INTRODUCTION TO MICROFINANCE KEY PRINCIPLES OF MICROFINANCE

5. Microfinance is about building permanent local financial

institutions.  Building financial systems for the poor means building sound domestic financial intermediaries that can provide financial services to poor people on a permanent basis. Such institutions should be able to mobilize and recycle domestic savings, extend credit, and provide a range of services. Dependence on funding from donors and governmentsincluding government-financed development bankswill gradually diminish as local financial institutions and private capital markets mature.

1. The poor need a variety of financial services, not just

loans.  Just like everyone else, poor people need a wide range of financial services that are convenient, flexible, and reasonably priced. Depending on their circumstances, poor people need not only credit, but also savings, cash transfers, and insurance. Access to sustainable financial services enables the poor to increase incomes, build assets, and reduce their vulnerability to external shocks. Microfinance allows poor households to move from everyday survival to planning for the future, investing in better nutrition, improved living conditions, and childrens health and education.

2. Microfinance is a powerful instrument against poverty.



6. Micro credit is not always the answer.

 Micro credit is not appropriate for everyone or every situation. The destitute and hungry that have no income or means of repayment need other forms of support before they can make use of loans. In many cases, small grants, infrastructure improvements, employment and training programs, and other non- financial services may be more appropriate tools for poverty alleviation. Wherever possible, such non-financial services should be coupled with building savings.

3. Microfinance means building financial systems that

serve the poor.  Poor people constitute the vast majority of the population in most developing countries. Yet, an overwhelming number of the poor continue to lack access to basic financial services. In many countries, microfinance continues to be seen as a marginal sector and primarily a development concern for donors, governments, and sociallyresponsible investors. In order to achieve its full potential of reaching a large number of the poor, microfinance should become an integral part of the financial sector.

7. Interest rate ceilings can damage poor peoples access

to financial services.  It costs much more to make many small loans than a few large loans. Unless micro lenders can charge interest rates that are well above average bank loan rates, they cannot cover their costs, and their growth and sustainability will be limited by the scarce and uncertain supply of subsidized funding. When governments regulate interest rates, they usually set them at levels too low to permit sustainable micro credit. At the same time, micro lenders should not pass on operational inefficiencies to clients in the form of prices (interest rates and other fees) that are far higher than they need to be. 8. The Governments role is as an enabler, not as a direct provider of financial services.  National governments play an important role in setting a supportive policy environment that stimulates the development of financial services while protecting poor peoples savings. The key things that a government can do for microfinance are to maintain macroeconomic stability, avoid

4. Financial sustainability is necessary to reach significant

numbers of poor people.  Most poor people are not able to access financial services because of the lack of strong retail financial intermediaries. Building financially sustainable institutions is not an end in itself. It is the only way to reach significant scale and impact far beyond what donor agencies can fund. Sustainability is the ability of a microfinance provider to cover all of its costs. It allows the continued operation of the microfinance provider and the ongoing provision of financial services to the poor. Achieving financial sustainability means reducing transaction costs, offering better products and services that meet client needs, and finding new ways to reach the unbanked poor.

interest-rate caps, and refrain from distorting the market with unsustainable subsidized, highdelinquency loan programs. Governments can also support financial services for the poor by improving the business environment for entrepreneurs, clamping down on corruption, and improving access to markets and infrastructure. In special situations, government funding for sound and independent microfinance institutions may be warranted when other funds are lacking. 9. Donor subsidies should complement, not compete with private sector capital. Donors should use appropriate grant, loan, and equity instruments on a temporary basis to build the institutional capacity of financial providers, develop supporting infrastructure (like rating agencies, credit bureaus, audit capacity, etc.), and support experimental services and products. In some cases, longer-term donor subsidies may be required to reach sparsely populated and otherwise difficult-to-reach populations. To be effective, donor funding must seek to integrate financial services for the poor into local financial markets; apply specialist expertise to the design and implementation of projects; require that financial institutions and other partners meet minimum performance standards as a condition for continued support; and plan for exit from the outset. 10. The lack of institutional and human capacity is the key constraint.  Microfinance is a specialized field that combines banking with social goals, and capacity needs to be built at all levels, from financial institutions through the regulatory and supervisory bodies and information systems, to government development entities and donor agencies. Most investments in the sector, both public and private, should focus on this capacity building. 11. The importance of financial and outreach transparency.  Accurate, standardized, and comparable information on the financial and social performance of financial institutions providing services to the poor is imperative. Bank supervisors and regulators, donors, investors, and more importantly, the poor who are clients of microfinance need this information to adequately assess risk and returns. _______________________________________________

