Showing papers on "Microfinance published in 1997"

Microfinance and poverty reduction

Abstract: * Acknowledgements * Introduction 1. Current debates in microfinance * Subsidised credit provision * The move to market-based solutions * Making use of social collateral * Savings Can microfinance interventions reduce poverty? o Poverty as powerlessness o Credit for micro-enterprises o Reaching the poorest * Financial interventions and social change * Treading carefully in microfinance interventions 2. Informal financial services * Introduction User-owned informal financial services o Some examples of user-owned financial services * Turning the informal into the formal * What can be learned from informal finance? * Deciding when and how to intervene o Research questions on existing informal financial services * Filling the gaps o Some examples of innovative services * Promotion: an alternative strategy for NGOs o Formation of savings groups and development of internal credit facilities o Promotion of small-scale formalised approaches o Linking groups to the formal system o Linking with specialised financial service NGOs o Advocacy * Summary and conclusions 3. The design of savings and credit schemes for poor people * Introduction * Targeting savings and credit to poor people * Women as users of financial services * Lending through groups o Functions of the group in microfinance schemes o Including the poorest o Other examples of group-based schemes * Savings o The value of savingd facility o Compulsory or valuntary savings? o Linking savings to credit * Forms of loan o Credit in cash or kind? o Directed or undirected credit? * Loan disbursement and repayment schedules * Interest rates * Integrating financial services with other activities 4. Savings and credit group formation and institution-building 5. Social development programmes 6. Economic development activities 7. Summary and conclusion 8. Financial performance and sustainability * Introduction * Managing and assessing financial performance o The repayment rate o Arreas and default * Financial sustainability o The pros and cons of 'scaling up o Issues in sustainability: the experience of 'village banking' o Sustainability through exstending coverage o Measuring financial sustainabilty * Managerial and organisational sustainability o The role of staff in microfinance interventions o Organisational sustainability and change * Summary and conclusions 9. Assessing impact * Introduction * The difficulties of assessing impact o Establishing loan use o Measuring change: controls and baselines o Proving causality * Innovations in impact assessment o Researching usefulness: a case study o Assessing impact on social relationships o Impact assessment as a dynamic process o Validating quantitative data in impact assessment o Using quantitative data in impact assessment * Learning and adaptability * Summary and conclusions 10. Case studies * Introducing the case studies * Union Regional de Apoyo Campesino (URAC), Mexico o Background o Design o Financial performance and sustainability o Impact assessment o Conclusions * SUNGI Developent Foundation, Pakistan o Background o Design o Financial performance and sustainability o Impact assessment o Conclusions * Ladywood Credit Union, UK o Background o Design o Financial performance and sustainability o Impact assessment o Conclusions * ACTIONAID in The Gambia o Background o Design o Financial performance and sustainability o Impact assessment o Conclusions * Casa Campesina Cayambe, Ecuador o Background o Design o Financial performance and sustainability o Impact assessment o Conclusions * Conclusions * Annex 1 Table 1 Six microfinance institutions * Annex 2 Repayment rate and arrears rate * References

Credit guarantee schemes for SMEs – an international review

Abstract: In view of the growing interest in microfinance, small enterprises with growth potential, as opposed to microenterprises, may be missing out on donor credit programmes.Credit guarantee schemes can be seen as filling this gap, since they are aimed at the SME sector, and are intended to help banks learn about lending to SMEs, while being cushioned from the risks involved. This article describes how credit guarantee schemes are being implemented all over the world, and points to some of the problems faced, as well as the advantages of such schemes.

A Framework for the Analysis of the Performance and Sustainability of Subsidized Microfinance Organizations with Application to Bancosol of Bolivia and Grameen Bank of Bangladesh

