Microfinance

Aftab Uddin Mahmud Chowdhury

ID:12-010
 Case:01
Formal Sector Supplies in
Rural Mexico
• “Efficiency and fairness of rural market”
• 1994 & 1995 a World Bank team
• Case studies on:

Review of the
Household survey of regulatory
90 non bank lender 800 rural framework (credit
entrepreneur union and savings
& loan companies)
Poor performance of rural financial
markets in Mexico

●
Shallow (45% rural entrepreneur

Market ●
received a credit transaction during
1992-94)
Segmented
Noncompetitive

proved
●

●
inefficient
●
inequitable
 Main Reasons behind the Poor performance

Past govt.
intervention
Underdevelop
Inappropriate Attenuated characterized
ed
banking property by debt
institutional
technology rights forgiveness
infrastructure
and subsidies
interest rate
 75% of the The reasons are:
households had Rural
On demand never requested entrepreneur felt
side: a loan from the rural finance as
formal financial too risky and high
sector transaction cost
 World ●

●
Expand the distribution network
Introduce adequate financial
products and technologies

Bank Carry out organizational reforms

●

●
Introduction of incentives &
internal controls
●
Improve environmental

propose conditionals
Profitability in Microfinance is possible if
five conditions are met

Good understanding
of the market and Keep fixed
offer simple financial
product cost low
Lend on the basis of Develop
the client character conducive
and reputation incentive schemes
 Case:02
Microfinance in Indonesia
Background information:

• Bank Rakyat Indonesia

• State owned bank
• Subsidies credit for rice farmer until 1983
• Unit Desa System was established in
1984
 Nationwide network of small village banks
 Unit Desa System

manageme
Objectives
nt
●
to replace directed ●
free hand in determining its
agricultural credit interest rates and other
operating policies
●
to replace subsidies credit ●
high degree of autonomy
●
to provide full range of ●
full accountability for the
financial services performance.
 Role of Donor in Microfinance

• Grants for institutional capacity building

• Grants to cover operating shortfalls
• Grant for loan capital or equity
• Concessional loans to fund on-lending
• Lines of credit
• Guarantees for commercial fund
• Technical assistance
 Who are the Donor & What’s their
influence over the Microfinance?

●
Local, bilateral & multilateral

Donor ●
government donor
Local & International NGOs

Influence ●
Policy reform

over Directing govt. to various poverty alleviation program

●

●
Infrastructural development
●
Learning source for microfinance providers

Microfinance
 Private Institutions in Microenterprise
development

• Advances:
1. Strong methodology based on experience
2. Trained staff
3.Capacity to reach grassroots association
4. Little or no corruption
5. Responsive and nonbureaucratic approach
6. Motivation to scale-up programs and aim for sufficiency
7.Capacity to associate among many to from a coordinate
effort.
• Disadvantages:
1. Limited institutional capacity for scaling up
programs
2. Low level of technical expertise, especially in
financial and information system
3. Frequent lack of sufficient resources to expand
programs
4. Little interaction or knowledge about
government-activity in formal sector
5. Limited vision that maintains small programs
 Financial Sector Policies and Legal
Enforcement

• Interest rate policies

• Government-mandated credit allocation
• Legal enforcement of contractual obligation
and the ability to seize pledge assets
Thanks to All