Introducing Microfinance The main idea behind microfinance is that poor people, who can provide no collateral, should have access to some sort of financial services. Microfinance began with microcredit: the provision of small loans (20-50 Euros) to very poor families to help them engage in productive and self-sustaining activities. Since the successful initiation of formalized microcredit in the 1980s a number of other complementary services have popped up around the globe, including micro savings, micro insurance etc An effective way to fight poverty Microfinance has proven to be a very effective development tool because it provides empowerment instead of charity. Typically, microfinance clients are self-employed household entrepreneurs who lack the resources to invest in their business and their future and thus cannot escape the grips of extreme poverty. Here is a typical microfinance success story taken from the United Nations Capital Development Fund. Conclusions Microfinance is not a solution to all the worlds problems, but seems to be effective in encouraging entrepreneurship, increasing the income of the poorest and helping them to build viable businesses. The United Nations has declared that 2005 is the year of microfinance. The sector is booming and there has never been so much attention given to this sector. Furthermore, there seems to be a great deal of opportunity for young professionals _______________________________________________ An Introduction to Microfinance Microfinance is the offering of basic financial services to the poor. Microfinance clients typically live in developing countries, and tend to be women, although about onethird is men. Microfinance institutions take many forms, including commercial businesses, non-profit institutions and government agencies. Who Microfinance clients are poor people who work for themselves or operate small businesses. They often need small loans to

build their businesses, or they just need a reliable place to save and borrow money. Why Microfinance clients typically have little money to open a traditional savings account or to use as collateral for a loan. They might not be able to write out an application for a loan. Banks are designed to deal with people who have money. How Microfinance helps the poor to meet basic needs and protect against risks. Their use of financial services improves their basic economic welfare and enhances the stability and growth of their economic enterprises. The support of women's economic participation empowers them and enhances household well-being. How many MFIs and Clients? As of December 2008, over 99 million people borrowed from over 2,400 MFIs in Asia, Europe, Latin America and the Caribbean, the Middle East and Africa. Exceptions Microcredit has made a difference, but it is not appropriate in some situations, such as nomadic societies, populations with high levels of illnesses such as HIV/AIDS, societies that depend on barter rather than cash, and economies that depend primarily on a single crop. OBLIGATION AND CONTRACTS  INTRODUCTION TO LAW

abortion, or must see that the provisions of a will are carried out. And certainly every year you must file an income tax return. Each of these scenarios involves the law. What is law, and where does it come from? This book briefly answers those questions and explains what happens when an issue comes before the courts. Law is the set of rules that guides our conduct in society and is enforceable through public agencies. Our relations with one another are governed by many rules of conductfrom important concepts of ethics and fair play to minor etiquette matters such as which fork to use and how to introduce strangers to one another. We obey these rules because we think they are right or simply because we desire the approval of others. If we do not follow these rules, others may treat us differentlyfrom giving us a disapproving glare to completely ostracizing us. Generally, our government is not involved in expressing disapproval for disobedience of these kinds of rules. Some rules of conduct, however, are considered so important that they are enforced through the government. Traditionally, the most serious breaches of society's rules are labeled crimes , and people who commit crimes may be arrested, prosecuted, and punished by officials paid by the government. Crimes are kinds of misconduct considered so harmful that the society employs public officers to try to prevent the misconduct and to punish those who engage in it. The prosecution of a crime is a lawsuit between the people of a state in their collective capacity (represented by a prosecutor and called the State ) and the offender. Murder, rape, assault, theft, and fraud are categories of  GENERAL PROVISIONS

Although "the law" may seem to be abstract and far removed from everyday life, it actually is a framework for much of what you do. Perhaps you get a traffic ticket or want a local store to replace a defective toaster you purchased. Perhaps you have been called for jury duty or must testify as a witness to an accident. Perhaps you want to stop a road- widening project near your home, ponder the issues of prayer in school or

Law of Obligations and Contracts The Law of Obligations and Contracts is the body of rules which deals with the nature and sources of obligations and the rights and duties arising from agreements and particular contracts.

