MICROFINANCE

Part 3

JOSEPH B. BARTOLOME
CBE INSTRUCTOR
 OBJECTIVES OF MICROFINANCE
INSTITUTION
To reduce poverty
To empower women or other disadvantaged population groups
To create employment
To help existing businesses grow or diversify their activities To
encourage the development of new businesses. .
To create employment and income opportunities through the creation
and expansion of microenterprises.
To increase the productivity and incomes of vulnerable groups,
especially women and the poor.
To reduce rural families’ dependence on drought prone crops through
diversification of their incomegenerating activities.
 MICROFINANCE
TARGET MARKET
Direct targeting generally refers to the allocation
of a specific amount of funds to provide credit to
a particular sector of the economy or population.
Indirect targeting there is no mandated specific
funds to particular groups.
THE IMPORTANCE OF ADEQUATE
CASH FLOW AND THE CAPACITY
TO SERVICE DEBT.
MFI must consider clients' and potential clients'
cash flow as well as their ability to repay loans.
DEBT CAPACITY - the amount of additional debt a
client can take on without running the risk of loan
default.
 MINIMAL EQUITY
REQUIREMENT
Some MFI set a certain percentage of
equity as one of the loan conditions.
Hope to increase responsible behavior.
 IDENTIFYING THE
TARGET MARKET
Understanding characteristics of the target market
helps MFI design products and services that attract
different groups.
 CHARACTERISTICS OF THE
POPULATION GROUP
1.Gender
The objective of the MFI is to empower the
women.
Focusing on female clients which makes up the
poorest segment of the society.
Fewer economic opportunities than men.
Commercial banks are unwilling to lend women
or mobilize deposits from them.
 CHARACTERISTICS OF THE
POPULATION GROUP
2. The level of poverty
The objective of the MFI is to reduce poverty. They
focus on the poorest segments of the population.
3. Geographic focus
One of the most important considerations for an MFI
is whether it will serve urban or rural clients.
 ADVANTAGES IN URBAN
AREA
Lower transaction costs (shorter distances) for
clients
Greater chance that clients will be literate
Potential higher chance of repayment, since
interactions with clients can be more frequent
 DISADVANTAGES IN URBAN
AREA
Urban clients may be more transitory, resulting in a
higher risk of potential default.

RURAL AREA
Providing services to rural clients is an effective
means of reaching a large number of poor
households.
 DISADVANTAGES IN RURAL
AREA
There may be a long history of poorly designed rural
credit programs (with subsidized credit, no savings
mobilization, or credit tied to specific activities or
purchases).
There may be no branches of formal financial
institutions in the area. This can create problems
when clients need access to a branch network for
savings deposits or loan repayment.
4. ETHNICITY AND RELIGION

There are cases in which a certain group within a

community cannot or will not take part in a financial
services project due to a religious, ethnic, or other
social influence.
Biblical-Based Financial Regulation The Bible
contains several references prohibiting the practice
of usury, a term commonly used to describe lending
money for interest.
Thank You