Moving Beyond Microcredit Innovative Financial Services for the Poor
Poverty is pervasive worldwide • “The most deadly and prevalent of all diseases” (Eugene O’Neill) • Nearly half the planet lives on less than US$2 a day • Close to one billion live on less than US$1 a day • 70% of the world’s poor are women
Microfinance offers one solution Access to financial services Increase & diversify incomes Build assets Mitigate risk Plan for the future Make choices Increase food consumption Invest in education & health Invest in housing, water, sanitation Behavioral Change = Everyday Survival to Planning for the Future
Microfinance outreach worldwide 31% Coverage 7.8% Coverage 9.1% Coverage 1.7% Coverage State of the Microcredit Summit Campaign Report, 2004, p. 27
FINCA International: Overview MISSION: To provide financial services to poor entrepreneurs so that they can create their own jobs, raise household incomes, and improve their standard of living VISION: A global network of sustainable financial institutions dedicated to meeting the financial needs of the lowest market niche • .
Where We Work Eurasia Armenia Azerbaijan Georgia Kosovo Kyrgyzstan Russia Tajikistan FINCA HQ Washington DC Greater Middle East Afghanistan Jordan Latin America Ecuador El Salvador Guatemala Haiti Honduras Mexico Nicaragua Africa Regional Hubs DR Congo Malawi Tanzania Uganda Zambia Amman, Jordan Guatemala City Kampala, Uganda Kiev, Ukraine
Client Profile • Gender: 70% Women • Average age: 36-39 yrs old • Income: 2/3 earn less than $4/day • Location: 38% Eurasia, • 37% Latin America, • 22% Africa, • 3% Middle East
How a Village Bank works • 15-30 low-income women come together • Each receives a small loan of $50 to $500 • They collectively guarantee and manage the loans • Members mobilize savings • Loan cycles are 16 weeks • Loans recycled
Microfinance goes beyond credit Working Capital Loans Savings Right Product Insurance Housing Loans Right Price Right Time Money Transfer Services Consumer Loans Education & Technical Assistance
Savings and the Poor • The poor need a safe place to save their assets • The poor need access to money for day to day needs such as education, consumption, health, business growth, to protect against shocks, and pay for life cycle events • The poor do save – even if just a few pennies a day
Most Saving is Informal Tejerina, L. and Westley, G. Financial Services for the Poor: Household Survey Sources and Gaps in Borrowing and Saving. Inter-American Development Bank, May 2007.
Informal Saving is Risky Average Annual Loss - Study with 1,500 Ugandans Assets Hidden in home Reciprocal loans ROSCAs Other Save w/ provider Non-reciprocal loans Money guard Global loss of savings by the poor is ~$114 billion per year Wright, G and Mutesasira, L. “Relative Risks to the Savings of Poor People” (2001)
High cost of Savings Products to Clients $820 $646 $596 $500 $169 $180 $160 $65 $46 Assumes costs over a 12 month period, with average withdrawal of $20 Data collected by FINCA DR Congo staff in 2008.
Few Access Points • Travel long distances to do transactions • (up to 60 km) • Long lines Population per branch in selected countries In a FINCA market assessment conducted in 2004, distance to nearest point of access was cited as one of the top barriers to saving Deshpande, R. and Pickens, M. Uganda Country-Level Savings Assessment: CGAP Savings Initiative, April 2006.
Product Design and Costs Current average cost to institution per month = 4,200 Ush* *assume 2 transactions per month per account at a branch USAID Uganda, Feasibility of Expanding Financial Services Outreach in Rural Uganda Using Payments Systems Technologies, June 2006.
POS and mobile phone banking • Help reduce costs to the institution and provide added services to clients • Less travelling & waiting = $$$ USAID Uganda, Feasibility of Expanding Financial Services Outreach in Rural Uganda Using Payments Systems Technologies, June 2006.
ATMs and POS BANCO DE GUAYAQUIL RTC BANRED Cooperative Network COOPERATIVA RTC SWITCH Financial Institutions COOPERATIVA RTC POS POS POS
Example Product Low cost Safe Highly liquid Convenient location Competitive interest rate Easy to use
Rural cash collection centers Visited by a FINCA van twice a week FINCA office Centers equipped with POS devices to allow rural clients to conduct transactions via debit cards Rural cash collection center Rural, unbanked communities
Why Microinsurance? • Poor/very poor are vulnerable to economic shocks (health, death of a family member, natural disasters) • Little to no safety net to fall back on when facing an emergency • Poverty forces clients to make difficult choices when faced with emergencies • Microinsurance products offer a safety net
Microinsurance Products • Credit-life • Funeral insurance • Accidental death and disability • Hospitalization • Health Insurance
Current Health Situation in Honduras Chronic illnesses are prevalent but treatment is not available The death rate for accidents and violence is 4 times higher for men than women. High level of infectious diseases. Poor and distant communities lack basic maternal and child health services. In marginalized communities, HIV/AIDS, TB and Malaria prevail.
Product Description: Hospitalization • Clients receive 200 lempiras per day ($10.60) if hospitalized in an authorized hospital • Clients covered from the first night of hospitalization for up to 60 nights • Fixed cost of 105 lempiras ($5.57) per loan for all clients regardless of time in hospital