USA
North America
Bolivia Brazil Chile Colombia Dominican Republic Ecuador Haiti LAC Mexico Paraguay Peru
Benin Burundi Ethiopia The Gambia Ghana Guinea Ivory Coast Kenya Mali Africa Niger Nigeria South Africa Togo Uganda
4.
Flexible Loans
Small initial loan sizes Larger loans over time Longer terms
Variety of Products
Housing loans Education loans Life cycle products Business development services
Group
Individual Loans
No Traditional Collateral
Source: WWB research
Education Loans
Housing Finance
Insurance
Transfer Payments
Savings
Financial counseling and training Commercial linkages Health and education Business advisory services Dealing with legal barriers
What Low Income Women Need to Build Income and Assets Needs That Microfinance Can Meet Profitably
Market Penetration of Target Market in Most Countries
Credit to fuel growth of productive activities Ability to accumulate savings Ability to finance housing, education, health care Life and health insurance
The Core Paradigm in Building Financial Systems that Work for the Poor Majority
1.
Encourage a range of financial institutions and methodologies:
2.
Adopt standards on performance in:
3.
Provide appropriate support modalities institutions that meet high standards need:
Commercial banks Regulated MFIs Microfinance NGOs Finance companies Coops, credit unions Grassroots organizations
Client reach Efficiency, profitability Financial integration Impact Portfolio size, growth Portfolio quality
Policies, regulations and legal structures that fit microfinance Access to finance that fits the institutions size and stage The ability to mobilize savings
Policy, Regulatory and Legal Frameworks are Needed for Microfinance Operations
Key Features of Microfinance
Transaction costs are high
Responsive Framework
Institutions need to be able to charge relatively high interest rates Microloans as loan class, with portfolio Quality and lending methods--not loan Collateralused to evaluate risk. Simple while rigorous reporting requirements with microfinance standards and benchmarks Ability for high performing MFIs to mobilize deposits from borrowers and from the public Ability to establish branches and agencies rapidly Flexibility in hiring, and performance-based incentives
Retail capacity needs to be built in most countries Savings and other asset building products require attention Transaction costs need to be reduced Financing that fits different stages of MFIs is needed in many markets Country-level visions and strategiesbuilt by key stakeholders Policies, regulation, legal structures need to be implemented Key elements of institutional infrastructure need to be constructed Performance indicators and standards need to be implemented Increased attention is needed in measuring impact of microfinance Government and private sector have important roles to play
Building Blocks of Domestic Financial Markets That Work for the Poor Majority
Interest rates Financial sector policies Government Regulations, policy supervision Legal structures Legal systems
Performance indicators
Government role
Donor support
Policy
Industry Infrastructure
MF networks, associations
Rating agencies
Credit bureaus
Tech applications
Payment systems
Business services
Savings mobilization
Wholesale financing
Bonds, securitizations
Guarantee mechanisms
Transparency
Commercial Banks
MicroFinance NGOs
Regulated MFIs
Savings
Others
Savings
Product Offerings
Insurance
Income
Assets
Education, Health
Community Participation
The nine most important measures for building the policies, regulations and legal structures for financial systems that serve the poor majority
1. Liberalized interest rates for microfinance, relying on competition and transparency to lower costs and rates 2. Inclusive financial sector policies that incorporate measures to ensure responsive, solid services to the poor 3. An explicit, supportive government policy and strategy for microfinance, with objectives, key policies and support, roles 4. Regulations and supervision capacities that respond to the characteristics of microfinance. 5. A range of suitable legal structures that enable organizations of different types and sizes to provide diversified microfinance products in a sustainable way. 6. Legal and judicial systems that support secured and unsecured lending 7. Common performance indicators, definitions and standards 8. Governments role as an enabler, not retail provider 9. Donor support to complement private capital, e.g., financing younger institutions, capacity building, innovation and policy change
Key institutions and services that need to be in place to support the build-up of solid, responsive retail capacity in microfinance
Technical service providers Wholesale finance institutions Microfinance networks, industry associations Rating agencies Credit bureaus IT platforms and application of technology Payment systems Information and business services for microentrepreneurs Domestic capital markets development
Key financial instruments and arrangements if the domestic financial market is to respond to the needs of MFIs
Domestic savings mobilization Domestic wholesale financing Bonds and securitization issues Grants and soft loans to enable high potential MFIs to reach sustainable scale, and to support capacity building and innovation for MFIs at all stages Guarantee mechanisms Enhanced transparency, ratings, credit bureaus, information disclosure Healthy domestic capital market
Role of Government
DO
Promote microfinance as a key vehicle in tackling poverty, and as vital part of the financial system Create policies, regulations and legal structures that encourage responsive, sustainable microfinance Encourage a range of regulated and unregulated institutions that meet performance standards Encourage competition, capacity building and innovation to lower costs and interest rates in microfinance
DONT
Low interest rates Low repayments Low know your customer Minimal loan amounts Low, sporadic, and shallow outreach relative to demand
Interest rates that cover costs, enable profits Excellent portfolio quality Understand household economies, economic activities of the poor Financial products and processes that respond to poor households, enterprises High outreach, impact
Leading banks and microfinance institutions are innovating to provide efficient, responsive, sustainable services
Innovations
Average loan US$ 900 Average savings account US$ $125 Cross-selling of 3.4 products per client First banking experience for 50% of new clients
Build retail capacity in microfinance Build the depth and diversity of product offerings Build domestic financial markets for microfinance Utilize technology to cut costs and expand outreach Build permanent state policies and country strategies Mobilize new actors, help them learn the business and play effective roles
WWB
Network Members
Building Enterprise Systems that Treat the Poor as the Top Priority
Low-Income Entrepreneurs and Households
LARGE ENTERPRISES
Middle Class
Wealthy