rs/IADB-VillagetoWallStreet.pdf
16
Example Financing urban structure Nepal
http//www.idrc.ca/openebooks/216-3/
17
Sustainable development continuum for organic
microfarming
http//www.idrc.ca/openebooks/216-3/
18
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
19
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
20
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

21
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.

22
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

23
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24
http//www.sinapiaba.com/links/arreas.html
25
The Future
Source http//www.microcreditsummit.org/pubs/repo
rts/socr/EngSOCR2007.pdf
26
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

27
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