A Commercially Viable Approach to Poverty Alleviation FINCA International Gap in Financial Services Market for Microfinance 1.7 billion people $1,500-$20,000/yr* 4 billion people $20,000/yr* Lacks access *Numbers are in purchasing power parity in USD Source of Image -- C. K. Prahalad and Stuart Hart, The Fortune at the Bottom of the Pyramid, Strategy+ Business, Issue 26, 2002 Source of Figures -- Allen L. Hammond and William J. Kramer, The Next 4 Billion. Traditional financial services Explaining the Gap: Perceived Risks Perceived limitations Transaction costs are high Property rights are not well-established Clients are geographically dispersed Corruption and bribery by local officials Perceived impact of client illiteracy Perceived Risks Absence of information Limited competition Absent or imperfect regulatory framework Gap in the Availability of Financial Services + Market perspective: Capitalize on significant, untapped sector of financial market Create jobs Social perspective: Provide access to services Improve socio-economic levels of clients and community Enable intangible results such as empowerment Microfinance illustrates: Low-income clients are profitable Risks associated with the poor are perceived Financial systems can meet the needs of the poor Why Microfinance? Role of Microfinance Microfinance illustrates: low-income clients are profitable risks are perceived financial systems can meet the needs of the poor FINCA International Module 2: Microfinance Industry Overview Origins of Microfinance Industry Overview Development Timeline Late 1940s: The concept of Development appears after WWII 1950s: Modernization (Big Push and/or strategic investments) 1960s/1970s: Dependency Theory, ISI policies, grassroots development, basic needs 1980s: Structural Adjustment 1990s: Community Development, interest in Sustainable Development swells, debt relief (HIPC/Jubilee 2000) 2000: Millennium Development Goals Microfinance Timeline* Since the beginning of time: Informal savings & credit groups have always existed 1500s: 1 st pawn shop created by Catholic Church as alternative to money lenders 1700s: Irish Loan Fund System began 1800s: Financial Cooperative developed Early 1900s: Adaptations in Latin America : State-Owned Development Finance Institutions emerged Early 1970s: Experimental Microcredit programs 1980s: Microcredit spreads and improves Early 1990s: Microcredit Microfinance Today: Blurring of lines between MFIs and traditional financial institutions *Helms, Access for All, ch. 1 The development industry is fairly recent but development tools such as microfinance have always existed Industry Overview ACCION International First microloan in Brazil, 1973 Grameen Bank Founded in Bangladesh, 1976 FINCA International First microloan in Bolivia, 1984 ProCredit Holding Founded 1998 Industry Overview Top Credit-Led Methodologies GROUP INDIVIDUAL Community Lending Models Groups of Groups Solidarity Group ROSCAsASCAsCO-OPsSHGs Village Banking CREDIT METHODOLOY Overview of MFIs Range of providers 7, ,000 MFIs globally; exact total unknown 1,900+ MFIs self-reporting to MIX Market* Size of industry $60 billion in loans $37 billion in deposits* Largest 29 reporting MFIs have 50% of all loans Largest 16 reporting MFIs have 50% of all borrowers Largest 8 have 50% of all depositors Large variety in legal structure, mission and methodology Industry Overview MixMarket, Overview of MFIs Client Base and Circulation Large and Growing Exceeding 190 million clients, 128 million are poor** Loans to poorest impact over 600 million people 80% of poorest clients are women Large variety in loan sizes* 19 have average loans > $10,000 44 have average loans $5,000 10,000 331 have average loans $1,000 5,000 521 have loans