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top of page Natural disasters and microfinance

Disaster Preparedness and Risk Mitigation
Lessons learnt by micro finance institutions
By Hans Ramm, Intercooperation, Bern, March 2005

The recent devastating tsunami in the Indian Ocean has again highlighted the need for micro finance institutions (MFIs) to be prepared for natural disasters so as to mitigate their impact on MFIs, clients and the micro-finance sector at large. Nine conclusions and recommendations are drawn in this paper.

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top of page Leasing: An Underutilized Tool in Microfinance

The Agriculture and Rural Development Discussion Paper 7, published by the Agriculture and Rural Development department of the World Bank, deals with Leasing: An Under utilized Tool in Rural Finance. Most assets that rural enterprises own cannot be used as collateral: land titles are often nonexistent and movable assets such as livestock and warehouse receipts are not legally permissible as collateral. The objective of this paper is to examine the potential of leasing as a rural finance tool, which can overcome these constraints. It analyses the utility of leasing for rural enterprises as a means to acquire equipment and reviews the experience of a cross-section of entities providing leasing in rural areas. The paper also provides an overview of leasing (types, advantages, risks, and enabling environment) and reviews the World Bank and International Finance Corporation (IFC) experience in supporting development of the leasing sector.
Downloadable:
http://lnweb18.worldbank.org/ [...] LeasingDP7_Final.pdf

 

top of page Leasing for Small and Micro Enterprises: guide for designing and managing leasing schemes in developing countries

By Linda Deelen, Mauricio Dupleich, Louis Othieno, Oliver Wakelin

"Leasing for small and micro enterprises" is based on experiences with micro-leasing schemes in many different parts of the world. It differs from other books on leasing because of its focus on small and micro enterprises. The book aims to help managers of NGOs and micro-finance institutions in developing countries who are considering starting a leasing scheme. It explains what leasing is, how to design and market a lease product, and how to deal with regulatory and fiscal issues. For those weighing the pros and cons of offering a lease product, this book should provide some insights.
Downloadable at:
http://www.ilo.org/public/english/employment/finance/knowledge/trainmat.htm

 

top of page Equipment leasing and lending

Financial institutions, which serve low-income farming households and SMEs, can make a qualitative jump by offering their clients equipment leasing, additionally to normal loans and other services. Leasing allows low-income households to invest in productive assets, and hence, increase their income base. Although buying an equipment with a leasing is more costly than buying it with a normal loan, it can facilitate the access to credit, given that the leased good serves as guaranty to the institution.

Glenn Westley from the Inter-American Development Bank (IADB) has published a new book: Equipment Leasing and Lending: A Guide for Microfinance (see: www.iadb.org/sds/doc/64493leasingmic.pdf). "This 86-page study is essential reading for any MFI considering medium-term equipment finance, and also for governments or donors interested in promoting the expansion of such finance. It analyzes a complicated topic with meticulous precision and clarity, which will come as no surprise to readers of Dr. Westley's previous work. The study's empirical examples are all Latin American, but much of the discussion will be relevant anywhere in the world.

The growth of financial services for microentrepreneurs in the last couple of decades has consisted largely of short-term, uncollateralized working capital loans. Now there is a lot of interest expanding the menu of services that are offered to these clients. Equipment finance is an important element of this expanded menu. There seems to be a considerable demand for the longer terms and lower payments that are associated with equipment finance, and Westley demonstrates that this line of business involves some issues and techniques that are quite distinct from those involved in working capital lending.

Westley's survey of 25 Latin American MFIs (many of them leading ones) found that equipment loans and leases accounted for a fifth of their portfolios on average. In some of the MFIs, but not all, the equipment finance clients were on the higher end of the microfinance scale. At Finamérica in Colombia, the average equipment lease was over $4,500; on the other hand, leases at ANED in Bolivia go mainly to very small farmers and average only $675.

In a financial lease, the client typically chooses the equipment and the dealer; the MFI purchases the equipment and "leases" it to the client; monthly lease payments include the MFI's purchase cost as well as interest; and the client usually has the right to purchase the equipment for a nominal price at the end of the lease. The main difference between a financial lease and a standard equipment loan is that the MFI remains the legal owner of the equipment during the lease term, which tends to make seizure of the equipment in case of default more reliable, quick, and inexpensive. Because the MFI's risk and cost are lowered, it can be more aggressive in financing clients that it otherwise would have had to reject. Westley details the pros and cons of leasing compared with lending, from the point of view of both the client and the MFI.

