Showing papers on "Microfinance published in 2002"

The triangle of microfinance: financial sustainability, outreach and impact

Abstract: Contents: List of FiguresList of TablesList of BoxesForeword Preface 1 Improving the Preformance of Microfinance: Financial Sustainability, Outreach, and Impact MANFRED ZELLER AND RICHARD L. MEYERPART I Access to and Demand for Financial Services by the Poor 2 Access to and Demand for Financial Services by the Rural Poor: A Multicounty Synthesis MANFRED ZELLER AND MANOHAR SHARMA3 Characteristics of Household Demand for Financial Services in Highly Uncertain Economies: A Review of Evidence from Burkina Faso GENEVIEVE NGUYEN, BETTY WAMPFLER, MICHEL BENOIT-CATTIN, AND KIMSEYINGA SAVADOGO4 Wealth and Rural Credit among Farmers in Mexico: Is Market Participation Consistent with Trageting? JULIE STANTON5 Credit Constraints and Loan Demand in Rural Bangladesh MANFRED ZELLER AND MANOHAR SHARMA6 Improving Access to Land Markets: Evidence from Engineering Farmers in KwaZulu-Natal, South Africa MICHAEL LYNE AND MARK DARROCHPART II Outreach and Financial Sustainability of Institutions 7 Outreach and Sustainability of Member-based Rural Financial Intermediaries JULIA PAXTON AND CARLOS E. CUEVAS8 Microcredit and the Poorest of the Poor: Theory and Evidence from Bolivia SERGIO NAVAJAS, MARK SCHREINER, RICHARD L. MEYER, CLAUDIO GONZALEZ-VEGA, AND JORGE RODRIGUEZ-MEZA9 An Operational Tool for Evaluating the Poverty Outreach Development Policies and Projects MANFRED ZELLER, MANOHAR SHARMA, CARLA HENRY, AND CECILE LAPENU10 Transaction Costs of Group and Individual Lending and Rural Financial Market Access: The Case of Poverty-Oriented Microfinance in Cameroon FRANZ HEIDUES, DIEUDONNE BELLE-SOSSOH, AND GERTRUD BUCHENRIEDERPART III Measuring the Impact of Microfinance 11 Impact of Microfinance on Food Security and Poverty Alleviation: A Review and Synthesis of Empirical Evidence MANOHAR SHARMA AND GERTRUD BUCHENRIEDER12 Impact of Acces to Credit on Maize and Tobacco Productivity in Malawi ALIOU DIAGNE13 Explaining Poverty: An Empirical Analysis of the Effects of Ill Health and Uncertainty on the Savings of Rural Pakistani Households ANJINI KOCHARPART IV Toward Economic Sustainability of Rural Financial Systems for the Poor: The Role of Public Action and the Private Sector 14 The Microfinance Revolution: Implications for the Role of teh State CECILE LAPENU15 Recent Developments in Rural FInance Markets JACOB YARON AND McDONALD BENJAMIN16 Credit Systems for the Rural Poor in the Economic Transition of China: Institutions, Outreach, and Policy Options ZHU LING, JIANG ZHONGYI, JOACHIM VON BRAUN17 Summary and Implications for Policy and Research RICHARD L. MEYER AND MANFRED ZELLER Contributors Index

Aspects of outreach: a framework for discussion of the social benefits of microfinance

Abstract: Wide agreement about the goal of microfinance—to improve the welfare of the poor—has not led to wide agreement about how best to achieve that goal. To aid discussion, I propose a framework for outreach—the social benefits of microfinance—in terms of six aspects: worth, cost, depth, breadth, length, and scope. The framework encompasses both the poverty approach to microfinance and the self-sustainability approach. The poverty approach assumes that great depth of outreach can compensate for narrow breadth, short length, and limited scope. The self-sustainability approach assumes that wide breadth, long length, and ample scope can compensate for shallow depth. I show how to use the framework for BancoSol of Bolivia. Copyright © 2002 John Wiley & Sons, Ltd.

Finance for the Poor: From Microcredit to Microfinancial Services

Abstract: This paper reviews the achievements of the 'microfinance revolution', through reference to the now extensive literature. It finds that there are many opportunities to improve and innovate. To illustrate this finding, the paper concentrates on examining what we need to know to design and deliver better financial products to the poor, especially the poorest. It argues that financial services for the poor are essentially a matter of helping the poor turn their savings into sums large enough to satisfy a wide range of business, consumption, personal, social and asset-building needs. The range of such 'swaps' should be wide enough to cater for short, medium and long-term needs, and they must be delivered in ways which are convenient, appropriate, safe and affordable. Providing poor people with effective financial services helps them deal with vulnerability and can thereby help reduce poverty. However, the relationship is driven by complex livelihood imperatives and is not simple. Microfinance is not a magic sky-hook that reaches down to pluck the poor out of poverty. It can, however, be a strategically vital platform that the poor can use to raise their own prospects for an escape from poverty. Copyright # 2002 John Wiley & Sons, Ltd.

