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Micro Finance 4

Micro Finance 4

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Published by: Yateen Gharat on Dec 28, 2012
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12/28/2012

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MICROFINANCE

• Microfinance is also known as micro banking or micro credit. Microfinance is a type of banking that is given or provided to poor, needy or unemployed people or groups that have no other means or ways of getting income.

Microfinance Institutions
• Microfinance is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs). • These institutions deliver very small loans to unsalaried borrowers, taking little or no collateral.

and state-owned development and postal savings banks. credit unions and other financial cooperatives.Continued… • Most MFIs started as not-for-profit organizations like NGOs (non-governmental organizations). such as business development or health services. . • Some MFIs provide non-financial products.

(TMFB) The First MicroFinanceBank Ltd. (POMFB) Rozgar Microfinance Bank Ltd. (FMFB .Microfinance Providers In Pakistan • Microfinance Banks are those that are licensed and prudentially regulated by the State Bank of Pakistan to exclusively service the microfinance market. (NMFB) Pak-Oman Microfinance Bank Ltd. These banks include: • Khushhali Bank (KB) • • • • • Network MicroFinance Bank Ltd. (RMFB) Tameer Microfinance Bank Ltd.

• Provide an opportunity to become selfsufficient by providing means of saving money. but include savings. • These services are not limited to credit. . borrowing money and insurance. and money transfers.Why Microfinance Is Needed? • The main purpose or basic aim of microfinance is to give loans to low income people. insurance.

•Microfinance is an expensive enterprise . •Poor do not have any assets to use as collateral.Why Don’t The Clients Go Directly To Banks? •Administrative cost of supplying loans to the poor population is extremely high.

The Incidence Of High Interest Rates MFIs need to cover three types of costs 1. Transaction costs . Cost of the money that it lends 2. Cost of loan defaults 3.

1. Microfinance may not be appropriate for populations with a high incidence of debilitating illnesses WHEN IS MICROFINANCE NOT AN APPROPRIATE POVERTY PREVENTION TOOL . Populations that are geographically dispersed 2.Microcredit may be inappropriate where conditions pose severe challenges to standard microcredit methodologies.

Hyperinflation or absence of law . 4. Reliance on barter rather than cash transactions 5.Continued… 3. Dependence on a single economic activity or single agricultural crops.

ALTERNATIVE STRATEGIES • • • • • Savings Financial entitlements Safety-net grants Grants Employment programmes .

.  licensing.  SBP is the implementing agency for strengthening supervision and regulation MFIs.ROLE OF STATE BANK IN MICROFINANCE SECTOR  State Bank Pakistan support to microfinance commercialization  The State Bank of Pakistan has encouraged the entry of private sector institutions.  SBP is also in charge of special funds of more than US$70 million. regulation and supervision of Microfinance Banks (MFBs).

6 million households need microfinance services but these services reach only to less than 1 percent . including checking.ROLE OF COMMERCIAL BANKS IN MICROFINANCE SECTOR  A commercial bank is a financial institution that offers a broad range of deposit accounts. and extends loans to individuals and businesses  In Pakistan it is estimated that as many as 5. savings. and time deposits.

Continued… • Poor person just need to visit his local commercial bank to get access to microfinance benefits .

• Micro credit enables substitution of physical collateral. • The cost of borrowing is lower for the clients.Advantages Of Microfinance • Loans are provided based on ‘Group lending’. . • The repeated nature of interaction and threat to cut off loan in case of default is used to overcome asymmetric information problem and improve efficiency of loaning.

. it is usually for emergencies and consumption not for production. having few assets. and when they do. UNDP Report of 2000 states: ‘The hard-core poor.Disadvantages of Microfinance • It does not cater to the poorest of the poor.’ • Micro finance schemes are highly subsidized. are reluctant to take on the risks of credit.

.22 percent of the total poor in the country.Pakistan’s Experience With Micro Financing • Poor Targeting. • Low Coverage of the Poorest In the Society. NRSP is one of the largest lending NGO for micro financing in the country its total coverage of the poor in the country is just 0. • Potential for Growth in the Economy. • Dependency on the Donors.

Microfinance focusing Women Women in households with an income below the absolute or relative threshold of poverty remain poorer than men of the same households because of: • Inequities in education. • Social constraints on their mobility. . • Levels of skill.

and the welfare of the home. is expected to have positive implications for taking the household out of poverty. • Women spend nearly all their income on children. . Prioritising women in micro finance schemes hence.• The attitudinal and institutional barriers to which their behaviour is subjected.

the essence of the need to concentrate on women is misunderstood by the UPAP.However. The Project emphasis is on “boosting the household economy”. rather than the empowerment of women. .

Effects of Microfinance There are two impacts of microfinance • Positive impact • Negative impact .

.Positive effects 1. • • • • 2. On women Empowerment Wages Nutrition Credit with education. • Poverty reduction.

Negative effects • An increase in child labor • On gender .

Can Microfinance Be Profitable? Many feel that once microfinance becomes mainstreamed. massive growth in the numbers of clients can be achieved. .

generating employment among demilitarized soldiers. who may need grants or other public resources to improve their economic situation • Governments and development agencies often use microfinance as a tool to address socio-economic problems such as relocation of refugees from civil strife. .When is microfinance NOT an appropriate tool? • Microfinance is particularly inappropriate for the destitute. or assistance following a natural disaster.

000 families.Case study of Microfinance • 50 aid organisations and 7 banks provide microcredit • Kashf Foundation: first microcredit provider • Its aim: better the economic position of low income households • Achievements so far:  Has disbursed loans of US $ 202 million  Has supported more than 300.  Network ranges from shoemakers to poultry .

seats 8 to 10 clients • Improvement in lifestyle:  Able to send her children to school  Brought peace to her marital life  Have access to greater amenities of life • Loan was of Rs.Beneficiary of Kashf • Parveen bibi has become a restaurant owner • Khwaja Ghareeb Nawaz. • Has many sources of income now .6000 with 1.5 percent insurance costs and 20 percent service costs.

Need For Microfinance In Light Of The Recent Flood Crisis • Wide scale devastation and displaced 20 million people • Faster resumption of economic activity through microcredit • Management and proper use ensured • Preserves self esteem and creates independent individuals .

Conclusion • Microfinancing may not be the best way to help the poorest • It can not be the sole instrument of poverty reduction • Strong macroeconomic policies creating high and equitable growth can reduce poverty • Microfinance can only supplement the process .

Your questions are welcome! .

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