Title: Joanna Buickians
1MICROFINANCING
- Joanna Buickians
-
- Narine Mirzakhanyan
Econ 490 Professor Castillo
2Key Points
- Muhammad Yunus
- Grameen Bank
- Microfinancing
- Micro-credit Microbanks
- Microfinancing Services
- Women being targeted
- Web Based Microfinancing
- Borrowers Lenders
3Muhhamed 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
4Microfinancing
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.
5Microfinancing (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.
6Micro-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.
7Microfinancing Services
8Why Targeting Women?
__________________________________________________
_____________________
One billion people in the world are illiterate
and two thirds of those people are women.
- Muhammed Yunus
9Why 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.
10Web 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.
11Web 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.
12Borrowers 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.
13Global 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
14General 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
15Different from traditional credit
http//www.microcapital.org/downloads/resourcepape
rs/IADB-VillagetoWallStreet.pdf
16Example Financing urban structure Nepal
http//www.idrc.ca/openebooks/216-3/
17Sustainable development continuum for organic
microfarming
http//www.idrc.ca/openebooks/216-3/
18The 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
19Job 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
20Some 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
21The 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.
22Is 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(No Transcript)
24http//www.sinapiaba.com/links/arreas.html
25The Future
Source http//www.microcreditsummit.org/pubs/repo
rts/socr/EngSOCR2007.pdf
26Sources
- 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
27QUESTIONS