Financing microenterprises: an analytical study of islamic microfinance institutions

Abstract: *While conventional microfinance institutions (MFIs) have expanded their operations in the last two decades, poverty-focused MFIs based on Islamic principles are lagging behind. This paper provides the theoretical basis, operational framework, and empirical support for the establishment of Islamic MFIs. After critically evaluating the conventional MFIs, an Islamic alternative is presented. The theoretical part of the paper shows that there is a great potentiality of Islamic MFIs that can cater for the needs of the poor. Islamic MFIs have some inherent characteristics that can mitigate some of the problems faced by conventional MFIs. Empirical evidence from three Islamic MFIs operating in Bangladesh, in general, supports some of the theoretical assertions. The case studies, however, reveal that Islamic MFIs have not yet tapped some of the sources of funds, nor have they used the variety of financial instruments in their operations. ? With the failure of experimenting in top-down (trickle down) development policies for a few decades to alleviate poverty in most developing countries, financing microenterprises is considered a “new paradigm” for bringing about development and eradicating absolute poverty.

Microfinance and women's empowerment: a lesson from India

Abstract: This article describes an NGO project intended to empower scheduled caste women working in the silk-reeling industry in India through the provision of microfinance. It documents the impact that the project had on their economic and social status over a period of time and highlights the negative consequences of excluding male relatives from playing any meaningful role. It suggests ways in which the project might have been made more male inclusive while still empowering women. At the same time, it acknowledges that even if the men's hostility to the project had been overcome, the women's micro enterprises were unlikely to have been viable commercially. This is because the project insisted that the women operate as a group in what was a high-risk area of economic activity, with no clear strategy as to how their work could be sustained.

Impact Assessment of Microfinance Interventions in Ghana and South Africa: A Synthesis of Major Impacts and Lessons

Abstract: Delivery of microcredit to operators of small and micro enterprises (SMEs) in developing countries is increasingly being viewed as a strategic means of assisting the so-called "working poor" (ILO, 1973). Over the past decade, a considerable amount of multi- and bilateral aid has been channeled into microfinance programs in the Third World with varying degrees of success. Like all development interventions, donors, governments, and other interested parties demand evaluations and impact assessment studies to ascertain the achievements and failures of these programs. This paper reviews two such studies conducted in Ghana and South Africa that focused mainly on impact results. The outcomes of the two case studies have established that microfinance interventions have achieved significant improvements in terms of increased business incomes, improved access to life-enhancing facilities, and empowerment of people, particularly women.

Women, microfinance, and savings: lessons and proposals

Abstract: Microfinance--both credit and savings--has potential to improve the well-being of poor women in developing countries. This paper explores practical ways to achieve that potential. Based on lessons from informal savings mechanisms that women already use, the paper proposes two savings services designed to address the development issues that confront women. The proposals call for safe-deposit boxes and for matched-savings accounts for healthcare or education.

Group Size and Social Ties in Microfinance Institutions

Abstract: Microfinance programmes provide poor people with small loans given to jointly liable self-selected groups. Follow-up loans provide incentives to repay. In an experiment we investigate the influence of those features on strategic default. Each group member invests in an individual risky project, whose outcome is known only to the individual investor. Subjects decide, whether to contribute to group repayment or not. Only those with successful projects can contribute. The experiment ends if too few repay. We investigate group size and social ties effects. We observe high repayments rates, which are robust across treatment. Group lending outperforms individual lending. Self-selected groups show a high but less stable willingness to contribute.

Track Record of Financial Institutions in Assisting the Poor in Asia

Abstract: A variety of institutional forms of microfinance are being introduced in Asia including by the ADB-and financial institutions pursue different objectives, so it is difficult to assess how well microfinance is actually contributing to poverty alleviation. There is little systematic data available on which to make global or regional generalizations. The objective of this paper is to provide some insights into how well the industry is performing by summarizing and evaluating key studies and data for the region.

