10
04/09/2012
04/09/2
Models of access to
finance
11th September 2012
Ruth Stewart
Models of access to finance
• Formal banking services
– Access requires geographical proximity, social acceptability, skills
/ literacy, a certain level of wealth
• Not-for-profit microfinance
– Availability varies considerably worldwide
– Interest rates depend on the client base
• For-profit microfinance
• Money lenders, loan sharks etc
– Always available, but this is what we are aiming to avoid
2
From Google images
– Hard to distinguish
– May be more accessible and better marketted
What do we mean by microfinance?
•
•
•
•
•
Ray Witlin / World Bank
•
•
•
•
•
•
Credit is widely available (in any places)
Credit is not a grant/gift - it is a debt
Credit of cash or non-cash e.g. seeds, goats
Repayment requirements: weekly or monthly
Penalties for late / non-payment & availability of
other loans
Interest rates vary 20%-200%
For leasing – 2 types - who owns the asset at the end
of the contract
In micro-savings models, money can be stored and
withdrawn in a range of ways
Commitment and ordinary savings
Savings often linked to credit
Variety of insurance models available
Models of access
to microfinance
• Group or individual models
• Women and / or men
– Group-models tend to focus on women
– Individual models tend to focus on entrepreneurs
– More effective when not targetted at poorest
• Funding: self / peers, NGO / church, commercial bank,
government agency
– Level of risk lower with self-funded groups, and with models
that emphasis and support savings rather than credit
4
Related services
• Finance can’t be considered in
isolation
• Effective use of financial services
requires
–
–
–
–
Financial literacy
Business acumen
Access to markets
Advice on managing debt as well as credit
• We simply don’t know if investment in
financial services would be better
spent else-where
– Some people may benefit more from job
creation, or investment in health care
What do we know about the impacts of microfinance?
• Some people are made poorer, and not richer, by microfinance,
particularly micro-credit clients. Wealthier entrepreneurs benefit.
• There is some evidence that microfinance enables poor people to be
better placed to deal with ‘shocks’, but this is not universal.
• There is limited evidence that microfinance empowers women
• There is some evidence that micro-credit damages children’s
education – it isn’t a solution for long term problems.
• Credit increases food security for some but worsens it for others.
• Micro-savings may be a better model
than micro-credit, especially
commitment savings
• The rhetoric around microfinance
is problematic. There is an obliga
tion amongst donors and policymakers not to falsely raise
expectations.
What do we know about the impacts of microfinance?
• Micro-credit sometimes increases engagement in economic
opportunities, but for wealthier clients and not poorer ones.
• Credit can also increase income in some circumstances, but reduces
it in others.
• The longer people are involved in micro-credit the poorer they
become.
• There is not enough evidence to
identify patterns in the exact
circumstances in which microfinance
has positive impacts for clients.
• There is not enough evidence to allow
us to conclude on whether financial
interventions targeted at women are
more or less effective for them.
“Credit is like a fire: it is
Insurance
useful to cook
your
sadza but if you are
careless, it will burn
your hut.”
Models of lending
1.
2.
3.
4.
5.
6.
7.
8.
Associations
Bank Guarantees
Community / village banking
Co-operatives
Credit Unions
NGOs
For profit banks
ROSCAS
8 models based on Microfinance Hub online
9
Microfinance Lending Model 1:
Associations
• Formed by the poor
• To offer microfinance services to themselves.
• Form on the basis of gender, religion, or political and
cultural orientation
• Gather capital and intermediate between banks,
MFIs and its members
Example: Self Help Groups, SHGs (India)
10
Microfinance Lending Model 2: Bank
Guarantees
• A donor or government agency guarantees
microloans
• Loans are made by a microfinance/commercial
bank to an individual or group of borrowers
• Compulsory deposits by borrowers are required
Examples: AfriCap Microfinance Fund (Mauritius),
Bellwether Microfinance Fund (India), Latin America
Bridge Fund, Microfinance Credit Guarantee Facility
(Pakistan)
11
Microfinance Lending Model 3:
Community Banking/ Grameen Bank/
Village Banking
• Formal versions of ‘associations’
• Created by members of a target community
• By offering microfinance services, these banks seek to develop
their communities.
