Understanding and Assessing the Demand for Microfinance

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Understanding and Assessing the Demand for
Microfinance
MicroSaveMarket-led solutions for financial
services

• for
• Broadening the Access to Microfinance
• Challenges and Actors High Level Conference
• June 20, 2005
• Presented by
• Graham A.N. Wright

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Meet The Clients (1)Diversified and Informal
Prudence

• Prudence from Karatina in Kenya is using the
  following
• 2 RoSCAs
• 1 ASCA
• Informal funeral insurance
• Cash savings at home
• In-kind saving
• Loan from Faulu MFI

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Diversified and Informal Prudence (i)

• RoSCA 1 4 members daily contribution of 0.29.
  From this around 31.00 is paid out each month to
  each member in turn
• Use School fees for grandchildren
• RoSCA 2 4 members weekly contribution of 2.90.
  From this 11.60 is paid out each week to each
  member in turn
• Use Re-stocking business (small market stall
  selling basic commodities salt, rice, biscuits,
  soap etc.)

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Diversified and Informal Prudence (ii)

• ASCA 40 members save 1.03 a week, and can
  borrow from the fund. The ASCA is liquidated
  annually in December.
• Use Celebrating Christmas (savings) and
  emergencies (loan)
• Informal Funeral Insurance Fund 100 members
  contribute 11.40 per month covers immediate
  family
• Use Risk pooling for repatriation to village

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Diversified and Informal Prudence (iii)

• Emergency cash in the home 3-5
• Use Emergencies requiring immediate cash
• A cow back in the village looked after by
  Prudences brother
• Use Provision for old age/social capital
  maintenance
• Working capital loan from Faulu MFI (356)
• Building a small room to rent out (to provide
  stable income for old age)

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Meet The Clients (2)Resourceful and
Collaborative Amina

• Amina from Pathrail in Bangladesh is using the
  following
• Reciprocal borrowing and from lending to
  neighbours
• A savings club (or ASCA) that is liquidated
  annually
• Cash savings in a mud bank
• Borrowing for business and emergencies from BURO,
  Tangail

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Informal Systems Continue to Dominate

• In Bangladesh the average "turnover" (the total
  transaction flows of money through financial
  instruments) per household was 839 in the year.
• Only 15 of financial flows go through
  formal/semi-formal financial institutions
• The products/services MFIs offer are typically
• Not adequately flexible or diverse in nature
  (most MFIs only offer one type of loan and no
  savings service)
• Not adequately reliable (state banks require many
  trips/bribes and NGO-MFIs keep changing their
  rules)

Source Stuart Rutherford
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But Present High Risk To Their Users
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But Present High Risk To Their Users
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When A Flexible/Reliable Institution Arrives

• Equity Bank offers a broad-range of financial
  services with a focus on customer service
• Basic savings account
• Contractual savings account
• (with emergency loan facility)
• Business loan
• Education/Medial loan
• Agricultural loan
• Salary advance
• Money transfer
• Through 20 branches and 6 mobile banking
  LandRover 4x4 vehicles that tour the countryside

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the Results Are Breath-taking
Equitys move to market-led financial services

• All clients pay full cost for the services they
  receive

• and Equity has received very limited donor
  subsidy - almost exclusively as technical
  assistance

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the Results Are Breath-taking

• All clients pay full cost for the services they
  receive

Equitys move to market-led financial services

• and Equity has received very limited donor
  subsidy - almost exclusively as technical
  assistance

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Broad Bank with Broad Based Clients
Source Martin Holtmann
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Faces of Poverty

• Destitute while they are unquestionably
  important, financial services are probably not
  the highest priority for the truly poorest of
  the poor they need relief.
• Poor Financial services play a central role in
  building the stable platform from which they can
  climb out of poverty
• Vulnerable Non-Poor access to financial
  services allows them to overcome the crises which
  regularly engulf them. This helps them stay out
  of poverty. It is a course of action that is more
  cost effective for both the client and the MFI.

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Broad Services, Clients and Needs

• Serving a range of clients allows cross-subsidy
• Poverty is dynamic need to think prevention as
  well as cure to protect the vulnerable
• Above all we need to build inclusive financial
  systems

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Diverse Services Driven By Diverse Needs
Household Formation
Death (C, I)
Birth (C,S,I)
Ongoing Financial Needs Working Capital
(C,S) Productive Assets (C,S) Investments
(S,C) Asset protection (I) Health (C,S,I) Shocks
(C,S,I)
Old Age (I,S)
Education (C,S)
Marriage Ceremony (C,S)
Source Monique Cohen
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MicroFinance MDGs

• Thus microfinance has significant impact on the
  millennium development goals supporting
• Reduction of poverty (and vulnerability)
• Increased education
• Reduction of ill-health
• Womens empowerment
• Offers this on a truly sustainable basis
• but is not a panacea

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Microfinance in Asia
Characteristics of the market

• Largest and most profitable MFIs BRI, ASA etc.
• Large numbers of weak MFIs
• Cost efficient (best at 5 operating efficiency)
• 528 million estimated clients
• But 200-400 million un-served in India and
  200-400 un-served in China

• Average of 21 MFIs reporting to the MIX
• Efficiency 21.7 Operating expense/loan
  portfolio
• Risk 2.5 Portfolio at risk gt 30 days

• CGAP and Source MBB 9, July 2003

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Microfinance in Africa
Characteristics of the market

• Many diverse institutional models
• Most clients served by credit unions coops
• Rural and agricultural finance is particularly
  challenging
• Only 8 sustainable institutions (MBB)
• 25 million estimated clients this may be an
  under-estimation
• International and domestic banks starting to take
  an interest

• Average of 21 MFIs reporting to the MIX
• Efficiency 50.3 Operating expense/loan
  portfolio
• Risk 2.6 Portfolio at risk gt 30 days

• CGAP and Source MBB 9, July 2003

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Microfinance in Middle East and North Africa
Characteristics of the market

• Mostly NGOs
• Heavy donor dependence
• In infant stages of development
• Mostly small working capital loans
• 48 million estimated clients

• Average of 6 MFIs reporting to the MIX
• Efficiency 34.0 Operating expense/loan portfolio
• Risk 1.1 Portfolio at risk gt 30 days

• CGAP and Source MBB 9, July 2003

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Conclusions

• Microfinance can play a key, cost-effective and
  sustainable role in achieving the MDGs if
• We build flexible and reliable financial services
  that respond to the real, diverse needs of the
  poor and vulnerable non-poor
• Billions of people are waiting for us to do so

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MicroSaveMarket-led solutions for financial
services

• Shelter Afrique Building, Mamlaka Road, P.O. Box
  76436, Nairobi, Kenya
• Tel [phone]
• Fax [phone]
• Email info_at_MicroSave.org
• Website http//www.MicroSave.org