Microfinance: A General Discussion of Microfinance

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Microfinance: A General Discussion of Microfinance

Post by Tigger34 on Wed Mar 30, 2011 6:38 pm

I think a thread for the general discussion of microfinance might be a good idea.

To start the thread I thought I would post the link to an article entitled "Does Microfinance Work?"

This article was written by Anis Chowdhury, Professor of Economics at the Universtity of Western Sydney, Australia. The article appeared on-line at the following link:

http://www.makingitmagazine.net/?p=1711

The article begins as follows (quote):

"Professor Mohammad Yunus, the originator of the concept of microfinance, believes that 5% of Grameen Bank’s clients exit poverty each year. However, there are few credible estimates of the extent to which microcredit actually reduces poverty.

Ideally one can ascertain the impact of microfinance if the counterfactual – what would have happened to a person who borrowed from a microlender if he/she had not done so – can be easily tested. Many early studies compared borrowers with non-borrowers. But if borrowers are more entrepreneurial than those who do not borrow, such comparisons are likely to grossly overstate the effect of microcredit. Two recent studies attempted to overcome this problem by using randomized sample selection methods. Neither study found that microcredit reduced poverty. One of these studies found no impact on measures of health, education, or women’s decision-making among the slum dwellers in the city of Hyderabad, India. The other study found that the provision of microfinance in Manila, the Philippines, had no discernible effects on the probability of being below the poverty line nor did it find any significant impact on the quality of food that people ate.

The findings of the most cited set of studies, based on empirical evidence drawn from comparative experiences in seven developing countries (published in 1996), are also provocative: poor households do not benefit from microfinance; it is only non-poor borrowers who can do well with microfinance and enjoy sizable positive impacts. A vast majority of those with starting incomes below the poverty line actually ended up with less incremental income after getting microloans, as compared to a control group which did not get such loans.

No miracle cure

These findings imply that credit is only one factor in the generation of income or output. There are other complementary factors, crucial for making credit more productive. Among them, the most important is the recipient’s entrepreneurial skills. Most poor people do not have the basic education or experience to understand and manage even low level business activities. They are mostly risk-averse, often fearful of losing whatever little they have, and are struggling to survive. Most prominent promoters of microfinance, including Professor Yunus and Sam Daley-Harris, director of the Microcredit Summit Campaign, recognize that microcredit is not a miracle cure; for it to succeed other complementary factors are needed. ...................."

The article goes on to discuss these complimentary factors, interest rates, expansion of microfinance, and positive contributions. There are also some interesting comments in the response section below the main article.

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Re: Microfinance: A General Discussion of Microfinance

Post by Tatiana on Wed Mar 30, 2011 9:35 pm

I think I have faith that microfinance can work, and it seems to work for people who, as you say, have an entrepreneurial bent. Just reading the success stories, even if they aren't statistically prevalent, gives me the feeling that microfinance gives people scope for action and possibilities that weren't there before. It's also true that the less-poor people who mainly benefit may be hiring the poorer people in the area, generating jobs.

Of course microfinance can't heal the sick, or help those too debilitated to work. We need Partners In Health type organizations in every country (and rich countries should be helping to fund them), including agriculture projects, clean water, hygiene classes, child-rearing classes, marriage classes, and lots and lots of primary education, secondary education, and scholarships for those students who want to continue their education. We need women's health clinics to repair fistulas and do c-sections when needed, as well as educate women about reproductive health and birth control options.

As I work to help people here locally, as well as abroad, I've discovered or had it reinforced to me that a person's agency, their unalienable right to choose their own path, is primary. You can lift people out of poverty by providing them with good housing, transportation, love and concern, food stamps, doctor visits, and an opportunity to work for a living, but they can still decide to take drugs, steal from you, spend the food money on drugs, and ruin all their new chances. This is one true story of a family I helped. So was that effort wasted? Some might think so. But what I think is that I provided for a couple of God's children an opportunity for them to get out of poverty. What they chose to do with that opportunity was their decision and not mine. I just decided when to start and stop providing my support.

Of course, when helping people, we all hope that every person we offer a chance to is going to jump on that chance and get every possible benefit from it. And we do want to weigh the odds in favor of success, in every way we possibly can.

