In this chapter, the following content will be discussed: Size of the microfinance industry, why is microfinance growing? what are the risks of microfinance? The benefits of private-sector engagement in inclusive finance, benefits from the private sector, the road to inclusive finance.
Summary of Last Lecture • The Benefits of Private-Sector Engagement in Inclusive Finance • Benefits from the Private Sector • The Road to Inclusive Finance Size, Risk & Growth in the Microfinance Industry Size of the Microfinance Industry • During 1995 and 1996 the Sustainable Banking with the Poor Project compiled a worldwide inventory of MFIs The list included nearly 1,000 institutions that provided microfinance services, reached at least 1,000 clients, and had operated for a minimum of three years Size of the Microfinance Industry • From this inventory, more than 200 institutions responded to a two-page questionnaire covering basic institutional characteristics Size of the Microfinance Industry • • According to the survey results, by September 1995 about US$7 billion in outstanding loans had been provided to more than 13 million individuals and groups In addition, more than US$19 billion had been mobilized in 45 million active deposit accounts Size of the Microfinance Industry The general conclusions of the inventory were: • Commercial and savings banks were responsible for the largest share of the outstanding loan balance and deposit balance Size of the Microfinance Industry • • Credit unions represented 11 percent of the total number of loans in the sample and 13 percent of the outstanding loan balance NGOs made up more than half of the sample, but they accounted for only percent of the total number of outstanding loans and percent of the outstanding loan balance Size of the Microfinance Industry • Sources of funds to finance loan portfolios differed by type of institution NGOs relied heavily on donor funding or concessional funds for the majority of their lending Banks, savings banks, and credit unions funded their loan portfolios with client and member deposits and commercial loans Size of the Microfinance Industry • • NGOs offered the smallest loan sizes and relatively more social services than banks, savings banks, or credit unions Credit unions and banks are leaders in serving large numbers of clients with small deposit accounts Size of the Microfinance Industry • The study also found that basic accounting capacities and reporting varied widely among institutions, in many cases revealing an inability to report plausible cost and arrears data What Are the Risks of Microfinance? • Or to encourage economic growth? Or to help poor women develop confidence and become empowered within their families? And so on What Are the Risks of Microfinance? • In a sense, goals are a matter of choice; and in development, an organization can choose one or many goals—provided its constituents, governance structure, and funding are all in line with those goals What Are the Risks of Microfinance? • In a sense, goals are a matter of choice; and in development, an organization can choose one or many goals—provided its constituents, governance structure, and funding are all in line with those goals The Evidence: Real Companies, Real Cases • At the heart of the course are case studies researched and written by members of the inclusive finance team from the Center for Financial Inclusion at ACCION, a group dedicated to industry development The Evidence: Real Companies, Real Cases • Center for Financial Inclusion at ACCION identified 16 examples from across the globe in which private companies are contributing to financial inclusion in significant or innovative ways The Evidence: Real Companies, Real Cases • The companies in the cases range from well-known multinationals (Citibank) to important local companies (Equity Bank of Kenya) The Evidence: Real Companies, Real Cases • The company cases bring the opportunities and challenges of inclusive finance to life They recount the motivations that led companies into inclusive finance, the opportunities and obstacles they saw, and the results they have experienced so far The Evidence: Real Companies, Real Cases • The cases are chosen on three qualities: demonstrating scale, profitability, replication, and impact on clients Not every company scores well on all of these dimensions, but all cases have at least some important elements of success The Evidence: Real Companies, Real Cases • Several cases presented in this project have been written about before, usually to describe or highlight specific innovations In this course we seek rather to understand why and how major corporations approached the opportunity The Evidence: Real Companies, Real Cases • A few of the cases stand out for me with compelling messages Banco Azteca built a financial-services empire serving million borrowers in five years This case highlights the potential of retailers to alter the shape of the financial industry It is a wake-up call to everyone who thinks of scale in terms of thousands rather than millions of clients The Evidence: Real Companies, Real Cases • The case of Sequoia Capital India and SKS Microfinance helps us understand how hard-nosed investors evaluate the growth prospects of a leading microfinance institution Sequoia bet on Google before it showed profits; time will tell whether it showed similar market acumen to bet on SKS when it had only just crossed the profitability line The Evidence: Real Companies, Real Cases • A favorite case of mine is that of Equity Bank in Kenya, which created a set of education-linked products that support low-income students, their families, teachers, and schools Equity found a way to help Kenyans meet a deeply meaningful social need through profit-earning services, a wonderful example of proactive social responsibility The Evidence: Real Companies, Real Cases • The time is ripe for a massive move by the private sector to tackle inclusive finance Technology holds out the promise of cutting through cost and infrastructure barriers that until recently appeared insurmountable The Evidence: Real Companies, Real Cases • Economic growth is putting more money in the hands of low-income people, making it obvious that this market constitutes a substantial opportunity If the private sector responds, the next decade may well see the contest for the inclusive finance market largely fought and won Summary • Size of the Microfinance Industry • Why is Microfinance Growing? • What Are the Risks of Microfinance? ... of loans in the sample and 13 percent of the outstanding loan balance NGOs made up more than half of the sample, but they accounted for only percent of the total number of outstanding loans and. .. such as savings and loan cooperatives, credit union networks, commercial banks, and even state-run financial institutions, by expanding their markets for both savings and credit? ?and, potentially,... contribution of microfinance to strengthening and expanding existing formal financial systems Microfinance activities can strengthen existing formal financial institutions, Why is Microfinance Growing?