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Microfinancing - PowerPoint PPT Presentation


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Microfinancing. Hope for Argentina’s Poorest. Microfinancing. Small loans and small deposits for poor households left unattended by banks Helps small farmers and self-employed Uncollateralised loans to borrowers without a constant source of income from a wage job

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microfinancing

Microfinancing

Hope for Argentina’s Poorest

microfinancing2
Microfinancing
  • Small loans and small deposits for poor households left unattended by banks
    • Helps small farmers and self-employed
  • Uncollateralised loans to borrowers without a constant source of income from a wage job
    • Increases costs for lenders to judge risk and enforce repayment
  • Grameen Bank in Bangladesh
    • Professor Muhammad Yunus
rural financial markets matter
Rural Financial Markets Matter
  • Agriculture
    • More than ½ of foreign exchange earnings
  • Sustained growth
    • Increased domestic savings
  • Poverty is deep and wide
    • Between 37% and 55% of 37 million
  • Efficient production is facilitated
  • Equity is affected
  • Investment is affected
    • Creation of jobs (unemployment at 16%)
history of populism
History of Populism
  • Access to credit is a right.
    • Equity under democracy requires that voters get what they think they deserve.
  • Liberal democracy and capitalism defensible only if equal opportunity for all
    • In education, financial services, etc.
equity rich vs poor
Equity: Rich vs. Poor
  • Government has responsibility to reduce the differences
  • Wealthiest 5% 25% of national income
  • Wealthiest 10% 40%
  • Poorest 30% 7.5%
  • Government should provide redress for the poor
purpose challenge of microfinancing
Purpose/ Challenge of Microfinancing
  • To reach the poor in substantial numbers
  • To enable them to move out of poverty
  • To create financial institutions that are sustainable
the savings equation
The Savings Equation

∞ ∞

s(t) = -∑ Et∆Y(t + k) + ∑ Et∆0(t + k)

k=1 (1 + r)kk=1 (1 + r)k

+ γ ∑ Ωt(t + k) + ln(r - δ)

2(1+r) k=0 (1 + r)kr

the triangle of microfinance
The Triangle of Microfinance

Macroeconomic and sectoral policy

framework and socioeconomic environment

Impact

Institutional

innovations

Financial

Sustainability

Outreach

To the poor

outreach
Outreach
  • Breadth- serving more of the poor
    • May be able to use loans more effectively
  • Depth- serving the poorest of the poor
    • May smooth their consumption
  • Quality- making services affordable
  • Lack of access
    • May improve welfare, but not necessarily life out of poverty
impact
Impact
  • The alleviation of poverty
    • Food security and economic growth
  • Enhance through complementary services
    • Business or marketing services
    • Training of borrowers
financial sustainability
Financial Sustainability
  • Need lasting financial institutions
    • Must have faith in permanence to entrust savings
  • Crucial indicator of MFI performance
    • Will influence decision of being worthwhile in LR
  • Forces MFIs to think about client demand
    • Induces to improve products, operations, outreach, etc.
public investment
Public Investment
  • Failure of public development banks
  • Justified from public policy perspective only if:
    • Comparison of social costs with social benefits
    • Opportunity costs
  • Subsidy dependence index
material conditions
Material Conditions
  • Transaction costs and risks
    • Rural, sparse populations
      • No market days
    • Lack of infrastructure
    • High risk
      • Seasonal cycles
      • Not well-diversified
  • Privatization of public development banks
  • No national credit bureau
  • No national pledge registry
  • Constraints on loans
argentine macroeconomy
Argentine Macroeconomy
  • Convertibility Plan of 1992
  • Tequila Crisis of 1994-95
  • Devaluation of Peso: Crisis of 2001
fundaci n emprender
Fundación Emprender
  • Argentina’s only significant MFI
  • Patterned after Bolivia’s PRODEM
  • Small, urban
  • Outreach: deep, small, low quality
  • Almost self-sufficient
  • Not worthwhile social investment