Beneficiaries: The beneficiaries of microfinance are typically the low income group which works on a hand to mouth model and do not have a sustainable income source. Majority of these groups need financing to fund their pity shops, raise cattle, start small business on pushcarts etc. Till now farmers do not have the luxury to enjoy the benefits of these loans.
Amount of credit disbursed: The loan amounts usually are very low in the range of Rs1000/- to Rs 10,000/-, these credit are for terms ranging from 3 months to 2 years with payback starting immediately in form of monthly/ weekly instalments.
Recovery Rates: The loan repayment rates have been very high, industry standard is 98.5%. The remaining 1.5% in most cases has been attributed to circumstances beyond human control like terminal illness in the family, a major accident etc.
Saturday, August 16, 2008
MF factors
Sunday, August 3, 2008
Microfinance basics
Microfinance has been considered as an effective poverty alleviation tool because it is based on the fundamental principle that human beings are motivated to do whatever it takes to make themselves as well off as possible. It’s a way to provide fund to those sections of the society which are not been catered by the traditional banking systems. Over time, the definition of microfinance has become broader to include services like credit, savings, insurance, etc. We have realized that the poor and the very poor who lack access to traditional formal financial institutions require a variety of financial products. The potential clients for a microfinance institution would be poor or low-income clients, including consumers and the self-employed. The term also refers to the practice of sustainably delivering those services.
As was said by Robert Peck Christen, Director of Financial Services for the Poor at the Bill & Melinda Gates Foundation, Microfinance broadly refers to a movement that envisions “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.”
How it differs from Traditional loans?
Traditional loans are given against some or the other kind of collateral which could be any of your material possessions. On the other hand in microfinance the clients are not required to keep any collateral, the only security for a lending firm is either the JLG (Joint liability groups) or the SHGs(Self help groups). These are also now being called as moral or social collaterals.
As was said by Robert Peck Christen, Director of Financial Services for the Poor at the Bill & Melinda Gates Foundation, Microfinance broadly refers to a movement that envisions “a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.”
How it differs from Traditional loans?
Traditional loans are given against some or the other kind of collateral which could be any of your material possessions. On the other hand in microfinance the clients are not required to keep any collateral, the only security for a lending firm is either the JLG (Joint liability groups) or the SHGs(Self help groups). These are also now being called as moral or social collaterals.
Microfinance in the past
Microfinance as a concept has been around for a long time but has gain prominence only in the last three decades. Savings and credit groups with the likes of "Susus" of Ghana, "Chit funds" in India, "Tandas" in Mexico, "Arisan" in Indonesia, "Cheetu" in Sri Lanka, "Tontines" in West Africa, and "Pasanaku" in Bolivia, as well as numerous savings clubs and burial societies found all over the world have been around for centuries.
One of the earlier and longer-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan Swift. Swift's idea began slowly but by the 1840s had become a widespread institution of about 300 funds all over Ireland. In 1800s, various larger and more formal savings and credit institutions like People’s Banks, Credit Unions and Savings & Credit Co-operatives emerged in Europe, these were organized primarily among the rural and urban poor.
By early 1900s, various adaptations of these models were used in parts of rural Latin America. The primary aim of these institutions were modernization of the agriculture sector, increased commercialization of the rural sector by mobilizing idle savings and increasing investments through credit. In most cases, these institutions were not owned by the poor themselves, as they had been in Europe, but by government agencies or private banks. Over the years, these institutions became inefficient and at times, abusive.
Between the 1950s and 1970s, the focus shifted to agricultural credit to marginal farmers, in hopes of raising productivity and incomes. Most of the lending institutions were state-owned development finance institutions providing concessional loans. These subsidized schemes were rarely successful. Rural development banks suffered massive erosion of their capital base due to subsidized lending rates and poor repayment discipline and the funds did not always reach the poor, often ending up concentrated in the hands of better-off farmers.
Meanwhile, starting in the 1970s, experimental programs in Bangladesh, Brazil, and a few other countries extended tiny loans to groups of poor women to invest in micro-businesses. This type of microenterprise credit was based on solidarity group lending in which every member of a group guaranteed the repayment of all members. These programs had an almost exclusive focus on credit for income generating activities targeting very poor (mostly women) borrowers.
One of the earlier and longer-lived micro credit organizations providing small loans to rural poor with no collateral was the Irish Loan Fund system, initiated in the early 1700s by the author and nationalist Jonathan Swift. Swift's idea began slowly but by the 1840s had become a widespread institution of about 300 funds all over Ireland. In 1800s, various larger and more formal savings and credit institutions like People’s Banks, Credit Unions and Savings & Credit Co-operatives emerged in Europe, these were organized primarily among the rural and urban poor.
By early 1900s, various adaptations of these models were used in parts of rural Latin America. The primary aim of these institutions were modernization of the agriculture sector, increased commercialization of the rural sector by mobilizing idle savings and increasing investments through credit. In most cases, these institutions were not owned by the poor themselves, as they had been in Europe, but by government agencies or private banks. Over the years, these institutions became inefficient and at times, abusive.
Between the 1950s and 1970s, the focus shifted to agricultural credit to marginal farmers, in hopes of raising productivity and incomes. Most of the lending institutions were state-owned development finance institutions providing concessional loans. These subsidized schemes were rarely successful. Rural development banks suffered massive erosion of their capital base due to subsidized lending rates and poor repayment discipline and the funds did not always reach the poor, often ending up concentrated in the hands of better-off farmers.
Meanwhile, starting in the 1970s, experimental programs in Bangladesh, Brazil, and a few other countries extended tiny loans to groups of poor women to invest in micro-businesses. This type of microenterprise credit was based on solidarity group lending in which every member of a group guaranteed the repayment of all members. These programs had an almost exclusive focus on credit for income generating activities targeting very poor (mostly women) borrowers.
Subscribe to:
Posts (Atom)
Posts
