Micro Finance Management And Governance

Introduction Microfinance

is considered as one of the most effective and flexible strategies in the fight against global poverty.  Implemented on a massive scale on those living on less than $1 a day, the World’s poorest. It consists of making small loans, to individuals, usually women, to establish or expand a small, self-sustaining business.

What microfinance institutions do? Offer business advice and counselling, while clients provide peer support for each other. Educate local communities. Recycling of funds. Provide other financial services . Many also provide social services, such as basic health care for clients and their children. 

Where do MFIs get the money for loans? Grameen

Foundation. Other funding comes from individuals, philanthropists, foundations, and governments and international institutions such as the World Bank. MFIs also borrow funds from traditional banks to loan to their clients.

Difference from other loan programs? Clients are not required to provide collateral to receive loans.  MFIs are also very client-friendly.  Peer support system practiced is another unique feature.  MFI staff members share vital information and resources to improve their clients well being. 

Difference between Microcredit and Microfinance? Microcredit

refers specifically to loans and the credit needs of clients.

Microfinance

covers a broader range of financial services that create a wider range of opportunities for success.

Why focus on women? Best They

poverty fighters.

use the profits from their businesses to send their children to school, improve their families’ living conditions and nutrition, and expand their businesses. 

Can very poor people actually start and run a successful business? Many poor people have skills that can quickly become an income producing activity. Eg:weaving, sewing, grinding grain, reselling produce, and growing and selling vegetables, to catching and selling fishing, wholesaling dried fish, raising chickens to sell eggs, and breeding livestock. 

(Eg:woman in phillipines.)

Repayment of Loans? The

repayment rate is between 95 and 98 percent. They value the opportunity to improve their lives.

Advantages It

provides a stable and sustainable source of income. Provides better living conditions and opportunities.  expand their businesses. 

Indian view Microfinance has been present in India since the 1970s and is now widely accepted as an effective poverty alleviation strategy. Over the last five years, this industry has achieved significant growth in part due to the participation of commercial banks. Despite this growth, the poverty situation in India continues to be challenging. 

In

India micro finance program is run primarily by NABARD in the field of agriculture and SIDBI in the field of Industry, Service and Business.

SIDBI

is under operation since January 1999.

Rate of interest charged These

institutions charge interest on the loans provided. The interest covers the high cost of making very small loans and personally servicing each client every week. It also covers the other costs.

Partners of Grameen Foundation in India Microfinance institutions in India collectively serve well over one million poor clients:



Activists

for Social Alternatives (ASA) CASHPOR Financial and Technical Services (CFTS) Covenant Centre for Development (CCD) Evangelical Social Action Forum (ESAF)

PARTNERS…. A

variety of partnership models between banks and MFIs have been tested. All varieties of banks - domestic and international, national and regional - have become involved, and ICICI Bank has been at the forefront.

Issues that have constrained MFIs while scaling up.      

Lack of an appropriate legal vehicle Limited access to equity Difficulty in accessing low cost onlending funds. About 56 % of the poor still borrow from informal sources. 70 % of the rural poor do not have a deposit account 87 % have no access to credit from formal sources.

CHALLENGES AHEAD Appropriate

legal structures for the structured growth of MF operations Finding adequate levels of equity for the new entities to leverage loan funds Ability to access loan funds at reasonably low rates of interest. Ability to attract and retain professional and committed human resources.

CONTINUED…. Increase

outreach and scale up operations Demonstrate that banking with the poor is viable.