The commercialization of microfinance : balancing business and development

Abstract: Microfinance has been promoted as having the potential to be a self-sustainable solution to poverty, and consequently has attracted growing interest among international development professionals. Many of the organizations that provide microfinance started as NGOs, but there is a growing trend for these organizations to transform themselves into regulated, for-profit entities. At the same time traditional financial institutions are also entering the microfinance market. Latin America has led the way in this process, but the same transformation is occurring, at a slower pace, in other regions of the world as well. Prominent practitioners and scholars from a variety of organizations have come together to study this phenomenon and address the key issues related to bringing microfinance into the commercial realm. The Commercialization of Microfinance explores key trends, and presents case studies of microfinance institutions operating as commercial entities. Prepared by ACCION, this book will be essential reading for anyone interested in understanding how the world of microfinance is changing, and how that world affects the broader processes of development.

The Microfinance Revolution : Volume 2. Lessons from Indonesia

Abstract: This book focuses on how the demand for microfinance can be met on a global scale. It documents the contributions of institutions and of people who have led the development of commercial finance for the poor, and it analyzes the principles on which the microfinance revolution is based. In sum, this work offers a detailed overview of the development of microfinance over the past 20 years; a global view of microfinance in the developing world (largely excluding Eastern Europe); a thesis on the future path of microfinance; a coherent theory about microfinance--why it works when so many other development interventions fail; detail on a number of important microfinance topics--such as informal moneylending and savings; an important study on, and lessons from Indonesia, with detailed analysis of Bank Rakyat Indonesia; and, brief studies of many other microfinance institutions in Africa, Asia, and Latin America.

Microfinance Institutions and Public Policy

Abstract: Many governments and nongovernmental organizations have adopted policies to promote the growth of microfinance institutions (MFIs). The appropriate level and form of support for MFIs are discussed in this paper on the basis of a review of key MFI characteristics. Governments are also responsible for the regulation of MFIs; here, some principles concerning the extent and coverage of MFI regulation and supervision are developed.

Microfinance and womens empowerment: rethinking "best practice."

Abstract: In the 1990s microfinance targeting women became a major focus of gender policy in many donor agencies Literature prepared for the 1997 Microcredit Summit donor policy documents and NGO funding proposals all present an extremely attractive vision of increasing numbers of expanding financially self-sustainable microfinance programmes reaching large numbers of women borrowers Through their contribution to women’s ability to earn an income these programmes are assumed to initiate a series of ‘virtuous spirals’ of economic empowerment increased well-being for women and their families and wider social and political empowerment However more recently as the findings of research and experience have filtered through this initial enthusiasm is being replaced by scepticism Here it is argued that although the widespread complacency about the automatic benefits of microfinance for women needs to be questioned the shortcomings of existing practice should stimulate the search for improvement and innovation rather than provide the basis for cynical inaction It is not microfinance per se which is the problem but the ways in which ‘best practice’ has become dominated by concerns of financial sustainability Innovations in some programmes point to a range of ways in which microfinance’s contribution to empowerment can be increased as part of a broader strategy for gender transformation (excerpt)

Pathways out of poverty : innovations in microfinance for the poorest families

Abstract: Acknowledgments Preface Acronyms 1 Ensuring Impact: Reaching the Poorest while Building Financially Self-Sufficient Institutions, and Showing Improvement in the Lives of the Poorest Women and Their Families Anton Simanowitz with Alice Walter 2. Building Better Lives: Sustainable Integration of Microfinance with Education in Child Survival, Reproductive Health, and HIV/AIDS Prevention for the Poorest Entrepreneurs Christopher Dunford 3. Innovations from the Field: A Daringly Brief Summary of a Huge Phenomenon John K. Hatch with Sara R. Levine and Amanda Penn 4. Empowering Women through Microfinance Susy Cheston and Lisa Kuhn 5. Financing Microfinance for Poverty Reduction David S. Gibbons and Jennifer W. Meehan 6. Policies, Regulations, and Systems That Promote Sustainable Financial Services to the Poor and Poorest Women's World Banking Bibliography Index

Microcredit interest rates

Abstract: This paper outlines a method for estimating the interest rate that an microfinance institution (MFI) will need to realize on its loans, if it wants to fund its growth primarily with commercial funds at some point in the future. The model presented is simplified. However, it yields an approximation that should be useful for many MFIs, especially younger ones. Each component of the model is explained and then illustrated with the MicroFin (a young institution serving 1,000 active microloan customers) example.