Westley looks at the relevant banking regulations, mainly usury ceilings and restrictions on who can do leasing. In the eight countries he surveyed, banks and finance companies are typically allowed to lease, while other non-bank institutions are prohibited from leasing. In some countries, leasing can be done only through a separate subsidiary, which would raise the cost of leasing for a typical MFI. Westley eventually argues that all these restrictions should be eliminated.

The chapter on taxation and the extended supporting annex develop a surprising conclusion. Leasing is almost universally regarded as having better tax treatment than lending. But Westley points out that the reverse is likely to be true when the clients are informal entrepreneurs.

The chapter on MFI best practices for equipment finance is particularly useful. When an MFI moves into term lending, asset-liability management becomes much more important in order to control the risks associated with liquidity and fluctuations in interest and currency conversion rates. Many leading MFIs are making medium-term equipment loans and leases safely and profitably to new customers, without passing through the progression of loan sizes that has been typical in past microcredit. (Westley sees that this is part of a more general transition away from the progressive-loan model and toward relationship banking.) There are a number of points at which Westley argues that convential wisdom of the leasing literature, for instance the notion that down payments are unnecessary in leasing, does not fit very well with microfinance leasing.

The paper concludes with convincing policy recommendations for governments and donors. The amount of relevant information packed into this study means that it is not exactly bedtime reading; but it will amply reward careful reading by anyone interested in equipment finance for microentrepreneurs." (Comment by R. Rosenberg, World Bank, in devfinance, June 20th 2003).

A hard copy of the publication can be ordered at sds/msm@iadb.org.

To know more about practical experiences and some key aspects of equipment leasing and lending to farming households and SMEs in developing countries, you may read the following documents:

  1. Micro and Small Enterprise Leasing - Lessons from Pakistan. [PDF, 32 KB] Mark Havers from The Springfield Centre for Business in Development illustrates equipment leasing with the practical example of the Network Leasing Corporation (NLC) in Pakistan, a public limited company specialized in leasing to SMEs, created in 1995. SDC has been supporting that company with technical assistance and loans since 1996. NLC owes its success to highly professional and experienced management, but also to its innovation spirit:
    - The company uses post-dated cheques in order to reduce monthly individual installment collection.
    - Clients are compelled to open a bank account, in order to be able to provide the post-dated cheques.
    - All NLC leases are insured against death of the client and other risks (fire, theft, etc.).
    - Contrarily to many leasing companies, NLC adapts the installments of the loan to seasonal fluctuations of their clients economic activities.
    - Finally, the company leases not only new, but also secondhand equipment, which corresponds to the needs and demands of SMEs in Pakistan.
  2. Potential for Leasing Products: Asset Financing for Micro- & Small Businesses in Tanzania and Uganda. [PDF, 596 KB] This recent publication of MicroSave Africa contains a review of formal sector leasing in East Africa, and explanation of the legal and tax advantages of leasing for formal sector businesses. It then analyses the client side of leasing products, concluding that there is a large unmet demand for leasing among MSEs seeking medium term (2-3 years) financing for equipment. The market among that public is highly segmented, creating opportunities for different players to serve particular market niches. The study also addresses institutional issues for micro leasing, as well as policy considerations in Uganda and Tanzania, and concludes with some recommendations for donor support to leasing products.
  3. Examples and experiences with leasing from CECAM (Madagascar) and ANED (Bolivia). [PDF, 150 KB] (in French). This note presented at a Dakar seminar (le financement de l'agriculture familiale dans le contexte de la libéralisation) in January 2002 contains a short review of experiences with leasing from two "microfinance" institutions. The CECAM in Madagascar have been offering leasing services to its members since 1991. By the end of 2001, leasing made up 20% of their loan portfolio and 11.5% of their member borrowers, which shows that leasing loans are relatively high. One of CECAM's "special" products is the leasing for movable assets (like cows and bullocks). In Bolivia, ANED, a partner of SDC, has started a pilot project with equipment leasing in 1997, offering two types of products: the simple leasing, where ANED buys the equipment and hands it over to the borrower who pays in regular installments, and the retro-leasing, where the client sells one of her assets to ANED, against a loan for working capital. The asset is then leased back to the client by the simple leasing product.
  4. Leasing for Micro and Small entrepreneurs in Chile. [PDF, 302 KB] This study published by SIDI in August 2001 reflects the experience of INDES in Chile, a private profit-making stock company that has specialized in equipment leasing and lending since 1992.
  5. Leasing: a new option for microfinance institutions. [PDF, 257 KB] This document from the conference "Advancing Microfinance in Rural West Africa" held in Bamako, Mali in February 2000, contains some basic principles and definitions of a lease arrangement, as well as a review of comparative advantages and disadvantages of leasing versus other types of loans for microfinance institutions. Illustrative cases from CECAM (Madagascar), photovoltaic systems in Kenya and Grameen Bank are provided.
  6. Leasing for Small and Micro Enterprises. This guide for designing and managing leasing schemes in developing countries is based on experiences with micro-leasing schemes in many different parts of the world. It differs from other books on leasing because of its focus on small and micro enterprises. The book aims to help managers of NGOs and micro-finance institutions in developing countries who are contemplating starting a leasing scheme. It explains what leasing is, how to design and market a lease product, and how to deal with regulatory and fiscal issues. Legal and fiscal practices from different countries are described to illustrate general notions on the regulatory aspects of leasing. For those weighing the pros and cons of offering a lease product, this book should provide some insights.