• Guarantees are provided by social collateral (peer-pressure) as
services are distributed through 5-member groups where each
member’s eligibility for loans is based on his / her peers’
performance.
Examples: Grameen Bank (Bangladesh), MuCoBa (Tanzania)
12
Microfinance Lending Model 4:
Cooperatives
• Cooperatives are very much like ‘associations’ and
‘community banks’ except that their ownership
structure does not include the poor.
• A group of middle or upper class individuals form a
co-op to offer microfinance services to the poor.
Examples: Co-operative Bank (England), Cooperative
Rural Bank of Bulacan (Phillipines)
13
Microfinance Lending Model 5: Credit
Unions
• In a credit union, members of a target community
gather their money and make loans to one another at
low interest rates.
• Compared to community banks, credit unions are
smaller and non-profit oriented, charging interest
rates that merely allow sustainability
Example: Unión Progresista Amatitlaneca (Guatemala),
Vancity Credit Union (Canada)
14
Microfinance Lending Model 6: NonGovernmental Organizations (NGOs)
• Unlike community-based models, NGOs are ‘external
organizations’
• Activities range from offering microfinance services to improving
the credit rating of the poor, training, education and research.
• NGOs may also act as intermediaries between the poor and
donor agencies (UN, ADB, World Bank) and operate locally, as
well as globally (through a physical or online presence)
Examples: ACCION International (headquarters in USA), KIVA
(Headquarters in USA), Kashf Foundation (Pakistan)
15
Microfinance Lending Model 7: Forprofit Banks
• Commercial Banks, as well as specialized
Microfinance Banks offer various financial services
to the poor but the main purpose may be to secure
a high return on investment. Unlike other models,
the aim is social development as well as financial
progress beyond institutional sustainability.
• Examples: Bank Compartamos (Mexico), Khushali
Bank (Pakistan)
16
Microfinance Lending Model 8:
ROSCAs Rotating Savings and Credit
Associations (ROSCAs)
• ROSCAs are small groups, typically composed of women, where
each member makes ‘regular cyclical contributions into a
common fund’,
• Given entirely to one member at the start of each cycle (weekly,
monthly, quarterly).
• The benefit of this model is the matching of a client’s cashflows
with the loan, the ability to structure the deal without interest
rates, and the absence of over-head costs.
17
www.celias.com
What is the
problem
we are
trying to
address?
• Avoid harm, do good
• Help people to access
mainstream financial services
• Provide alternative financial
services
• Help people to manage their
money (and their debt) better
• Build community, empower
women
• Support economic empowerment
Issues to consider when considering increasing access
We don’t know which model works best – but some carry more risk than
others: credit/ interest and those which target poorest
Not everyone is an
entrepreneur –
targeting fewer with
more money may be
better
Clients aren’t always
making good
choices about how
to spend their
money
There is a need
for good quality
related services financial and
business advice
There may be as
much need for
debt-alleviation
services as there is
for loans
Microfinance, particularly credit, causes harm as well as good19
Systematic review
Thank you
Do micro-credit,
e
micro-savings and
micro-­lasi ng serve as ef fect ive finaci al
inclusion interventions enabling poor
people, and especially women, to engage in
meaningful economic opportunities in low- and
middle-income countries?
A systematic review of the evidence
r.stewart@ioe.ac.uk
by
Ruth Stewart
Carina van Rooyen
Marcel Korth
Admire Chereni
Natalie Rebelo Da Silva
Thea de Wet
September 2012
20
Q53 Microfinance cover.indd 10
04/09/2012
What we think is happening
Use other MFI
Social cohesion
Use same
MFI
Micro-credit
Micro-savings
Women’s
empowerment
Default on loan,
lose collateral
and/or forced to
borrow more
Able to repay loan
and avoid increase
in debt
Actual decreased
income
Given to individuals or groups
Able to
save
Actual increased
income
1.
