ROLE OF GOVT.

IN MICROFINANCE & ITS

IMPACTS ON SOCIETY
GROUP MEMBERS

 Faheem Aslam
 Khurram Shahzad
LAYOUT

What is Microfinance ?
Role of Government
Transparency
Impact of Microfinance
Conclusion
Recommendations
 MICROFINANCE
=
FINANCIAL SERVICES
FOR THE POOR
MICROFINANCE

Define As
• Small loans to poor, for self employment and generate income.
Microfinance Services
• Insurance
• Savings
• Transfer Payments
• Credit
MICROFINANCE OBJECTIVES

• Promoting Children Education

• Improving Health For Women & Children
• Empowering Women
• Eradicate Extreme Poverty And Hunger
• Achieve Universal Primary Education
• Reduce Child Mortality
• Ensure Environmental Sustainability
• Develop A Global Partnership For Development
WHAT IS THE ROLE OF GOVERNMENTS IN
MICROFINANCE ?

• The negative impact of government credit schemes has led

donors and experts to advise governments to disengage from
microfinance
BUT
• Governments DO have a constructive role in building financial
systems that work for the poor
Encourage Competitive
YES Microfinance
ROLE OF Develop Sound Policy
GOVERNMENT Frameworks

NO Direct Provision of
Credit Services
WHAT IS THE ROLE OF GOVERNMENTS IN
MICROFINANCE?

Government
 Prime Minister Clients
 Cabinet ministers
 Parliament
 Finance ministry
 Central bank
 Other ministries
 Local authorities
 Etc…
HOW CAN GOVERNMENTS SUPPORT AN INCLUSIVE
FINANCIAL SECTOR?

Finance &
Other
Ministries
Recognize
Microfinance
Central As A Legitimate
Banks A policy
Financial Activity environment
Within that
The Financial encourages
Local
Authorities System market entry
&
competition
Other
Government
Bodies
HOW CAN GOVERNMENTS SUPPORT AN INCLUSIVE
FINANCIAL SECTOR?

Maintain Macroeconomic Stability

Involve The Private Sector In Formulating
Poverty Reduction Strategies
Adjust Regulatory Frameworks To Permit
Different Types Of Financial Institutions To
Offer Services To Poor People
Invest In Supervisory Capacity
WHAT KINDS OF GOVERNMENT INTERVENTIONS
HARM THE DEVELOPMENT OF MICROFINANCE ?

Interest Rate Ceilings

Provision Of Credit At The Retail Level
Subsidized Lending Programs
Political Interference
INTEREST RATE CEILINGS

 Weaken the ability of MFIs to cover their costs

 Often hurt the poor by causing MFIs to

 withdraw from markets

 grow more slowly
 become less transparent about total loan
costs
 reduce their work in rural and other costly
markets
PROVISION OF CREDIT AT THE RETAIL LEVEL

 Usually lack the technical skills

and political independence
needed to manage microcredit
programs
 Should not be directly involved
in credit delivery or the
management of microfinance
initiatives
SUBSIDIZED LENDING

 Usually results in high default levels

 Requires ongoing use of scarce public resources
 Distorts markets, hampering the development of
sustainable lenders
 Can encourage rent-seeking behavior

Studies show That:

a loan recovery rate of only 10–55 percent
tended to benefit better off segments of the
rural population, rather than poorer groups
POLITICAL INFLUENCE

Government interventions in governance or management

of private institutions can:
 threaten their sustainable development
 force managers to lend to unfit clients
 force managers to lower interest rates,
ultimately decreasing the number of poor
who access services
WHAT IS TRANSPARENCY IN MICROFINANCE ?

Accurate, timely information about financial and social performance

• Gathering and reporting accurate

information
• Verifying information
• Analyzing, comparing, and judging
performance described by that
information
• Ensuring the information complies with
applicable standards
TRANSPARENCY: THE INFORMATION SPECTRUM

Ma Inte Ex Ass Be Pe Ra Sup

na rna tern e ss nc rfo tin erv
ge lC al m e h m rm g isi
me on Au nt a an on
nt tro dit Pe r kin ce
I nf l rfo g sta
or rma nd
ma ard
tio nc
nS eM s
ys ea
tem su
rem
s en
t
BENEFITS OF TRANSPARENCY

Improves Performance
• Information For Better Decisions
Attracts Funders
• Informed Funding Decisions
• Tracking Indicators For Expected Results

Protects Clients
• Clear Product Terms
• Management Quality
• Deposit Safety
THE IMPACT OF MICROFINANCE

YOUR HIGHNESS…
WHAT INDICATORS DO
YOU USE TO SHOW
MICROFINANCE
IMPACT IN YOUR
COUNTRY?
CONCLUSION

Microfinance is an important catalyst for poverty reduction,

it is not a magic bullet.
The intervention of Govt. should be limited