Abstract: In the next ten years, society will spend more than $20 billion on microfinance organizations (MFOs). Are MFOs the best way to help the poor? Will donors see MFOs as a good development gamble? Will MFOs reward workers well? Will investors buy MFOs and start new ones from scratch? I suggest a framework to help answer these questions with numbers. Performance is meeting goals. Sustainability is meeting goals now and in the long term. An MFO has six groups of stakeholders: society, the poor, poor customers, donors, workers, and investors. Each group constrains the rest. Each group has its own goals and thus its own measures of performance. For society, a good MFO makes more social benefits than social costs. For the poor, a good MFO is the best use of the funds in the budget earmarked to help the poor. It costs more to measure benefits than to measure costs. Cost-effectiveness analysis can help to judge whether unmeasured benefits could exceed measured costs. For poor customers, a good MFO gets repeated use. For donors, a good MFO uses public funds to attract market funds. For the workers of an MFO, a good MFO means a good job. Such an MFO would not shrink if donors withdrew support. For investors, good performance means a market return. I use the framework with two of the best MFOs in the world, BancoSol in Bolivia and Grameen Bank in Bangladesh. I judge both to have been worthwhile. They used public funds to help the poor more than the marginal development project. The net present cost of BancoSol for the poor through 1987-1996 as seen in 1987 was about 6 cents per dollar year of debt produced. At Grameen, the net present cost to the poor through 1983-1994 as seen from 1983 was about $8 per year of membership produced. The customers at both BancoSol and Grameen repeat, and the workers at the both banks have good jobs. BancoSol attracts market funds, and Grameen does not. This suggests that investors may buy the best MFOs once start-up costs are sunk. But investors do not start the best MFOs, and much less the worse MFOs, from scratch. At least the best MFOs are worthwhile. The rest may still waste public funds meant to help the poor. Cost-effectiveness analysis is a cheap tool to help judge.

Rural finance for food security for the poor

Abstract: In this Food Policy Review, the authors take a fresh look at the role of rural financial policy in improving household food security and alleviating poverty. They develop a conceptual framework for relating access to financial services to food security and review empirical findings on household demand for financial services. They explore the potentials for linking informal lenders (relatives, credit groups, and moneylenders) with the formal financial systems (banks and cooperatives). Then they review the constraints to development of rural financial markets and ways to circumvent these constraints by examining innovative institutions, especially those that include participation by the poor themselves.

Reaching the poor with effective microcredit: evaluation of a grameen bank replication in the philippines 1

Abstract: The Grameen Bank in Bangladesh has developed a succesful model of reaching credit to resource poor households that are generally bypassed by Government

Ways donors can help the evolution of sustainable microfinance organizations.

Abstract: This paper suggests ways donors can help the evolution of sustainable microfinance organizations. Sustainability is good because it helps MFOs help more poor people than otherwise. Sustainability is hard because it requires balancing outreach and sustainability with prices the poor can afford yet high enough to cover the costs of the MFO. Donors are like genetic engineers whose job is to speed the evolution of sturdy MFOs. Technical assistance is the best way to tinker with MFOs.

Rural finance for food security for the poor

Abstract: In this Food Policy Review, the authors take a fresh look at the role of rural financial policy in improving household food security and alleviating poverty. They develop a conceptual framework for relating access to financial services to food security and review empirical findings on household demand for financial services. They explore the potentials for linking informal lenders (relatives, credit groups, and moneylenders) with the formal financial systems (banks and cooperatives). Then they review the constraints to development of rural financial markets and ways to circumvent these constraints by examining innovative institutions, especially those that include participation by the poor themselves.

From microcredit to livelihood finance

Abstract: Five assumptions about microcredit are put forth in this chapter as seriously flawed. The author argues that credit is not the main financial service needed by the poor; credit does not translate into successful microenterprises; the poor do not all wish to be selfemployed; targeting those above the poverty line is not mis-targeting; and not all MFIs can be self-sustaining. If we are to consider economic growth, then microcredit by itself is insufficient. It must become part of livelihood finance. Livelihood finance is a framework that includes financial services (savings, short- and long-term credit, several types of insurance, infrastructure finance, human capital development), agriculture and business development services and institutional development. I was at the 1997 Microcredit Summit. The presence of many luminaries at the summit was an indication of the support it garnered. For example, from the speech of Hillary Clinton, it was obvious that she was sincerely involved in the field and had visited many microcredit institutions in developing countries. However, for many of the others, it was jumping on the bandwagon, and few raised any issues about the limitations of microcredit. After attending the Microcredit Summit in 1997, I had written a critical article titled Is Microcredit the Answer to Poverty Eradication?. My answer was a qualified no, but the article was largely ignored. Since then, microcredit has become a global fad, to the point where all kinds of claims are being made in its name, as if it is the latest magic potion to resolve the problems of poverty in the world. In response, a range of others, from the Wall Street Journal to academic researchers like Jonathan Morduch have taken it upon themselves to question these claims and show that the impact of microcredit on the target households is exaggerated. I want to explore the connection between microcredit and economic growth. I do this from the point of view of someone who has given 20 years of his life to this work, so I should not be seen as an outsider. But before I deal with microcredit and economic growth, let me repeat what I had said in my 1997 article on the limitations of microcredit even as a strategy for poverty eradication.

An Assessment of the Capacity of Financial Performance of Microfinance Institutions: The Philippine Case

Abstract: Despite the government’s credit program approach, access of poor households to microfinancial services has remained limited. This paper explains the microfinance policy environment in the Philippines and evaluates the institutional and financial capacity/performance constraints of MFIs. This also addresses four areas that will allow MFIs to be self-sustaining financial institutions for the poor.

