Microfinance Institutuions and macrofinance .pptx

Microfinance Institutuions and macrofinance .pptx

• 2.
  What Is Microfinance? •Microfinance, also called microcredit​ , is a type of banking service provided to low-income individuals or groups who otherwise wouldn't have access to financial services. • However, many banks offer additional services, such as checking and savings accounts, while others may provide micro-insurance products as well as financial and business education. • The goal of microfinance is to ultimately allow impoverished people to become self-sufficient
• 3.
  KEY TAKEAWAYS • Microfinancerepresents banking services for low-income individuals or groups who otherwise would not have access to financial services. • Microfinance allows people to take on reasonable small business loans safely and consistent with ethical lending practices. • Most microfinancing operations occur in developing nations, such as Bangladesh, Cambodia, India, Afghanistan, the Democratic Republic of Congo, Indonesia, and Ecuador. • Like conventional lenders, microfinanciers charge interest on loans and institute specific repayment plans
• 4.
  Understanding Microfinance • Microfinanceservices provide much-needed financial assistance to unemployed or low-income individuals. Unfortunately, those who earn below the poverty income threshold or have limited financial resources may not earn enough income to meet the financial qualifications to conduct business with traditional financial institutions. • However, despite being unbanked, people who live on as little as $2 a day do attempt to save, borrow, or acquire credit or insurance and make payments on their debt. Thus, many poverty-stricken people typically look to family, friends, and even loan sharks—who often charge exorbitant interest rates—for help.
• 5.
  • Microfinance allowspeople to take on reasonable small business loans safely and in a manner consistent with ethical lending practices. Although microfinancing operations exist worldwide, the majority of financing activity occurs in developing nations, including Bangladesh, Cambodia, India, Afghanistan, the Democratic Republic of Congo, Indonesia, and Ecuador. Some microfinance institutions, sometimes referred to as MFIs, focus on helping women in particular.
• 6.
  Microfinance Products andServices • Microfinancing organizations support a large number of activities, ranging from providing the basics—like bank checking and savings accounts—to startup capital for small business entrepreneurs and educational programs that teach the principles of investing. • These programs can focus on skills like bookkeeping, cash- flow management, and technical or professional skills like accounting.
• 7.
  Financial and BusinessEducation • In many instances, people seeking help from microfinance organizations are first required to take a basic money-management class. Lessons cover understanding interest rates, the concept of cash flow, how financing agreements and savings accounts work, how to budget, and how to manage debt. • Once educated, customers may apply for loans. As one would find at a traditional bank, a loan officer helps borrowers with applications, oversees the lending process, and approves loans. The typical loan, sometimes as little as $100, may not seem like much to some people in the developed world, but for many impoverished people, this figure is often enough to start or sustain a business or engage in other profitable activities.
• 8.
  Microfinance Loan Terms •Like conventional lenders, microfinanciers must charge interest on loans and institute specific repayment plans with payments due at regular intervals. Some lenders require loan recipients to set aside some of their income in a savings account, which can be used as insurance if the customer defaults. If the borrower repays the loan successfully, then they have just accrued extra savings. • Because many applicants can't offer collateral, microlenders often pool borrowers together as a buffer. After receiving loans, recipients repay their debts together. Because the program's success depends on everyone's contributions, this creates a form of peer pressure that can help ensure repayment.
• 9.
  • For example,if an individual is having trouble using their money to start a business, they can seek help from other group members or the loan officer. Through repayment, loan recipients begin to develop a good credit history, which allows them to get larger loans in the future. • Although these borrowers often qualify as "very poor," repayment rates on microloans are often higher than the average repayment rate on more conventional forms of financing. For example, the Grameen Bank in Bangladesh, one of the original microlenders, reports an average repayment rate of 98%.
• 10.
  Benefits of Microfinance •More than 174 million people have directly or indirectly benefited from microfinance-related operations.1213 However, these operations are only available to some of the world's poor, while an estimated 1.7 billion people lack access to establishing basic financial accounts. • The benefits of microfinance extend beyond the direct effects of giving people a source of capital. Entrepreneurs who create successful businesses can offer jobs and trade to help improve their community. Also, the International Finance Corp. (IFC) has helped establish or improve credit reporting bureaus in 30 developing nations. It also has advocated for adding relevant laws that govern financial activities in developing countries.