The Microfinance

Abdul
Sattar
17261

Syed Ghalib
17330

ThursdayDecember 12, 2012 i.e.

(20-12-2012)

Dr. Yunus once said in an interview,

All human beings are born entrepreneurs Some get
the opportunity to find this out, but some never get this
opportunity. A small loan can be a ticket to exploration
of personal ability. All human beings have a skill- the
survival skill. The fact that they are alive proves this.
Just support this kill and see how they will choose to
use it.

Four Microcredit Methodologies

Methodologies
Individual Lending

Solidarity Group

Peer Lending

Community Based
Organizations

Grameen
Latin
American

Village Banking

Four Microcredit Methodologies

Individual Lending, is defined as the provision

of credit to individuals who are not members of a

group that is jointly responsible for loan
repayment.

Frequent and close contact (Character

based lending)
Credit tailored to specific need of
business
Successful for larger urban-based
business
Collateral/Guarantee (Assets pledged)
required
Interest rate higher
Detailed financial analysis

Four Microcredit Methodologies

Grameen Solidarity Group Lending, peer
group of five ,self formed unrelated
members, each borrower receives an
individual loan, through the mechanism of
the group.
No collateral is required

Group members guarantee each others

loan
Group save prior to receive loan
Group fund is managed by group
No further loans are available if loans are
not repaid on time

Four Microcredit Methodologies

Latin American Solidarity Group Lending,

peer group of five ,self formed unrelated

members, each borrower receives an
individual loan of equal amount, group leader
receives loans of group then distributes to
members..
Minimum economic analysis
Group members guarantee each others loan
Interest rates are high and charge fees
Establish emergency fund.

Four Microcredit Methodologies

Village Banking (CBO ), are community

managed credit and savings associations in

rural areas, ranges 30-50 self-selected
members.
Group members have democratic control
Consist of management committee and
membership
All member offer collective guarantee to
lending MFI
Loans from internal account (saving,
interest earning) set their own terms.

Four Microcredit Methodologies

Loan Parameters
Grameen Bank

Individual Lending
Village Banking Latin American

Usually 12 monthsNo
flexibility within group, as
each client in group must
repay loan over same
period
Weekly

Can be tailored to
the individual client
needs, from 1 to 24
months

Loan Amount:

Limited to fairly small

loans because clients
need to guarantee each
others loans initial loan
amounts generally from
$50 to $100No flexibility in
amount, as each client in
group receives same loan
amount

Can be tailored to
the individual client
needs, usually from
$100 to $3,000

Interest Rate:

Often quite low equal to Usually higher than

or slightly higher than
commercial rates.
commercial rates
Interest may be vary
with purpose of loan

Repayment
Period:

Repayment
Frequency:

Usually monthly

Loans to Bank from

lending institution
made in cycles, with
cycles range from 3
to 12 months each
Loans made from
internal funds can be
repaid weekly or
monthly

Very short term,

generally not
exceeding 6 months.

Amount of loan to
Village Bank from
lending institution
based on the
aggregate savings,
with individual loans
usually starts at $50
or $100 and growing
up to $300

Fairly small loans;

clients guarantee for
eachothers loans
Initial amounts
generally from $100 to
$150. Small Increase
in loan amounts often
follows a strict series
of loan cycles

Weekly, bi-weekly or
monthly

Loan from lending

Usually significantly
institution to Bank
higher than
made at commercial commercial rates
rates.

Some Key Principles to analyze

Microcredit Methodology
The Client: Value, reliable service,

reasonable Price
The Product: Responsive to Clients
needs
The Delivery Methodology: Mitigates
Risk, Reduces Transactional Costs
The Microfinance Provider: Manage
Risk and Achieve Financial
Sustainability

Steps for the Improvements

in Methodology(s)
Undertake regular market research
Offer pro-poor dynamic products
Monitor operations systematically
Establishing and maintaining operational
standards
Ensuring verified and regular information
on key indicators
Generating social capital via solidarity
lending, good client lender interaction.
Coupling microfinance with social
transformation strategies