So I'm in favor of business classes, accounting classes, analysis of what works and doesn't work for small scale entrepreneurs. I'm in favor of insurance to cover risks, and of limiting loans to be for things that will generate more income for families. The ideal that I often cite is an ice-cream seller who needs money for a new freezer that will allow them to double their current business. Another is a farmer who needs a treadle pump to increase crop yields with irrigation. The new income generated will pay back the loan, then provide extra money from there forward.

I'm in favor of loans for housing construction, so people have a decent safe place to live and work.

I'm not expecting every person to be able to benefit from their loans. They have their agency, which matters most. Perhaps some loans can be used by people to learn how not to handle money. This is also a valid use, though of course I would hope and prefer the majority of loans to be a net positive in people's lives. But that's not 100% in my control. The people also get a say, and local conditions, natural disasters, war, economic collapse, and all those things also happen.

I guess what I'm doing primarily is showing people that someone cares, that we are all rooting for them, and what they do matters. I guess that's my feeling about it. And if 5% of the people get some measurable benefit from it, that's a good thing, something I'm glad of. And if we can study things over time and learn how to maximize the benefits, we should do that too. But I'm not giving up on those one billion people who are in extreme poverty. I'm going to do my best to figure out what works and gives them the help they need. They're my brothers and sisters, and they deserve better than they've gotten, they deserve more chances in life.

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Re: Microfinance: A General Discussion of Microfinance

Post by Tigger34 on Wed Mar 30, 2011 10:14 pm

I also think microfinance can work.

My own feeling is that microfinance (for businesses) works best if the MFI provides training in basic education, money management, business administration, financial counseling, etc. I believe other positive services that MFIs can provide and which may help borrowers to succeed and lead improved lives are health services, maternal and child welfare services, empowerment training, and basic education.

It is also my opinion that education is the real key to rising out of poverty. That is the main reason I lend through Vittana. Giving students the financial ability to become professionals or to gain a marketable skill, will (most likely) break the cycle of poverty and improve the prospects for the students and their entire families.

Of course, not all people can go to school and those people who cannot go to school also need assistance to rise above poverty.

For me, it is important to know that my loan money is passing through reputable MFIs that provide needed education and services to the borrowers. It is also important to me that the MFI through which I lend is not charging excessively high interest rates or high fees.

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Re: Microfinance: A General Discussion of Microfinance

Post by RichardF on Wed Mar 30, 2011 10:49 pm

One thing I like to keep in mind is that microfinance is broader than microcredit. Microfinance offers a full range of financial services, like savings, insurance and funds transfers. When you have secure savings, you don't have to borrow so much. When you have insurance, you hedge against risk. When you can transfer funds, you can help family members and better engage in the market economy.

Another thing I like to keep in mind is that microfinance is one approach among many that can be used to help address the lofty aims of the Millennium Development Goals. "The Millennium Development Goals (MDGs) are eight international development goals that all 192 United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015. They include eradicating extreme poverty, reducing child mortality rates, fighting disease epidemics such as AIDS, and developing a global partnership for development."

These two basic considerations help me keep microfinance (and microlending) in a meaningful perspective about what it can and cannot be expected to accomplish.

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Penny Revolution

Post by RichardF on Sat Apr 02, 2011 3:45 pm

“Penny Revolution” is a [Halogen TV] series that shows how a small amount of money can transform the lives of the more than one billion people who live below the international poverty line, earning less than $1 a day. The magic formula is known as microfinance, a revolutionary method of funding projects in the developing world, considered by many experts to be the world’s most effective anti-poverty tool.
Search for "Penny Revolution" on Halogen website


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Re: Microfinance: A General Discussion of Microfinance

Post by Tigger34 on Mon Apr 04, 2011 11:20 am

Towards “Fair Trade Microfinance”
Microfinance Gateway Staff, April 1, 2011

Creating a standard to recognize MFIs that are serving the poor
The Microcredit Summit Campaign recently announced development of a proposed new Seal of Excellence for Poverty Outreach and Transformation in Microfinance. Intended as a sort of “fair trade designation” for microfinance institutions, the Seal of Excellence would recognize superior performance by microfinance institutions (MFIs) which combine financial sustainability with both significant outreach among poor clients and with a strategic approach to poverty reduction and transformation.

