This lecture argues that through inclusive finance, companies can make money and help solve the global problem of poverty. By inclusive finance we mean opening access to high-quality financial services to everyone who needs them, especially low-income and previously excluded people. We also discuss how microfinance—until recently a small, close-knit community of institutions offering microloans—is evolving into an essential part of global financial systems and engaging with new private-sector players.
Micro Financing & Micro Leasing An Introduction Summary of last Lecture • Microfinance Background and Introduction Introduction • • Xavier sells frozen fish and a few groceries at a dusty intersection on the outskirts of Maputo, Mozambique Wearing a crisp white shirt and tie, he poses before an electric typewriter in his kiosk Everything about the picture, including the pride in his face as he looks at the camera, reflects his striving to become a successful businessman Introduction • Big institutions of society had either failed or ignored him, except for the Coca-Cola distributor that brought him cases of soft drinks to sell Xavier was putting the pieces of prosperity together for his family on his own by building his business He had a loan from a microfinance cooperative, but it was small, suitable only for financing a little extra stock Introduction • Xavier could be a loyal customer for many other financial services—savings accounts to help him build for the future, a homeimprovement or fixed asset loan, health insurance, and remittance services to send money to his relatives in South Africa Introduction • Xavier could be a loyal customer for many other financial services—savings accounts to help him build for the future, a homeimprovement or fixed asset loan, health insurance, and remittance services to send money to his relatives in South Africa Introduction • The success of microfinance institutions in making small loans to people like Xavier has begun a revolution in financial sectors around the world Introduction • The consequent media attention to microfinance is leading the business community to consider what their roles might be in bringing financial services to population groups that have long been marginalized Introduction • The gaps we see in Xavier’s financial needs point toward many opportunities that await entrepreneurial companies prepared to engage the low-income market Introduction • Imagine a world in which a farm couple in the highlands of Nicaragua saves enough money to provide for their old age, a slum dweller in Mumbai who falls ill gets medical treatment without sacrificing her life savings, and a snack vendor in Uganda borrows money and builds a small restaurant Benefits from the Private Sector • But can’t the nonprofit or government sectors this just as well? In fact, many nonprofits and governments an excellent job of providing financial services, especially (as we will see) in reaching out to ever more difficult market segments Benefits from the Private Sector • Yet there are tremendous economic benefits when the private sector gets involved, starting with the greater potential of private markets to reach all those who need services Benefits from the Private Sector • Moreover, as commercial scale becomes the driver of inclusive finance, it frees philanthropic and public resources to tackle still unsolved problems in other sectors Benefits from the Private Sector • Equally important, the dynamics of competitive markets stimulate innovation and reward efficiency The result is better service quality and lower costs, as has already become evident in some highly competitive microlending markets like Bolivia and Peru, where interest rates have fallen and product range has grown Benefits from the Private Sector • The close interaction that is emerging between business and nonprofits in microfinance may also have the indirect effect of introducing proven business methods and models to help nonprofits become more effective, accountable, and sustainable The Road to Inclusive Finance • This course provides a road map for business executives and investors thinking about greater involvement in inclusive finance The map looks something like this The Road to Inclusive Finance • We start, in Part 1, with the market, beginning up close with portraits of three clients from different continents and then stepping back to the scale and purchasing power of the global market We describe who is serving the market today—and who is not The Road to Inclusive Finance • This sketch sets up the next topic: how to take advantage of the opportunities Then we will examine the unique challenges of providing financial services for low-income people and how companies can solve these challenges in designing products like microleasing, housing finance, microinsurance, and remittances The Road to Inclusive Finance • Part asks about strategic entry points We highlight three main business models that companies are using to get involved: banks launching their own microfinance operations (“downscaling”), partnerships between banks and retail networks to get services closer to customers, and investors putting debt and equity into microfinance institutions The Road to Inclusive Finance • Part discusses the building blocks of an inclusive financial system, where some of the most exciting new developments are taking place, like the penetration of cardbased payments, mobile phone banking, and credit scoring The Road to Inclusive Finance • Part discusses the building blocks of an inclusive financial system, where some of the most exciting new developments are taking place, like the penetration of cardbased payments, mobile phone banking, and credit scoring This section also looks at the supporting role played by capital markets and governments The Road to Inclusive Finance • In Part we turn to social responsibility We argue that inclusive finance gives companies a great opportunity to align social value with long-run business success if they incorporate social issues creatively into strategy The Road to Inclusive Finance • The explicit incorporation of social aims into business strategy has been one of the distinguishing features of microfinance and can become a hallmark of successful inclusive finance as well The Road to Inclusive Finance • In this part we also discuss the downside risk—for customers, providers, and the industry—of failing to protect customers from harm The section ends with the challenge of measuring the social bottom line Summary • The Benefits of Private-Sector Engagement in Inclusive Finance • Benefits from the Private Sector • The Road to Inclusive Finance ... Has Changed? • New technologies and delivery channels improve the cost equation for handling the small transactions of the poor And leading microfinance institutions not only prove that low-income... these companies, reducing global poverty goes hand in hand with profitable business operations and strong market Introduction • This course argues that through inclusive finance, companies can make... events are made possible by financial services provided by private companies These companies are touted in the highest business circles as savvy and successful ? ?and valued and trusted by their lowincome