Sustainable banking with the poor: a case study of Grameen Bank.

Abstract: This paper describes the Grameen Bank system by focusing on the issues of access for those who traditionally do not qualify for financial services its sustainability and its impact on clients. Based on ethnographic data collected by the authors it analyzes the peer screening and joint liability mechanism for which the Grameen Bank system is well known and discusses features of the organization and its environment that makes the system work. In 20 years the Grameen Bank has evolved from a small experimental project to an internationally-renowned independent rural bank that provides financial services to over 2 million of the poorest people in one of the worlds most impoverish countries. The Grameen Bank throughout most of its existence has maintained repayment rates of 95-98% and continued to move towards self-sustainability without deviating from its central vision of credit for poverty alleviation. The system has shown that group-based lending with screening and monitoring by peers rather than by bank can effectively substitute for collateral-based banking. The system has demonstrated not only that the poor are bankable but that lending to the poor can be far less risky than lending to the rich.

Leasing to support small businesses and microenterprises

Abstract: In most developing countries, capital markets are relatively undeveloped and banks are often unable or unwilling to undertake term lending. And banks prefer to lend to larger, established business with well-developed balance sheets and credit histories. Operations in microenterprises and small businesses are cash-flow-oriented but rarely have organized historical financial records or the assets needed for collateral for conventional bank financing. The author explores the potential of leasing as an option to expand small businesses'access to medium-term financing for capital equipment and new technology. In a lease-financing contract, the lessor-financier retains ownership of the asset, lease payments can be tailored to fit the cash-flow generation patterns of the lessee-borrower's business, and the security deposit is smaller than the equity stake required in conventional bank financing. Different types of small businesses require different financial services. It would be worthwhile to encourage development of a range of institutions using special methods to service particular market niches. Most small businesses that generate extra income for a household or employ nonfamily members need simple access to financing to augment their working capital needs. Microfinance appropriate to their needs will feature short cycles of repayment and borrowing. Other small businesses require medium-term financing to acquire the tools and equipment needed to support production growth and expansion. For these businesses, leasing is an attractive new financing option. The author examines and compares the Bank's experience: 1) Lease financing was used to promote the development of small businesses in Pakistan, as part of a microenterprise development loan project. 2) For a Bank-supported alternative-energy project in Indonesia, a variant of lease financing -- the hire-purchase contract -- is being used in marketing and distribution by private distributorsof photovoltaic solar home systems. 3) Lease financing was used by Grameen Trust in Bangladesh to finance the purchase of small tools and equipment and in other countries to promote the growth of alternative energy systems.

Kenya Rural Enterprise Program : case study of a microfinance scheme

Abstract: This report summarizes the findings of an action research conducted on the operations of Kenya Rural Enterprise Programme (K-REP), a microfinance institution (MFI) in Kenya. The program was established in 1984 by World Education, Inc., a US-based private voluntary organization. It was designed as an intermediary nongovernmental organization (NGO) to provide credit and technical assistance to other NGOs. Member savings are required in order to borrow from K-REP. The institution obtains funds from commercial banks for on-lending to its borrowers. K-REP lends to clients who under normal circumstances would find it difficult to access credit from commercial banks. It involves the beneficiary groups in making major decisions. The clients have been able to expand their business and increase the numbers of their employees, and have been introduced to the banking system. Lessons learned and innovations that K-REP developed fall in three broad categories: organizational, operational, and outreach. First, K-REP develops a group-based credit model following experimentation with a pilot Juhudi Scheme, an indigenous credit system. Second, K-REP shifted towards a minimalist approach by which it provided credit to its clients with minimal amounts of training and social services. These two changes led to a significant increase in outreach, both in number of clients and loan volume, under the Juhudi Scheme.

Upgrading, Downgrading, Linking, Innovating: Microfinance Development Strategies - A Systems Perspective

Abstract: In the transition process from financial repression to a prudentially deregulated financial system, an increasing number of developing countries are becoming concerned about access of the rural and urban masses to microfinance. Only viable institutions with sound practices, which mobilize their own resources and cover their costs from the margin, can respond to the increasing demand for microsavings, microcredit and microinsurance services on a sustainable basis. Three major approaches contribute to the development of a system of microfinance: reform of the policy environment; institutional transformation; and instrumental innovation. In this framework there is a wide variety of institutions that have to undergo major adjustments to play their role effectively as financial intermediaries for the microeconomy: commercial and development banks; formal local banks and semiformal financial institutions under private, cooperative, community or local government ownership; credit NGOs; and informal financial institutions. Contingent upon the policy environment, the institutional infrastructure, and the degree of market integration, there are four major strategies of institutional transformation: institutional adaptation, or downgrading, of formal financial institutions; institutional enhancement, or upgrading, of nonformal financial institutions; linking formal and nonformal financial institutions; and, in the absence of a sufficient number of adaptable formal and nonformal institutions, infrastructural innovation: establishing new microfinance institutions. In each case, sound financial practices appropriate to the institution and its market are essential. There is no single best approach that can be simply replicated without regard to the unique situation of a country or region.