Full article at this link:
http://www.microfinancegateway.org/p/site/m/template.rc/1.26.15891/

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Nobel Laureate Loses Last Legal Battle to Save Job at Bank

Post by RichardF on Tue Apr 05, 2011 2:22 pm

New York Times: Nobel Laureate Loses Last Legal Battle to Save Job at Bank

By LYDIA POLGREEN
Published: April 5, 2011

NEW DELHI — Muhammad Yunus, the Bangladeshi Nobel Peace Prize laureate and microfinance pioneer who popularized the notion of giving tiny loans to the poor, lost his legal battle on Tuesday to hold on to his job as managing director of the bank he created more than 30 years ago.

Last month, Bangladesh’s central bank ordered that Mr. Yunus be dismissed from his post at Grameen Bank, the institution he founded and with which he shared the peace prize in 2006. A lower court rejected his challenge to the order, and on Tuesday, the country’s highest court rejected his appeal.

“They passed a one-word order: dismissed,” said Sara Hossein, one of Mr. Yunus’s lawyers. She said Mr. Yunus’s lawyers would ask the court to review its decision, which was made with uncommon speed.

The court did not address a petition from the bank’s board to be able to retain Mr. Yunus, but its ruling upholding his dismissal would appear to render it moot.The ruling is the most recent development in a lengthy and increasingly acrimonious battle over the control of Grameen Bank between the government and Mr. Yunus, an economist celebrated around the world for bringing banking services to the poor — Grameen has 8.3 million borrowers — but who has fallen out of favor with the leaders of his country.

The push to remove Mr. Yunus started last year after a Norwegian documentary accused him and Grameen of improperly transferring to an affiliate $100 million that had been donated by Norway. The money was retransferred after Norwegian officials complained. In a statement last year, Norway cleared Grameen and Mr. Yunus of wrongdoing.

But the case opened the bank to unprecedented scrutiny. Sheikh Hasina Wazed, Bangladesh’s prime minister, said Mr. Yunus and other microfinance firms were “sucking blood from the poor in the name of poverty alleviation.” The government stepped up its supervision of the bank, arguing that it was poorly governed.

Ms. Hasina and Mr. Yunus, who has been critical of politicians, were once close, but their relationship soured when Mr. Yunus briefly floated a political party in 2007.

Ela Bhatt, who heads the Self-Employed Women’s Association in India, a nonprofit organization that also operates a cooperative bank, said the ruling was a blow to antipoverty organizations that work to empower poor women.

"It’s very unfortunate for the movement," she said. "He was the leader of the movement. He has done so much good for his country and for poor women. This could have been done in a different way, in a dignified way, in a peaceful way."

Ms. Bhatt’s organization runs a cooperative bank in the western Indian state of Gujarat that, like Grameen, is owned by its customers.

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Re: Microfinance: A General Discussion of Microfinance

Post by Tigger34 on Wed Apr 06, 2011 8:56 pm

Mercy Corps Press Release, March 30, 2011:

Microinsurance Catastrophe Risk Organization (MiCRO) Created to Help Protect Haiti's Micro Entrepreneurs

International Consortium Unveils Scalable, Innovative Model for Micro-insurance to Combat the Financial Impact of Natural Disasters


“The formation of Microinsurance Catastrophe Risk Organisation (MiCRO), an innovative donor-capitalized insurance facility developed by a syndicate of strategic stakeholders, will empower Haiti's micro-entrepreneurs to protect themselves against the economic aftermath of severe natural catastrophes. The facility’s scalable model for microinsurance is the first of its kind in Haiti and is aimed at the country's ‘informal sector’ – the organized poor who have taken steps to increase their economic standing and stability through the creation of small businesses.”

“MiCRO's founding partners include Swiss Re, a leading and highly diversified global reinsurer committed to working with governments and related entities to further strategic, long term country risk management; Caribbean Risk Managers Limited (CaribRM), the risk analytics arm of CGM Gallagher Group, the Caribbean’s largest risk intermediary; GC Micro Risk SolutionsSM (GC Micro), a division of the world’s leading risk and reinsurance specialist Guy Carpenter & Company, LLC; Mercy Corps , a global relief and development agency; and Fonkoze, Haiti’s leading microfinance institution.”

Policies issued by MiCRO will provide microfinance clients with financial protection against destruction caused by specific natural catastrophes using an innovative settlement process. Through the use of parametric triggers, MiCRO’s policy process increases transparency to buyers and enhances rapid claim settlement after a disaster strikes.

