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Eight Business Model Breakthroughs for Microfinance Presentation of Work in Progress, October 24, 2006. Task Force on Microfinance. The Challenge of Scale in Microfinance. Microfinance is a recognized tool for addressing poverty and empowering the poor.
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Task Force on Microfinance
Microfinance is a recognized tool for addressing poverty and empowering the poor.
Despite the important accomplishments of microfinance institutions, most of the potential clients of microfinance still lack access to quality financial services. Why?
Needed: Business models that can bring microfinance to scale
A unique, multi-stakeholder community of the world’s most extraordinary leaders who are 40 years old or younger and who are ready to dedicate a part of their time and energy to jointly work towards a better future.
The 2020 Initiative – defining a vision for a world where sustainable economic development replaces the plague of poverty around the globe.
In association with the World Economic Forum
Private Sector Engagement
Specific Microfinance Projects
Conducive Regulatory Environment
Obstacles to expansion
Pathways to widespread adoption
Final paper to be presented at the World Economic Forum in early 07.
Microfinance is about lending for “productive” purposes.
Loan officers are the cornerstone of good microfinance.
Widely held “truths” may block a breakthrough.
Microfinance clients won’t use new technologies.
Every MFI needs a custom-tailored IT system.
Adapt technology to fit
Innovate for MF Clients
Upgrade MFI capabilities
Examples: credit bureaus, software companies
Attract new players, support structures
Foster policy or regulatory change
Innovations bring need to revise regulationsFour Dimensions of Breakthroughs
Benefits to Clients and MFIs
Increased MFI efficiency; lower cost
Penetrate difficult locations
Card products: debit, credit, prepaid, etc.
Devices: ATMs, POS, cell phones
Few MFIs are members in payment networks
Products designed for middle class market
Clients are used to cash, as are vendors they use
ExerciseBreakthrough 1. Payment Systems
Make automated payment systems available to microfinance clients
Low income clients already love cell phones
Cooperation between Telcoms and Banks
Sim card becomes payment vehicle
Text messaging to transfer money
Per-transaction fees high
Security vulnerabilities make regulators skeptical
ExerciseBreakthrough 2. Mobile Phones
Turn cell phones into payments devices
Connect to Payment Systems
ATMs, Cards, International Money Transfer
Streamline Customer Interface
Social Performance MonitoringBreakthrough 4. Improve MFI Information Technology
IT System Basic Ops.
MFI systems must perform all these functions well.
Branch -- ?
Retailer Becomes MFI
CustomerBreakthrough 5. New Channels to Reach Customers: Retail Networks
Many models are possible.
Credit & Savings
Full ServiceBreakthrough 6. Offer Clients a Full Suite of Products
Mainstream banks offer: low cost of funds, known brand, branch infrastructure, technology, connection to payment systems.
A country’s policy environment may determine whether or not microfinance takes off.