What ismicrofinance?

Definition• Microfinance refers to the provision of

financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services (Wikipedia)

• Microfinance offers poor people access to basic financial services such as loans, savings, money transfer services and micro-insurance (CGAP)

Objectives of microfinance services

•To increase income

•To reduce vulnerability

Loans, money transfers

Saving, micro-insurance

History

In the 70’s : the first known experiences in Brazil and Bangladesh : ACCION and Grameen

In the 80’s: development of numerous initiatives worldwide

2004: 3000 MFI and 120 million accounts.

Grameen bank, BRAC, FINCA, Prodem…

Microfinance service providers

• Formal sector: banks, cooperatives, NGOs, credit unions

Microfinance Institutions (MFI)

• Informal sector: money-lenders (usurer), self-help groups, rotating savings and credit associations

Microfinance methodologies

• Individual lending: usually a larger loan for microenterprises - collateral

• Group lending: can start from a very small amount - groups of borrowers of between 5 and 30 – peer pressure – women as priority target

• Village banking: loan to a community in charge of lending out smaller amounts

Being a MFI client

Saving may be compulsory prior to accessing credit

Collateral may be requiredCharges to be paid in addition to the capital to

be reimbursed: for opening an account, interest, on late repayments, etc.

Need for repayment capacityA good repayment record usually gives access

to bigger loans