……………

“There are far too many Haitians who work hard to save and build their assets, only to find them destroyed overnight by a hurricane, flood or earthquake,” says Anne Hastings, CEO of Fonkoze Financial Services. “Microinsurance to manage these inevitable events is a prerequisite for escaping poverty and building a sustainable future.”

……………

Full press release at this link:
http://www.mercycorps.org/pressreleases/24128

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Re: Microfinance: A General Discussion of Microfinance

Post by RichardF on Sat Apr 23, 2011 4:29 pm

The 2011 TIME 100
Meet the most influential people in the world. They are artists and activists, reformers and researchers, heads of state and captains of industry. Their ideas spark dialogue and dissent and sometimes even revolution. Welcome to this year's TIME 100

Esther Duflo, Economist
By RANA FOROOHAR
Thursday, Apr. 21, 2011

Over 1 billion people live on less than $1.25 a day. Amazingly, very little is known about how they make economic choices and what might help ease their lives.

Economist Esther Duflo, 38, is changing that. As as a co-founder of the MIT Abdul Latif Jameel Poverty Action Lab with Abhijit Banerjee and Sendhil Mullainathan, she has broken out of the ivory tower to do something economists rarely do: gather real data to see what really works in alleviating poverty. One of her biggest findings is that microfinance, the poverty-reduction solution du jour, isn't all it's cracked up to be. Which, like many great economic insights, seems obvious when you think about it; after all, not everyone is born to be an entrepreneur. Duflo is relentless about questioning conventional wisdom, from the value of foreign aid (overblown) to how to entice parents to get their kids immunized (give the parents free food). Last year she won the John Bates Clark Medal, which makes her a Nobel winner in waiting. But she isn't waiting to make the world a better place.

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Re: Microfinance: A General Discussion of Microfinance

Post by RichardF on Sat Apr 23, 2011 5:22 pm

The Abdul Latif Jameel Poverty Action Lab at MIT - Translating Research into Action

About J-PAL
The Abdul Latif Jameel Poverty Action Lab (J-PAL) is a network of 53 affiliated professors around the world who are united by their use of Randomized Evaluations (REs) to answer questions critical to poverty alleviation. J-PAL's mission is to reduce poverty by ensuring that policy is based on scientific evidence. J-PAL works to achieve this by:
  • Conducting Rigorous Impact Evaluations- J-PAL researchers conduct randomized evaluations to test and improve the effectiveness of programs and policies aimed at reducing poverty. There are more than evaluations that have been either completed or are ongoing.
  • Building Capacity- J-PAL provides expertise to people interested in rigorous program evaluation, and training to others on how to conduct randomized evaluations.
  • Impacting Policy- J-PAL’s policy group performs cost-effectiveness analysis to identify the most effective ways to achieve policy goals, disseminates this knowledge to policymakers, and works with governments, NGOs, foundations, and international development organizations to promote the scale-up of highly effective policies and programs around the world.
J-PAL is organized both by regional offices and by research themes called Programs. J-PAL's headquarters is a center within the Economics Department of the Massachusetts Institute of Technology (MIT), with regional offices in Africa, Europe, Latin America, and South Asia that are hosted by a local university. J-PAL's Programs include Agriculture, Education, Energy and Environment, Finance, Health, Labor Markets, and Political Economy and Governance. These regional offices and Programs are directed by members of the J-PAL Board, which is composed of J-PAL affiliates and senior management. However, J-PAL's affiliated professors set their own research agenda and raise funds to support their evaluations.

J-PAL and its partners are driven by a shared belief in the power of scientific evidence to understand what really helps the poor, and what does not. J-PAL's many partners include:
  • Nonprofits (NGOs) and governments that run the programs that J-PAL affiliates evaluate;
  • Governments, foundations, international development organizations and NGOs that use J-PAL's policy lessons on what works in poverty reduction to scale-up the most cost-effective programs;
  • Donors that provide funding for evaluations, scale ups and special initiatives, and
  • Research centers that help administer J-PAL affiliates' randomized evaluations and who employ the staff associated with these evaluations. Partners include Innovations for Poverty Action (IPA), Centre for Microfinance, Center for International Development's Micro-Development Initiative, Center of Evaluation for Global Action, Ideas 42, and the Small Enterprise Finance Center.
The lab is named for Abdul Latif Jameel, father of MIT alumnus Mohammed Abdul Latif Jameel, who supported the Poverty Action Lab with three major endowments in 2005, and in 2009 gave another substantial gift of endowment support. For more information about J-PAL's history, please see our history page.