Invest in
immediate
future:
a. Business
b. Productive
assets
Determined by external
factors:
c. Adult
education
Entrepreneurial ability
d. Workers’
health &
nutrition
Appropriateness of
business in context
Competition from other
MFI clients
Gender and power
relations
Long-term
benefits
Spend money differently
Scope for increased
income via business
or employment
2. Consumptive
spending with
scope for
productivity:
a. Add on
housing
b. Assets which
retain value
Improved capabilities
3.
Invest in longterm future:
a. Children’s
education
b. Children’s
health and
nutrition
4. Consumptive
spending (nonproductive):
Assets which do
not retain value
FOR CREDIT CLIENTS ONLY
Inability to repay loan
Better able to deal with shocks
21
What we think is happening
Use other MFI
Social cohesion
Use same
MFI
Micro-credit
Micro-savings
Women’s
empowerment
Default on loan,
lose collateral
and/or forced to
borrow more
Able to repay loan
and avoid increase
in debt
Actual decreased
income
Given to individuals or groups
Able to
save
Actual increased
income
1.
Invest in
immediate
future:
a. Business
b. Productive
assets
Determined by external
factors:
c. Adult
education
Entrepreneurial ability
d. Workers’
health &
nutrition
Appropriateness of
business in context
Competition from other
MFI clients
Gender and power
relations
Long-term
benefits
Spend money differently
Scope for increased
income via business
or employment
2. Consumptive
spending with
scope for
productivity:
a. Add on
housing
b. Assets which
retain value
Improved capabilities
3.
Invest in longterm future:
a. Children’s
education
b. Children’s
health and
nutrition
4. Consumptive
spending (nonproductive):
Assets which do
not retain value
FOR CREDIT CLIENTS ONLY
Inability to repay loan
Better able to deal with shocks
22
What we think is happening
Social cohesion
Micro-credit
Micro-savings
Women’s
empowerment
Given to individuals or groups
Spend money differently
23
What we think is happening
Use other MFI
Social cohesion
Use same
MFI
Micro-credit
Micro-savings
Women’s
empowerment
Default on loan,
lose collateral
and/or forced to
borrow more
Able to repay loan
and avoid increase
in debt
Actual decreased
income
Given to individuals or groups
Able to
save
Actual increased
income
1.
Invest in
immediate
future:
a. Business
b. Productive
assets
Determined by external
factors:
c. Adult
education
Entrepreneurial ability
d. Workers’
health &
nutrition
Appropriateness of
business in context
Competition from other
MFI clients
Gender and power
relations
Long-term
benefits
Spend money differently
Scope for increased
income via business
or employment
2. Consumptive
spending with
scope for
productivity:
a. Add on
housing
b. Assets which
retain value
Improved capabilities
3.
Invest in longterm future:
a. Children’s
education
b. Children’s
health and
nutrition
4. Consumptive
spending (nonproductive):
Assets which do
not retain value
FOR CREDIT CLIENTS ONLY
Inability to repay loan
Better able to deal with shocks
24
Given to individuals or groups
Long-term
benefits
Spend money differently
1.
Invest in
immediate
future:
a. Business
b. Productive
assets
c. Adult
education
d. Workers’
health &
nutrition
2. Consumptive
spending with
scope for
productivity:
a. Add on
housing
b. Assets which
retain value
d
s
Improved capabilities
Better able to deal with shocks
3.
Invest in longterm future:
a. Children’s
education
b. Children’s
health and
nutrition
4. Consumptive
spending (nonproductive):
Assets which do
not retain value
FOR CREDIT CLIENTS ONLY
Inability to repay loan
25
What we now think is happening
Use other MFI
Social cohesion
Use same
MFI
Micro-credit
Micro-savings
Women’s
empowerment
Default on loan,
lose collateral
and/or forced to
borrow more
Able to repay loan
and avoid increase
in debt
Actual decreased
income
Given to individuals or groups
Able to
save
Actual increased
income
1.
Invest in
immediate
future:
a. Business
b. Productive
assets
Determined by external
factors:
c. Adult
education
Entrepreneurial ability
d. Workers’
health &
nutrition
Appropriateness of
business in context
Competition from other
MFI clients
Gender and power
relations
Long-term
benefits
Spend money differently
Scope for increased
income via business
or employment
2. Consumptive
spending with
scope for
productivity:
a. Add on
housing
b. Assets which
retain value
Improved capabilities
3.