TITLE I

OBLIGATIONS (Arts. 1156-1304, Civil Code) Chapter 1 GENERAL PROVISIONS Article 1156. An obligation is a juridical necessity to give, to do or not to do. Civil obligation obligations which give to the creditor or obligee a right under the law to enforce their performance in courts of justice Natural obligations not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance although in case of voluntary fulfillment by the debtor, the latter may not recover what has been delivered or rendered by reason thereof.; precept based on "do good and avoid evil" FOUR ESSENTIAL REQUISITES OF AN OBLIGATION: 1. A passive subject (debtor or obligor) the person who is bound to the fulfillment of the obligation 2. An active subject (creditor or obligee) the person who is entitled to demand the fulfillment of the obligation 3. Object or prestation (subject matter of the obligation) the conduct required to be observed by the debtor. It may consist in giving, doing, or not doing. 4. A juridical or legal tie (efficient cause) that which binds or connects the parties to the obligation. The tie in an obligation can easily be determined by knowing the source of the obligation. Scenario: Under a building contract, X bound himself to build a house for Y for P3,000,000.00. Passive subject: Active subject: Object or Prestation: Juridical tie: FORM OF OBLIGATION: Can be oral, or in writing, or partly oral and partly in writing. KINDS OF OBLIGATION ACCORDING TO THE SUBJECT MATTER: 1. Real obligation (obligation to give) the subject matter is a thing which the obligor must deliver to the obligee

Ex: X (the seller) binds himself to deliver a piano to Y 2. Personal obligation (obligation to do or not to do) the subject matter is an act to be done or not to be done. TYPES OF PERSONAL OBLIGATION: a) Positive personal obligation obligation to do or to render service Ex: X binds himself to repair the piano of Y. b) Negative personal obligation obligation not to do (which naturally includes obligations "not to give") Ex: X obliges himself not to build a fence on a certain portion of his lot in favor of Y who is entitled to a right of way over said lot. Article 1157. Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasidelicts. SOURCES OF OBLIGATIONS y Law when they are imposed by law itself. Ex: Obligation to pay taxes; obligation to support one's family y Contracts when they arise from the stipulation of the parties. Ex: The obligation to repay a loan or indebtedness by virtue of an agreement. y Quasi-contracts when they arise from lawful, voluntary and unilateral acts which are enforceable to the end that no one shall be unjustly enriched or benefited at the expense of another. Ex: The obligation to return money paid by mistake or which is not due. y Crimes or acts or omissions punished by law when they arise from civil liability which is the consequence of a criminal offense. Ex: The obligation of a thief to return the car stolen by him; the duty of a killer to indemnify the heirs of his victim y Quasi-delicts or torts when they arise from damage caused to another through an act or omission, there being fault or negligence, but no

contractual relation exists between the parties. Ex: The obligation of the head of a family that lives in a building or a part thereof to answer for damages caused by things thrown or falling from the same; the obligation of the possessor of an animal to pay for the damage which it may have caused. Article 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the provisions of this Book. Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. 1. Binding force 2. Requirement of a valid contract COMPLIANCE IN GOOD FAITH Compliance in good faith means compliance or performance in accordance with the stipulations or terms of the contract or agreement. Sincerity and honesty must be observed to prevent one party from taking unfair advantage over the other. Article 1160. Obligations derived from quasi- contracts shall be subject to the provisions of Chapter 1, Title XVII of this Book. KINDS OF QUASI-CONTRACTS: y Negotiorum gestio voluntary management of the property or affairs of another without the knowledge or consent of the latter. y Solutio indebiti juridical relation which is created when something is received when there is no right to demand it and it was unduly delivered through mistake. The requisites are: (a) There is no right to receive the thing delivered; and

(b) The thing was delivered through mistake. Article 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating damages.

OBLIGATION ARISING FROM QUASIDELICT A quasi-delict is an act or omission by a person which causes damage to another giving rise to an obligation to pay for the damage done, there being fault or negligence but there is no pre-existing contractual relation between the parties. REQUISITES OF QUASI-DELICT Before a person can be held liable for quasidelict, the following requisites must be present: 1. There must be an act or omission; 2. There must be fault or negligence; 3. There must be damage caused; 4. There must be a direct relation of cause and effect between the act or omission and the damage; and 5. There is no preexisting contractual relation between the parties. CRIME DISTINGUISHED FROM QUASIDELICT 1. In crime, there is criminal or malicious intent or criminal negligence, while in quasi- delict, there is only negligence; 2. In crime, the purpose is punishment, while in quasi-delict, indemnification of the offended party; 3. Crime affects public interest, while quasi-delict concerns private interest 4. In crime, there are generally two liabilities: criminal and civil, while in quasidelict, there is only civil liability; 5. Criminal liability cannot be compromised or settled by the parties themselves, while the liability for quasidelict can be compromised as any other civil liability; 6. In crime, the guilt of the accused must be proved beyond reasonable doubt, while in quasi-de1ict the fault or negligence of the defendant need only be proved by

preponderance (i.e., superior or greater weight) of evidence.