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Re: Microfinance: A General Discussion of Microfinance

Post by RichardF on Sat Apr 23, 2011 5:30 pm


More Than Good Intentions: How a New Economics is Helping to Solve Global Poverty
By DEAN KARLAN and JACOB APPEL


When it comes to global poverty, people are passionate and polarized. At one extreme: We just need to invest more resources. At the other: We’ve thrown billions down a sinkhole over the last fifty years and accomplished almost nothing.

Dean Karlan and Jacob Appel present an entirely new approach that blazes an optimistic and realistic trail between these two extremes. In this pioneering book Karlan and Appel combine behavioral economics with worldwide field research that take readers with them into villages across Africa, India, South America, and the Philippines, where economic theory collides with real life. They show how small changes in banking, insurance, health care, and other development initiatives that take into account human irrationality can drastically improve the well-being of poor people everywhere.
We in the developed world have found ways to make our own lives profoundly better. We use new tools to spend smarter, save more, eat better, and lead lives more like the ones we imagine. These tools can do the same for the impoverished. Karlan and Appel's research, and those of some close colleagues, show exactly how.

In America alone, individual donors contribute over two hundred billion to charity annually, three times as much as corporations, foundations, and bequests combined. More Than Good Intentions provides a new way to understand what really works to reduce poverty; in so doing, it reveals how to better invest that money and begin transforming the well-being of the world.

EXCERPT FROM THE BOOK

Morning in the harbor at Marina del Rey in Los Angeles is steely bright, and it smells of brine and of fish, and it is filled with the sound of pelicans. They congregate by the hundreds on the end of the jetty, strutting and chattering and throwing their heads back to slug down great bulging beakfuls of breakfast. Completely absorbed in the guzzling of their food, they seem not to notice the dinghies puttering by.

Jake was in one of those dinghies with his girlfriend Chelsea and her father, returning from a short ride out on the gentle rolling swell of the Pacific. They passed the gray-brown pelicans on the gray-brown rocks and continued into the marina. Coming down the causeway, they passed the gas pumps, the big prow of the Catalina ferry, and the Buddhist monks.

Yes, the Buddhist monks: those unassuming men and women, some dressed in saffron robes and others in street clothes, standing on the dock around a folding card table on which was erected a little altar with a statue of a sitting Buddha and an oil lamp. On the ground in front of the table was a plastic tub as big as a steamer trunk. From the boat, low in the water, Jake couldn’t see what was inside. They were saying prayers over it.

Chelsea’s father put the boat into idle and turned in a half-circle to stay even with the monks. They came to the end of their prayer and bowed deeply, and the two closest to the bin took it by the handles and dragged it forward to the edge of the dock. Then they tipped it.

Out came a great torrent of water and minnows, which landed in the causeway with a silvery clatter. The minnows disappeared instantly, darting away in every direction, and the ripples from the splash were drawn down the causeway to the ocean by the outgoing tide. The monks bowed again, deeply, and began to pack up their things.

What Jake had seen, Chelsea told him afterward, was a regular ritual. Those particular Buddhist monks set a tubful of fish free every couple of weeks. It was their small way of setting right something they believed was wrong. They didn’t think those fish ought to be killed, so they bought their freedom. They would approach some fishermen, purchase their day’s catch, say a prayer, and release the fish into the causeway to return to the ocean.


READ FULL EXCERPT (PDF)

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Re: Microfinance: A General Discussion of Microfinance

Post by RichardF on Sat Apr 23, 2011 5:46 pm


The Abdul Latif Jameel Poverty Action Lab
Finance Program


J-PAL’s Program in Finance brings together leading academics to expand both the understanding of how household and firms demand and use financial services and how financial service providers perform and engage in the market. The program is especially interested in recent financial innovations that are improving the quantity and quality of financial access at all levels of financial actors.