Invest in longterm future:
a. Children’s
education
b. Children’s
health and
nutrition
4. Consumptive
spending (nonproductive):
Assets which do
not retain value
FOR CREDIT CLIENTS ONLY
Inability to repay loan
Better able to deal with shocks
26
Default on loan,
lose collateral
and/or forced to
borrow more
Able to repay
loan and avoid
increase in debt
Actual decreased
income
Able to
save
Actual increased
income
Determined by external
factors:
Entrepreneurial ability
Appropriateness of
business in context
Competition from
other MFI clients
Gender and power
relations
Scope for
increased income
via business or
employment
Given to indiv
Spend mon
1.
Invest in
immediate
future:
Co
s
w
a. Business
b. Productive
assets
c. Adult
education
d. Workers’
health &
nutrition
pro
a
b
wh
Improved capabi
Better able to deal wi
27
Use other MFI
Use same
MFI
Microcredit
Mic
sav
Given to individuals or groups
Default on
loan, lose
collateral
and/or forced
to borrow
more
Actual
decreased
income
Able to repay
loan and avoid
increase in debt
Able to
save
Actual increased
income
Spend money differently
1.
Invest in
2. 28
Consumptiv
What we think is happening
Use other MFI
Social cohesion
Use same
MFI
Micro-credit
Micro-savings
Women’s
empowerment
Default on loan,
lose collateral
and/or forced to
borrow more
Able to repay loan
and avoid increase
in debt
Actual decreased
income
Given to individuals or groups
Able to
save
Actual increased
income
1.
Invest in
immediate
future:
a. Business
b. Productive
assets
Determined by external
factors:
c. Adult
education
Entrepreneurial ability
d. Workers’
health &
nutrition
Appropriateness of
business in context
Competition from other
MFI clients
Gender and power
relations
Long-term
benefits
Spend money differently
Scope for increased
income via business
or employment
2. Consumptive
spending with
scope for
productivity:
a. Add on
housing
b. Assets which
retain value
Improved capabilities
3.
Invest in longterm future:
a. Children’s
education
b. Children’s
health and
nutrition
4. Consumptive
spending (nonproductive):
Assets which do
not retain value
FOR CREDIT CLIENTS ONLY
Inability to repay loan
Better able to deal with shocks
29
Does microfinance increase engagement in
economic opportunities?
Do microfinance-supported economic
activities increase income?
Micro-leasing: no studies
Micro-savings: robust evidence shows
only commitment accounts increase
wealth
Microfinance
and economic
opportunities
Micro-credit: appears to increase
income in some circumstances but
reduce it in others (all evidence from
slightly less-than-robust studies)
Combined credit and savings: mixed
impacts from slightly less-than-robust
studies
Increasing
wealth/
Reduce
poverty
Do microfinance-supported economic
activities increase savings?
Microfinance
and economic
opportunities
Micro-leasing: no studies
Micro-savings: robust evidence
shows increase in savings although
not always
Micro-credit: best evidence shows
decrease in savings, other evidence
shows increase in savings
Combined credit and savings:
slightly less-than-robust studies
show no clear evidence of impact
Increasing
wealth/
Reduce
poverty
Do microfinance-supported economic
activities increase non-financial assets?
Microfinance
and economic
opportunities
Micro-leasing: no studies
Micro-savings: robust studies show
only commitment accounts
increase non-financial assets
Micro-credit: slightly less-thanrobust studies show mixed impacts
Combined credit and savings:
slightly less-than-robust studies
show mixed impacts
Increasing
wealth/
Reduce
poverty
Do microfinance-support economic
opportunities increase expenditure?
Microfinance
and economic
opportunities
Micro-leasing: no studies
Micro-savings: robust studies show
no impact on business expenditure,
increase in spending on food and
private items
Micro-credit: best evidence shows
no impact, less reliable evidence
mixed
Combined credit and savings:
slightly less-than-robust study
shows mixed impacts
Increasing
wealth/
Reduce
poverty