MODULE ONE

INTRODUCTION

MICROFINANCE &

TARGET GROUPS

History and Evolution of Industry

Three Categories of MFIs

Target Groups

Next Steps

What is Microfinance?

Introduction

In the past two decades, microfinance has emerged as a leading and effective strategy for poverty reduction. Although it is not a panacea for poverty, when and where properly harnessed it has made sustainable contributions through empowering people, providing them with confidence, self-esteem and the financial capacity to exercise greater control over their own development.

What is Microfinance?

Microfinance refers to the provision of financial services and the management of small amounts of money through a range of products and a system of intermediary functions that are targeted at low-income clients.

Microfinance refers to the provision of small loans and other facilities like savings, insurance, transfer services to poor, low-income household and micro enterprises.

Microfinance involves: • Small loans, typically for working capital• Informal appraisal of borrowers• Collateral substitutes and alternatives, such as group guarantee or

compulsory savings• Access to repeat and larger loans based on repayment performance• Streamlined loan disbursement and monitoring• Secure savings products• Insurance

More than just banking.

A brief timeline...

Microfinance has gone through four distinct phases worldwide:

Phase One: The provision of subsidized credit by Governments starting in the 1950’s when it was assumed that the lack of money was the ultimate hindrance to the elimination of poverty.

Phase Two: Micro credit mainly through NGOs to the poor in the 1960’s and 1970’s. During this period sustainability and the financial self–sufficiency of institutions were still not considered important.

Phase Three: Formalization of microfinance institutions (MFIs) began

Phase Four: The commercialization of MFIs has gained importance with the mainstreaming of microfinance and its institutions into the financial sector

1950s

1960s-70s

1990s

1995-

Categories of MFIs

There are three types of MFIs:

Informal Semi-formal Formal

Informal: These institutions are however modernising; with some categories developing their own self regulatory frameworks while seeking endorsement from Central Banks for these regulatory frameworks

Examples: susu collectors in Ghana

Semi-formal: These institutions are usually registered but not licensed or regulated. This category is also keenly exploring self regulation mechanisims.| Examples: Financial NGOs

Formal: These institutions are registered, licensed and regulated directly by the Central Bank or through a Third Party.

Examples: Commercial Banks, Rural and Community Banks (Apex Bank), Savings and Loans Companies, and Credit Unions (CUA).

Microfinance and Poverty Reduction

The achievement of the Millennium Development Goals (MDGs) as well as national ones that target poverty reduction, the eradication of hunger, universal primary education, promoting gender equality, empowering women, reducing child mortality, improving maternal health and ensuring environmental sustainability is and can all be facilitated by microfinance.

The people that are served by microfinance programs are the economically active poor and woman form a majority of this population.

Historically, women face limited access to credit. Supporting this gender through microfinance is vital because of the interconnection of financial power, poverty and women.

Increased economic power for women = stability to women and their children and the larger local economy.

Target Groups

Next Steps

Once you have finished reviewing these slides, close out this window or tab and return to Module One in Blackboard (Bb) to complete the Module activities below. A PDF version of this slide deck is also available in Bb.

• Review the Resources• Complete the Activities (Journal Reflection and Flashcards)• Check your understanding with the Self-Review.