Recent evidence suggests that product innovations, new contract structures, and regulation can be effective tools for overcoming market failures. With public, private, and nonprofit institutions working to increase financial access around the world, the time is right to explore new ideas, expand conceptual frameworks, and collect compelling evidence in order to better understand financial constraints, especially among the poor, as well as the implications of alternative policy strategies.
To generate rigorous scientific evidence for best practices, J-PAL’s Finance Program works with Innovations for Poverty Action (IPA) and uses randomized evaluations to measure impact of specific interventions, assess efficacy of product and process innovations, and understand more about why financial markets fail in the first place.

The program will synthesize key insights and evidence while identifying new research areas that are conceptually and practically appropriate in expanding access to quality financial services as a mechanism to reduce poverty and spur economic development. By helping to define such a research agenda, the Finance Program provides a framework for decision-making built around rigorous evidence. This framework will help generate research that offers practical tools policymakers, development practitioners, and donors can readily access and use to guide financial policy decisions.

The program also works collaboratively with the Policy Group at J-PAL and IPA to coordinate the dissemination of key findings in finance research to policymakers and to encourage and provide support for the scale-up and replication of successful programs in the field. The Finance Program is co-chaired by Dean Karlan and Asim Ijaz Khwaja, and the program manager is Cristobal Marshall, supported by Anna Yalouris at J-PAL and Nathanael Goldberg at IPA. For further inquiries, please contact cmarshal@mit.edu.

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Re: Microfinance: A General Discussion of Microfinance

Post by RichardF on Sat Apr 23, 2011 5:58 pm


Innovations for Poverty Action (IPA)
Fighting Poverty with Innovation, Evidence & Action


Innovations for Poverty Action (IPA) applies rigorous techniques to develop, test and scale up proven solutions to real-world problems faced by the poor in developing countries.

About IPA


Fighting Poverty with Innovation, Evidence and Action

Innovations for Poverty Action is a nonprofit dedicated to discovering what works to help the world’s poor. We design and evaluate programs in real contexts with real people, and provide hands-on assistance to bring successful programs to scale.

What makes us different?

IPA evaluates what works in fighting poverty using the most rigorous methodology available: the randomized controlled trial.

We are led by researchers including some of the most recognized names in development economics, many holding faculty positions at universities such as Harvard, Yale, MIT, and LSE.
  • We have experience working in over 40 countries around the world.
  • Our research spans a variety of fields, including microfinance, education, health, agriculture, charitable giving, political participation, and social capital.
  • We work with a variety of different organizations, including non-profits, governments, and for-profit companies.
    Our staff receive rigorous training in implementing randomized controlled trials in the field, so that we always maintain the highest scientific standards for our evaluations.
  • We are committed to not just measuring the impact of a program, but also working with organizations to facilitate integration of research results into operations to ensure continuous improvement and the replication of successful ideas.
We strive to bridge the gap between cutting-edge academic research and action by nonprofits, governments, and firms.

We share the evidence we generate with development practitioners, policy-makers and donors. Where appropriate, we work closely with partners to facilitate the replication of effective programs in other areas of the world.

You can also watch us on Youtube, download our 2009 Annual Report and our Brochure, follow us on Facebook, Twitter and LinkedIn, and sign-up for Email Updates.

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Re: Microfinance: A General Discussion of Microfinance

Post by RichardF on Sat Apr 23, 2011 10:47 pm



Country: India
Sector: Microfinance & Enterprise
Policy Goal: Access to Credit
Innovations for Poverty Action (IPA)
Project Evaluations


The miracle of microfinance? Evidence from a randomized evaluation
This study was the first rigorous randomized evaluation of the "traditional" microlending model. The findings from the study suggest that access to microcredit has important effects on household expenditure patterns and the creation and expansion of businesses, but no effect on health, education, women’s decision-making, or average monthly expenditure overall, at least in the short term. It is possible that impacts on education, health, or women’s empowerment would emerge after a longer time, when the investment impacts (may) have translated into higher total expenditure for more households. However, at least in the short-term, microcredit does not appear to be a recipe for changing education, health, or women’s decision-making.

Microfinance & Enterprise
Rapid growth in microfinance over the last three decades has provided over 130 million of the world's poor with access to microcredit and savings services, but for many of the world’s poor, these services remain out of reach. The IPA projects in this sector seek to answer the questions: What is the impact of microcredit, microsavings, and microinsurance? How can we help facilitate access to credit and savings services? How can microfinance reach the ultra-poor?