The promise and peril of microfinance commercialization

Abstract: Microfinance has entered a new phase in which competition and other market forces are compelling microfinance institutions to adopt 'commercial' approaches. Commercialization holds out several promises; chief among them are the benefits for microfinance consumers that typically accompany competition and, for transformed MFIs, the ability to mobilize small-scale savings. But it also poses several perils of which mission drift is the most prominent. This article reviews the promises and perils of commercialization and the evidence for mission drift. It concludes that the promises of commercialization more than justify its risks, but it cautions restraint and recommends a continued role for poverty-focused microfinance NGOs so as to ensure that the poor, and especially the very poor, remain legitimate markets for financial services.

A Framework for Regulating Microfinance Institutions : The Experience in Ghana and the Philippines

Abstract: An earlier Policy Research Working Paper (Hennie van Greuning, Joselito Gallardo, and Bikki Randhawa, "A Framework for Regulating Microfinance Institutions," WPS 2061, February 1999) presented a regulatory framework that identifies thresholds in financial intermediation activities that trigger a requirement for a microfinance institution to satisfy external or mandatory guidelines-a tiered approach to regulation and prudential supervision. The model focuses on risk-taking activities of microfinance institutions that must be managed and prudentially regulated. The author reports on the results of the field testing and assessment of the tiered approach, focusing on the experience of Ghana and the Philippines. The two countries both have a wide range of informal, semi-formal, and formal institutions providing financial services to the poor, but differ in how they regulate financial intermediation activities by microfinance providers. In his assessment and a comparative analysis, the author focuses on key issues in the regulatory and supervisory environment for microfinance-and in the legal system and judicial processes-being addressed by government authorities and microfinance stakeholders in both countries. He gives particular attention to the thresholds at which intermediation activities become subject to prudential regulation and regulatory standards for capitalization and capital adequacy, asset quality and provisioning for nonperforming loans, and liquidity management. seeks to identify the key elements and characteristics of the microfinance regulatory experience of Ghana and the Philippines and to draw the lessons that may be useful for other countries interested in establishing a regulatory environment conducive to the development of sustainable microfinance institutions. The experience of Ghana and the Philippines shows that a transparent, inclusive regulatory framework is indispensable for enabling microfinance institutions to maintain market specialization and to pursue institutional development that leads to sustainability. Clear pathways for institutional transformation facilitate the integration of microfinance institutions into the formal financial system.

Implementing and evaluating microcredit in Bangladesh

Abstract: Microcredit has been introduced to rural communities in Bangladesh as a means of economic and social development, but there are increasing doubts about its effectiveness and suggestions that it causes domestic abuse. A review of various studies indicates that microcredit can result in social disruption by exacerbating gender conflict. It is suggested that micro-level study is required before credit is introduced to local communities.

The triangle of microfinance

Abstract: The initial success of microfinance programs in the 1970s led pioneers to think that many essential problems of the poor might be resolved by access to credit alone the ability to acquire assets, to start businesses, to finance emergency needs and to insure against illness and disaster. Part of that vision has certainly been realized. But much remains to be done. Most microfinance institutions (MFIs) are still small and vulnerable to constraints on their resources and to the risks inherent in single-issue portfolios. Most depend upon donors and governments to remain in operation. There is much waste and duplication, and some mature programs have declining loan recovery rates, even as competition for borrowers rises from conventional banks and finance companies. Analyzing the failures of credit programs aimed at small farmers and the successes of other programs showed the need for new understanding of the ways that poor households make spending, borrowing, and saving decisions. This area was previously neglected in policymaking on food security issues. The International Food Policy Research Institute (IFPRI) supported household surveys in nine Asian and African countries during the 1990s that analyzed formal and informal financial transactions, and it also evaluated the success of innovative approaches at some MFIs. The overall goal was to clarify the conditions under which state investment in microfinance programs might improve life for poor people more than state investment of the same funds in education, health, nutrition, or infrastructure development. The research led to the concept of the "critical triangle of microfinance" the need for any MFI to manage simultaneously the problems of outreach (reaching the poor both in terms of numbers and depth of poverty), financial sustainability (meeting operating and financial costs over the long term), and impact (having discernible effect upon clients' quality of life). This book elaborates on these objectives and shows that the most successful MFIs expand all sides of that triangle. Tradeoffs are sometimes inevitable, but even so, synergies among the three make the concept valuable from Author's Abstract.