Sustainable banking with the poor - outreach and sustainability : a comparative analysis of savings-first vs. credit-first financial institutions

Abstract: The study examines micro-finance institutions located in seven Sub-Saharan African countries, namely, Niger, Benin, Mali, Burkina Faso, Zimbabwe, Kenya, and South Africa, though a certain degree of macroeconomic heterogeneity is to be expected, given comparisons and contrasts of some basic economic indicators among this grouping of countries. It examines the extent to which savings-first and credit-first programs throughout Africa, have been able to strive towards sustainability, while reaching clients that traditionally have been excluded from formal finance, including women, rural inhabitants, the illiterate, and the poor. The analysis focuses on measures of sustainability and outreach, as well as on their inter-relatedness to eight micro-finance programs in the selected countries.

A Commercial Bank's Microfinance Program: The Case of Hatton National Bank in Sri Lanka

Abstract: This paper reports on the microfinance program of Hatton National Bank Limited (HNB), the largest private commercial bank in Sri Lanka. It reviews the experience of HNB, which has initiated a program offering financial services to the poor while continuing its traditional business operations.

Introducing savings in microcredit institutions : when and how?

Abstract: Voluntary deposits as a source of commercial finance for microcredit institutions, has generated a lot of interest and debate in recent years. Locally mobilized voluntary savings is potentially the largest and the most immediately available source of finance for some microcredit institutions. Another important reason for undertaking the institutional mobilization of voluntary savings is the vast unmet demand for institutional savings services at the local levels of developing countries. The purpose of this paper is to broaden the discussion of when and how a microcredit institution should mobilize voluntary savings from the public.

Microfinance In Indonesia: An Assessment of Microfinance Institutions Banking with the Poor

Abstract: Indonesia is a country with a deregulated policy environment in which microfinance institutions (MFIs) abound. Between 1970 and 1993 poverty has been drastically reduced from 60% to 14%. Three factors have been instrumental: explicit government policies, sustained economic growth and, since 1983, financial and economic deregulation. In the framework of a wider UNDP-supported program of the Asian and Pacific Development Centre in Kuala Lumpur on Microfinance for the Poor in Asia-Pacific, four MFIs were selected from Indonesia and analyzed in terms of outreach to the poor, resource mobilization, viability and sound (best) microfinance practices: a Grameen Bank replicating institution, a private rural bank, a national poverty lending program and an NGO-owned commercial bank. The Indonesian experience shows that only financially viable institutions can reach the poor in significant numbers, and how viability and sustainability can be attained in banking with the poor and the near-poor. Data from Bank Shinta Daya, which combines individual and group technologies, indicate that the latter cover their costs and greatly increase the bank's outreach to the poor as a new market segment, but initially add little to the bank's overall profitability.

Effective governance for microfinance institutions

Abstract: The process of establishing micro-finance as a new industry mirrors the emergence of any entrepreneurial industry. The infant micro-finance industry has achieved a degree of success, and now it must institutionalize that success. This raises challenges that are common to all small businesses as they expand: issues of power, control, and transparency, as well as problems of cash flow, a perceived lack of legitimacy, and a short track record. A closer examination of governance includes an outline of the roles of the board members, board composition, and an explanation of important issues of trust and conflicts of interests. This paper explores governance in the particular case of micro-finance.

How to measure the subsidy received by a development finance institution

Abstract: The most common indicator of the financial performance of development finance institutions, the Subsidy Dependence Index of Yaron (1992a), fails to recognize that subsidies are like equity injections whose use over time has a cost. Thus, the SDI underestimates subsidy. This paper gives a modified framework that counts all subsidies as equity injections. The paper also recasts the traditional SDI formula to clarify its definition and to show its invariance with respect to the form of subsidized resources. The modified framework is applied to the Grameen Bank in Bangladesh and to Caja los Andes, a microfinance organization in Bolivia. The underestimation of the traditional measure is material. The modified framework could be applied to any subsidized organization.

