Tuesday, March 18, 2008

Open Mike 7: Microfinance (links)

Posting this here for Savi:

What is Micro-finance?
Refers to a movement that envisions "a world in which as many poor and near-poor households as possible" have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers.
Difference between Microfinance and Microcredit
What are the services offered by Microfinance??
[1] Saving (Pension plan, deposits )
[2] Insurance
[3] Fund transfer or remittance from abroad
[4] Loans (Emergency , short-term , long-term)
A few Micro-finance Models (courtesy Sanjeev Ranganathan)
1) Creation of SHGs generally involves a savings group this in turn give out loans to their members e.g. MATS (Mutually Aided Thrift Society - Timbaktu). The funds are that of the group and there is a clear incentive in ensuring that the loans (their money) is repaid by other members of the group. All account keeping is done by the group that elects it's own leaders and organizations have a person only overlooking the accounts and giving training (neither are full time jobs).

While some local politics can exist e.g. the wife of the panchayat leader taking more loans than others, etc. But, a few rules, e.g. no loan without returning 75% of current loan and a small amount of account keeping can keep things fair.

2) Anawim had implemented the SHG concept in the following fashion. Creation of womens groups (6 months to 1 yr of running weekly meetings – there act as a platform for discussing issues faced by women in the community, maintaining minutes and if possible savings. But, the savings was not necessary). Next a loan was given to the entire group to maintain. They also ran an evening center for the children in the community and the interest generated from the loans would help run the center. The interest in maintaining proper accounts was in the interest in the education of their children.http://www.paadhai.org/First%20Year%20of%20PAADHAI-India.pdf

3) Timbaktu Organic (TC) has a micro-finance program for encouraging farmers to take up organic/low-cost farming. TC also serves as a link to market the goods if they do not get utilized locally. The reason to mention TC is their approach to raise the capital – they reach out to socially responsible individuals to fund their initiatives. A nominal 4% interest is available to the individuals on request, further if it is a really bad year, they commit to take care of the principal if not the interest. http://www.dorabjitatatrust.org/annual_rep/pdf/mnr_livelihood.pdf

4) Geneva-Global

Microfinances and Women Empowerment (Keeping Project Freedom in mind)

[1] http://www.kiva.org/about/microfinance/ (Question 9) [2] http://www.genfinance.info/

Microfinance: The Downside

[1] http://blog.perfectspace.com/2008/01/19/starting-your-own-microcredit-or-microfinance-franchise/#mf-problem

[2] When is microfinance NOT an appropiate tool?http://www.microfinancegateway.com/section/faq#Q5

[3] Why do MFIs charge such high interest rates to poor people? http://www.microfinancegateway.com/section/faq#Q6

[4] Chances of poverty alleviation: http://books.google.com/books?id=RvcMNBYvMnMC&pg=PA4&lpg=PA4&dq=downside+of+microfinance&source=web&ots=o2nx0UON0T&sig=zWlgZz2m-qSMeBFUE3BZuWOXdNQ&hl=en#PPA4,M1

[5] Link to NYT article on problems for microfinancing in Mexico

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