Ensuring Impact : Reaching the Poorest While Building Financially Self-Sufficient Institutions, and Showing Improvement in the Lives of the Poorest Families: Summary of Article Appearing in Pathways Out of Poverty: Innovations in Microfinance for the Poor

Abstract: This paper is about microfinance and its contribution to the eradication of poverty for millions of the world's poorest people. The Millennium Development goals set a critical challenge of halving absolute poverty in the world by 2015. Microfinance can make an important contribution to these goals by reducing income poverty, vulnerability, and empowering women to choose when and how to access other development services such as health and education. Donors should invest in poverty-focused microfinance as a key part of their Millennium Development strategies. Practitioners should explore how to ensure that programs become more effective in working with the poorest. The paper demonstrates the fallacy that microfinance cannot be an appropriate strategy for the poorest. It is not the poverty level of potential clients that determines access and impact, but the design of the services provided. Not all people need microfinance, but most groups can benefit. There are trade-offs between social and financial objectives, but MFIs can and do reach and impact on the poorest and achieve financial self-sufficiency.

Money mosaics: financial choice and strategy in a West Delhi squatter settlement

Abstract: This paper examines the financial services and devices used by dwellers of Kalibasti, a squatter settlement in West Delhi. It discusses to what extent people are able to put together effective money management strategies through available devices and to what extent we might perceive ‘service’ or ‘product gaps’ which point to where new or existing providers could step in. It highlights the embeddedness of financial devices used by residents in wider kinds of relationships with relatives, co-residents, employers, ‘patrons’ and others. The paper concludes that access to adequate services does not necessarily correspond with access to formal or semi-formal services as is often presented by microfinance advocates. Rather it reflects people's awareness, job and income security, and capacity to leverage personal networks, all of which contribute to the capability of squatter residents to make financial relations and services work for them. The paper ends by making some tentative suggestions as to how our findings might be of interest to prospective microfinance providers in squatter settlements such as Kalibasti. Copyright © 2002 John Wiley & Sons, Ltd.

Dimensions and dynamics of microfinance membership overlap - a micro study from Bangladesh

Abstract: The microfinance market of Bangladesh is getting rapidly crowded. In certain areas there is also quite high incidence of households taking loans from a number of microfinance providers. Why is this happening? How does it affect the providers? What should be done? These are some of the questions that this paper begins to address based on data collected from BRAC's operations in Tangail. We find that a number of crises often gives rise to an urgent need for lump sums of cash, and this is why households often need access to several loan sources. Though repayment irregularity is found to be on the increase, somehow it is being managed from turning into a major default problem, suggesting a level of in-built resilience of the system. This needs further research. In terms of what should be done, we chalk a broad agenda consisting of better information-sharing mechanisms and developing better risk-responsive financial products. In this sense, the phenomenon of multiple microfinance membership is as much an oppor...

The Implications of the Evolving Microfinance Agenda for Regulatory and Supervisory Policy

Abstract: The growth in microfinance institutions (MFIs) has been accompanied by a widening of the range of financial services provided to the poor, to include voluntary savings facilities. This entails prudential risk to clients and poses the policy question of the most appropriate form of regulatory framework for MFIs. This article examines the implications for regulatory policy of the recent trend towards MFI provision of microfinancial services encompassing savings, credit and insurance, by evaluating what we know of the existing regulatory approaches, the main concerns with these approaches, and the merits of recent regulatory proposals for MFIs.

Reflections on microfinance and womens empowerment.

Abstract: Microfinance programmes for women are increasingly seen by development agencies as an effective poverty alleviation intervention with a positive impact on economic growth and a number of social development indicators High repayment rates are interpreted to mean that women are using loans productively and controlling credit It is widely assumed that there is a clear and direct relationship between access to credit and an increase in the status of women within their households and communities: provision of credit is believed to lead to the empowerment of women This article reflects on findings from interviews over three weeks with village women’s groups and staff from three NGOs in Bangladesh and one based in Bihar in India These organisations provide microfinance to women as a primary strategy for addressing poverty and empowerment This article also draws on the authors’ experience with credit programmes supported by NGOs in other parts of South Asia and on recent literature on microfinance We argue that development agencies committed to the empowerment of women need to question the nature of the link between access to credit by targeting women and the transformation in gender relations needed for empowerment and equality Significant research and much anecdotal evidence suggest that this link is certainly not automatic (excerpt)

Studying group dynamics: an alternative analytical framework for the study of microfinance impacts on poverty reduction

Abstract: Group dynamics have been largely neglected when the impacts of microfinance on poverty reduction are assessed This paper presents an analytical framework in which the study of group dynamics is central, and new channels of impact effects on the individuals participating in microfinance schemes, their households, enterprises and communities are assessed Four potential outcomes of this fresh approach to the analysis of poverty impacts are argued; they may have dramatic implications for the way we look at the effectiveness of microfinance today