Lecture 7 Microfinance D2L 2011

Lecture 7 Microfinance D2L 2011 - Microfinance Lecture 7...

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Microfinance Lecture 7
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Demand for Financial Services It has been estimated that there are 500 million economically active poor people in the world operating microenterprises and small businesses (Women's World Banking 1995). Most of them do not have access to adequate financial services.
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2,700,000,000 People
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Microfinance Defined Microfinance is the supply of loans, savings, and other basic financial services to the poor Microfinance has evolved as an economic development approach intended to benefit low- income women. The term refers to the provision of financial services to low-income clients, including the self-employed.
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Microfinance Activities Financial Intermediation Small loans, typically for working capital Informal appraisal of borrowers and investments Collateral substitutes, such as group guarantees or compulsory savings Access to repeat and larger loans, based on repayment performance Streamlined loan disbursement and monitoring Secure savings products.
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Microfinance Activities Social Intermediation group formation development of self- confidence training in financial literacy management capabilities among members of a group.
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What is an MFI? A microfinance institution (MFI) is an organization that provides microfinance services, ranging from small non-profit organizations to large commercial banks.
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Microfinance Clients Clients are often traders, street vendors, small farmers, service providers (hairdressers, rickshaw drivers), and artisans and small producers, such as black-smiths and seamstresses. Usually their activities provide a stable source of income (often from more than one activity). Although they are poor, they are generally not considered to be the "poorest of the poor."
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Why don't they just go to a bank? You don't have any money to open a savings account with You don't have any collateral to secure a loan with You don't have a credit record as you have never been formally employed and you've never taken out a loan before You might even be unable to complete the necessary paperwork as you are illiterate.
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Background Microfinance arose in the 1980s as a response to doubts and research findings about state delivery of subsidized credit to poor farmers. In the 1970’s government agencies were the predominant method of providing credit to those with no previous access to credit facilities- people who had been forced to pay usurious interest rates or were subject to rent- seeking behavior
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Background (Cont.) In addition to providing subsidized agricultural credit, donors set up credit unions inspired by the Faiffeisen model developed in Germany in 1864. The focus of these cooperative financial
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This document was uploaded on 10/26/2011 for the course FIN 320 at DePaul.

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Lecture 7 Microfinance D2L 2011 - Microfinance Lecture 7...

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