Micro-finance models

Model 1: Associations
• By the poor in the target community to offer
microfinance services (micro savings,
microcredit, micro-insurance, etc.) to
themselves
 Model 2: Bank Guarantees
• A donor or government agency guarantees
microloans made by a microfinance/commercial
bank to an individual or group of borrowers.
Compulsory deposits by borrowers in such
banks are also included in this model.
e.g. Examples: AfriCap Microfinance Fund
(Mauritius), Bellwether Microfinance Fund
(India), Latin America Bridge Fund, Microfinance
Credit Guarantee Facility (Pakistan)
 Model 3: Community Banking/ Grameen
Bank/ Village Banking
• Formal versions of ‘associations’ and are
created by members of a target community
who wish to improve their living standards
and to generate employment.
• Seek to develop their communities
 Model 4: Cooperatives
• Very much like ‘associations and Community
Banks’ except that their ownership structure
does not include the poor
• Group of middle or upper class individuals
may form a co-operatives to offer
microfinance services to the poor.
• Examples: Co-operative Bank (England),
Cooperative Rural Bank of Bulacan (Phillipines)
 Model 5: Credit Unions
• Members of a target community gather their
money and make loans to one another at low
interest rates.
• Credit unions are smaller than community
bank and non-profit oriented, charging
interest rates that merely allow sustainability
• Example: Unión Progresista Amatitlaneca
(Guatemala), Vancity Credit Union (Canada)
 Model 6: Non-Governmental Organizations (NGOs)

• NGOs are ‘external organizations’ and their

activities range from offering microfinance
services (loans, insurance, savings, etc.) to
improving credit rating of the poor, training,
education and research.
• Examples: ACCION International
(headquarters in USA), KIVA (Headquarters in
USA), Kashf Foundation (Pakistan)
 Model 7: For-profit Banks

• Commercial Banks, as well as specialized

Microfinance Banks offer various financial
services to the poor but the main purpose
may be to secure a high return on investment.
• Aim is social development as well as financial
progress, beyond institutional sustainability.
• Examples: Bank Compartamos (Mexico),
Khushali Bank (Pakistan)
 Model 8: ROSCAs Rotating Savings and Credit Associations (ROSCAs)

• Are small groups, typically composed of women, where each member

makes ‘regular cyclical contributions into a common fund’, which is
given entirely to one member at the start of each cycle (weekly,
monthly, quarterly).
• Matching of a client’s cashflows with the loan, the ability to structure
the deal without interest rates, and the absence of over-head costs.
• Example: Say, a group of 10 women come together in January and
pitch in $7 each, making a total of $70, and this sum is given to
Member A for the month. In February, another $70 is gathered and
given to Member B, and the cycle continues for 10 months (10
members). No interest is charged, and social collateral ensure the
money is returned.