State-owned development banks in microfinance

Abstract: The well-intentioned objective of state-owned development finance institutions is too often subjected to political influence. Politicized mandates place undue emphasis on credit outflows over recovery. Poor lending practices weaken the state-owned institutions financially and make them continually dependent on government or external donor funds. Bank Rakyat Indonesia (BRI) is one of the few state-owned institutions that overcame problems that typically afflict them. This note seeks to inform policymakers and other government officials about the process of transformation of BRI's unit desa (or village banking) system, and identify key factors that led to the birth of a successful micro-finance institution. It argues that in the absence of these factors, the efficacy of reform for state-owned development finance institutions will be severely limited.

The challenge of growth for micro-finance institutions : the BancoSol experience

Abstract: The rapid growth of BancoSol in Bolivia and its transfromation from an non-governmental organization to a licensed commercial bank illustrates important lessons for other micro-finance institutions (MFIs). This note focuses on the financial and management challenges MFIs face as they grow and formalize.

Kenya Women Finance Trust : case study of a micro-finance scheme

Abstract: This report summarizes the findings of an Action Research conducted on the operations of the Kenya Women Finance Trust (KWFT). KWFT was set up in 1981 to help Kenyan women participate in the economic mainstream through credit and training. KWFT adopted the group-based model of intermediation implemented by the Kenya Rural Enterprise Program. It has developed a reputation among Kenyan women, especially rural women, as a reliable and quick source of credit. This empowers women by creating additional sources of income and thereby reduces their dependency level. By bringing women together KWFT has also created some long-lasting relationships which help solve some of the social problems in Kenyan society. The most significant non-economic impacts of KWFT are: creating credit awareness, developing a businesslike attitude, and reducing fear of banks and loans among KWFT clients. The general lessons learned is that successful lending requires good management skills, qualified staff, and effective information system, and a continued effort to train personnel and upgrade the management information system. The specific lessons learned fall into three general categories: institutional policies and capacity-building, credit program management, and client-servicing issues.

Zimbabwe - Zambuko Trust

Abstract: Development practitioners, governments, and academics have spent a great deal of time studying the success stories of the Grameen Bank in Bangladesh, Bank Rakyat of Indonesia, and BancoSol in Bolivia, as these institutions are thought to constitute a more cost-effective means to promote a development among the world's economically-active poor. These institutions provided useful models and offer important lessons in constructing financially viable micro-finance institutions. This evaluation of the Zimbabwean micro-finance institution Zambuko Trust has been conducted in order to highlight the successes and shortcomings of a second-generation microfinance institution. It provides useful insights into the process of expansion of a micro-finance institution from one-to-four provinces over a short four-year period.

The shifting paradigm in microfinance — the case of Get Ahead's Stokvel Lending Programme

Abstract: This article describes the recent turn around experienced by South Africa's largest NGO microlending programme. In 1993, Get Ahead's Stokvel Lending Programme was in trouble: 50 per cent of the portfolio had to be written off, employee morale reached rock bottom, and costs were too high for the portfolio size. By 1996 the programme had nearly 10 000 active borrowers and an annual loan loss rate of less than 3 per cent. Cost ratios and staff morale have significantly improved. Get Ahead's shift to the new paradigm in microfinance, while not complete, provides some interesting lessons for the microfinance community.

National Consultation-Workshop on Alternative Mechanisms for the Promotion of Microfinance in Vietnam

Abstract: On 24-26, 1996, the Vietnam Bank for Agriculture (VBA) and the Asia Pacific Rural and Agricultural Association (APRACA) held a joint workshop in Hanoi on Alternative Mechanisms for the Promotion of Microfinance in Vietnam. The workshop was hosted by VBA and supported by the German technical assistance agency GTZ. The workshop was attended by some 60 national participants from the State Bank of Vietnam, the Government Office, the Ministry of Agriculture and Rural Development, the Ministry of Finance, the Ministry of Labor, Invalids and Social Affairs, the Ministry of Planning and Investment, the Central Economics Committee, the People's and Mountainous Committee, the Vietnam Bank for Agriculture, the Vietnam Bank for the Poor, the Central People's Credit Fund, the National Economics University, the Vietnamese Farmers' Association, and the Vietnamese Women's Union. Further the workshop was attended by some 20 foreign participants from APRACA, ACS (APRACA Consultancy Services), BAAC (Bank of Agriculture and Agricultural Cooperatives) in Thailand, Bank Indonesia & PHBK, Bank Rakyat Indonesia, CIDSE (an international NGO in Vietnam), GTZ, NABARD from India, and UNDP (Hanoi and Kuala Lumpur).