Niche Market

NonPoor

Micro
Transitory NonCredit TransitoryPoor
Vulnerable
Transitory Poor
Chronic Poor
Extremely Poor

11

Microfinanc
e
(Credit, Deposit,
Insurance and
Remittances)

Safety
Net
Program
s

Foot print is spread across Pakistan

Access Strand
The
Formall
y
Served

The Informally
Served

The Financial
Market
Development
Frontier

The Financially Excluded

Pakistan amongst 36 countries

that has a National Strategy for
Microfinance.
Focus on Growth
3M active borrowers by 2010 and
10M by 2015

Growth Drivers
o Institutional Robustness and
Sustainability
o Availability of funds from
diversified sources
o Investment in Human resources

Different institutional
Models
Industry Players and their

Infrastructure

market share

MF
B
38
%

RSP
31
%

Client
s
1.8 M

MFI
26
%

8 Microfinance Banks (MFBs)

4 Rural Support Programs (RSPs)
5 Specialized Microfinance
Institutions (MFIs)
31 NGOs
Staff: 10,700*
Outlets: 1,480*

NG
O
5%
*Source: MicroWATCH (Jan-Mar 2009). Pakistan Microfinance Network, Islamabad. June 2009

Micro Credit Clients

Outreach Rural and Urban

Active Borrowers by Urban/Rural
2,000,000
1,800,000
1,600,000
1,400,000
1,200,000
No. Active Borroowers

957,759

997,905

1,001,350

1,029,588
Rural

1,000,000

Urban

800,000
600,000
400,000

775,120

753,206

780,889

801,944

2008-Q4

2009-Q1

2009-Q2

2009-Q3

200,000
0
Quarter

The Way Forward - agriculture finance

Promoting Livelihoods and Ensuring food
security!

67% of Pakistans population lives in rural areas

76% of rural manpower is engaged in
agriculture/livestock
21% is the share of agriculture and livestock in
GDP
Food shortage

MF helps poor farmers to rent small pieces

of land (1 to 2 Acres) and buy timely quality

inputs
Cash flows
Outreach capability and a tested rural finance
product

About Rural Microfinance

Industrial Trends in Pakistan

Microfinance Operations
(From June 2008 to June 2009)

Savings
1.
Consistent Growth
1.
nd to 1st
st biggest
2.
Moved from 2nd
2.
product.
Insurance
3.
Emerged as fastest growing
3.
product.
rd biggest
4.
Moved from 3rd
4.
product to second
5.
Affected due to Linking with
5.
Micro credit.
6.
Moved from Individual to
6.
Client plus mode
Credit
7.
Lost its position amongst
7.
products from number 1 to
rd
number 3rd
8.
Two Major Players suffered .
8.
One face Liquidity
constraints, other faced
portfolio quality challenges

Micro Saving
3000000
2000000

2500000

2000000

1000000
0
39692 39873
39600 39783 39965

Micro Insurance
2500000
2000000
1500000
1000000
500000
0
39692 39873
39600 39783 39965

Micro Credit
1900000
1800000
1700000
1600000
39692 39873
39600 39783 39965

1500000

Micro Credit
Micro Saving

1000000

500000

0
39692 39873
39600 39783 39965

Micro
Insurance

Top Four Players with Product

Clients
Micro Credit

Micro Saving

700000

1200000
1000000
800000
600000
400000
200000

NRSP
PRSP
TRDP

900000

500000

800000

400000
300000

FMFBL 200000
TMFB

39692
39873
39600
39783
39965

1000000

600000

100000
0

Micro Insurance

39692
39873
39600
39783
39965

NRSP

700000

NRSP

KB

600000

Kashf

Kashf

500000

FMFBL

400000
300000
200000
100000
0
39692
39873
39600
39783
39965

KB
FMFBL
TRDP

Constraints/Potential and the way

forward

89% of Pakistanis are unbanked

Expansion of micro credit restricted
due to financing constraints
Micro deposits a good source but
only Banks are allowed to raise
deposits
Need for specialized microfinance
provider with a focus on rural areas

Success is not final,

failure is not fatal: it is
the courage to continue
Winston
that counts.
Churchill

Thank You!