Agriculture
An estimated 70 percent of the world's poor rely on agriculture for all or some of their household income. Farmers face a number of risks to their livelihoods, including unpredictable weather and crop price variation. These risks may also affect how they choose to borrow and invest to improve their business. The IPA projects in this sector seek to find out how we can help poor farmers in the developing world increase productivity and deal with the risks inherent in farming.

Charitable Giving
In order for non-profits to make a difference, they must secure continued support from donors. This means that, in addition to providing services, most non-profits must dedicate time to fundraising. The IPA projects in this sector are increasing our understanding of what prompts donors to give, and why they may choose one cause over another.

Education
School enrollment has been steadily increasing around the world in the past decade, but there remains much to be done to improve children’s access to quality education. The IPA projects in this sector seek to understand what works and what doesn't to increase school attendance, educational quality, and achievement in the developing world.

Governance & Community Participation
The poor are often marginalized from the decision-making processes that can greatly affect their daily lives. They may be isolated because of past conflicts or longstanding government structures that systematically leave out the poor. The IPA projects in this sector hope to discover the best ways to empower the poor to fully participate in community and political life.

Health
The world’s poor disproportionately suffer from ill health, which in turn makes adults less able to work and children less able to go to school. Unexpected health expenses can devastate a poor family’s fragile household budget. Improving the health of the poor will allow more people to create and seize opportunities to live a better life. The IPA projects in this sector are helping us find out what interventions are the most effective in changing health outcomes to improve the lives of the poor.

Water & Sanitation
Two million children die of diarrheal disease each year, mostly as the result of drinking contaminated water. Though health experts worldwide know a lot about treating diarrheal disease, we understand a great deal less about the relative impacts and cost-effectiveness of preventing diarrhea and other water-borne illnesses through health interventions or sanitation projects.

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Re: Microfinance: A General Discussion of Microfinance

Post by RichardF on Sun May 01, 2011 4:52 pm

Livemint.com - The Wall Street Journal: Policy, savings rates may go up by 50 bps
Central bank likely to shift to single-policy rate system, may accept report on norms for microfinance firms

Posted: Sun, May 1 2011. 11:30 PM IST
Banker’s Trust | Tamal Bandyopadhyay

It’s given that the Indian central bank will hike its policy rate once again when it unveils the annual monetary policy on Tuesday, the ninth raise since March 2010, even as economists and analysts are debating on the exact quantum of the hike. ...

MFI regulation

I am also fairly certain that RBI will formally accept the Malegam panel recommendations on regulating the Rs. 22,000 crore Indian microfinance industry in this policy with minor tweaks. The industry has been reeling under a crisis ever since the Andhra Pradesh government passed a law restricting the microlenders’ activities in the southern state that accounts for roughly one-fourth of their market.

The Malegam panel has made several recommendations, including capping the annual family income of the borrower at Rs. 50,000; a ceiling on loans to a single borrower (of Rs. 25,000); and said not more than two microfinance institutions (MFIs) can lend to a particular borrower.

RBI, I think, will announce a framework for regulating the microfinance industry and make it abundantly clear that if such institutions want to access money from banks, they will have to conform to the regulations. This will not make the Andhra Pradesh law redundant, but prevent the contagion of such a law in other Indian states, and if MFIs agree to follow the RBI norms, the Andhra Pradesh government may not push for the implementation of the law aggressively.

MFIs’ business in the southern state has taken a severe beating and the loan repayment rate from borrowers has dropped to 10%. Rising defaults have made the banks wary of giving money to such institutions, and quite a few of them are facing closure of business as borrowers are not paying back their money and bankers are unwilling to give fresh loans.

Under current norms, banks are required to give 40% of their loans to agriculture and small businesses, defined as a priority sector. Their exposure to MFIs, too, is recognized as priority sector loans. MFIs typically borrow from banks at 12-14% and give tiny loans to borrowers in rural India at 24-30%.

Unless MFIs agree to be regulated by RBI, banks’ exposure to such institutions will lose the priority sector tag. Once that happens, there will not be any incentive for banks to lend money to MFIs. They do so now as they find it difficult to lend directly to farmers and small rural businesses 40% of their loans.

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