Financing the needs of Bottom Billions

Lehman Brothers collapsed

Financial world is shaken
Small Lenders beat big crisis
Most have Debt-Equity ratio of 200%+
Return on assets-1.7%
MICRO FINANCE
Micro finance business is all about first purchasing loans
from bank and then lending it to poor– “The Untouchables

of Banking system”
 BANK

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MFI

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POOR
Microfinance Methodologies:
Successes and Failures
World Bank says the poor are those who have a level of consumption of at least $2 per
day and, the poorest are those who have a level of consumption of at least $1

BAD DEFINITION: Poverty has other dimensions besides income or consumption

BETTER DEFINITION: Poverty is characterized above all by vulnerability – i.e.,
inability to meet economic and social needs due to low or fluctuating incomes, and
inability to cope with shocks (such as crop failure, fire, earthquakes) due to lack of
assets or access to credit.
Microfinance is just ONE possible solution
Fewer than 2% of poor people have access to financial services (credit or
savings) from sources other than money lenders.
Problem with a majority of poverty reduction strategies is that they remain
the same whether or not they are effectively reaching their goals.
However, with microfinance people have been willing to recognize when it
was not working and change the strategy.
This has enabled microfinance to become one of the most prominent and
sustainable poverty alleviation institutions around the world
 Microfinance has become an institution based on “Reaching the
Poorest of the Poor”
Microfinance ideology is limited by the credit worthiness of the
client.
High interest rate, but MFIs still manage 95% return rate; HOW?
1800s: First concept of the Credit Union by Friedrich Wilhelm Raiffeisen in
Europe

1950s and 70s: Agricultural credit strategy for small farmers

The global microfinance movement emerged in the mid-1970s with a series

of lending experiments in poor villages throughout Asia and Latin America
Meanwhile, starting in the 1970s, experimental programs in Bangladesh, Brazil, and a few other countries
extended tiny loans to groups of poor women to invest in micro-businesses.

Two exemplary organizations: Grameen Bank and the Self Employed Women's Association (SEWA)

Started widespread implementation of "joint-group lending" programs

 Microcredit programs throughout the world improved upon the original methodologies and
defied conventional wisdom about financing the poor
The 1990s saw growing enthusiasm for promoting microfinance as a strategy for poverty
alleviation.
Creation of the village banking unit system through Bank Rakyat Indonesia (BRI), the largest
microfinance institution in developing countries.
BIGGEST CHANGE: Mid-1990s: the term "microcredit" began to be replaced by a new term
that included not only credit, but also savings and other financial services. "Microfinance"
BancoSol, founded in 1992, was the first commercial bank in the world dedicated solely to
microfinance.
Story: Before
1) 76.8% of the clients experienced significant reduction in their poverty over
the last four years of which;
i. 38.4% moved from Very Poor to Moderate Poor
ii. 17.6% moved from Very Poor to Not Poor
iii. 20.8% moved from Moderate Poor to Not Poor
2) 38.4% are in the Non Poor category.

3) 80% witnessed increase in income levels.

4) Women actively participate in family decisions.

IMPACT:
Began in 1976 in Bangladesh

3.5 million borrowers

$4.4 billion lent
 500 types of micro-businesses
 average amount: $160
 peer support and pressure
 $4.1 billion repaid

120,000 GB families overcome

poverty each year (1992 WB survey)
KEY PLAYERS

GRAMEEN BANK-5.1 M

ASA BANGLADESH-4.2M

Brac BANGLADESH-4.2M

BRI INDONESIA-3.3 M

SHARE INDIA-0.8 M

SPANDAN INDIA-0.8 M
SKILL DEVELOPMENT
RURAL EMPLOYMENT
CREATION OF MICRO ENTREPRENEUR
FINANCIAL INCLUSION
MICROINSURANCE
SSPB
MICROBANKS NETWORK
MULTIPLICITY OF REGULATORS
REGISTERED AS NGO OR NBFC
PENDING MICROFINANCE BILLS
PARAS MANI #31
DASHRATH GAIKAWAD #15
SHAWN #47