Isabelle Dauner 2003-08-06 (last updated: 2004-03-02) © Intercooperation

 

top of page Migrants' remittances

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In the course of globalisation and liberalisation, international and domestic migration is a phenomenon of increasing importance. Globally, around 200 Mio people are migrating yearly (Orozco, 2003), most of them workers - predominantly male - moving towards towns or countries with better income opportunities than in their place of origin. The phenomenon is well known in Europe and is part of daily life in developing countries. Domestic and international migration has become a strategy for individuals and families in developing countries to cope with poverty and economic crisis. Migrants attempt not only to improve their own livelihoods abroad but they send a considerable share of their earnings back home to their families. These funds sent back home to families are called remittances. Remittances are thus interlinked with migration, and often a cause for migration. Historically, also in Europe, remittances played a role in sustaining and developing societies and regions. Current interest in remittances is high because they are seen as the "new development finance" (Wimaladharma et al. 2004). Questions to look at are: What are volumes and scope of global and regional remittances? What is the development role of remittances? How is this money used? How does the market for transfer of remittances function? What is the interest of remittances for donors?

Two main types of remittances can be distinguished: workers remittances and communal or collective remittances. Worker remittances are funds transferred from one individual or household to another at international or domestic level. Studies from Latin America showed that remittances are transferred frequently and in relatively small amounts. The majority of Latino migrant workers in the US for instance transfers money to their families at least once a month whereby most remitters dispatch between $100 to $300 at a time (Suro 2003). Receiving households are more likely to be headed by a single female e.g. 63% for Latin America or by older family members. Communal remittances are funds sent by migrant associations or church groups to their home communities, usually with an intended use in the home community.

Volumes of remittances

The global flow of remittances has been growing fast and steadily in the last decade. In 1991 workers' remittances back to developing countries reached $33 billion; 2002 it mounted up to $80 billion. Taking the informal and domestic flows of remittances, which are not recorded in statistics, the volume is estimated to be as high as $200 billion yearly. Looking at the official figures, remittances have become the second largest capital inflow to developing countries behind foreign direct investments (FDI), which are accounting for $180 billion and ahead of official development assistance (ODA), which accounts for $53 billion (Ratha 2003). By region, remittances contribute most significantly to total capital flows to the Middle East (72%), North Africa (54%), the Caribbean (51%) and South Asia (51%) (Sanders, 2003a). In Sub-Sahara Africa, ODA is with 50% still the most important source of international money flows. For many of the low- and middle-income countries, remittances represent a significant percentage of the total gross domestic product (GDP). The five top receivers by percentage of GDP are Tonga (South Pacific) (37%), Lesotho (27%), Jordan (23%), Albania (17%), Nicaragua (16%). In absolute figures, the five top receivers are India ($10 billion/a), Mexico ($9.9 billion), Philippines ($6.4 billion), Morocco ($3.3 billion), Egypt ($2.9 billion). The United States ($ 28.4 billion/a) and Saudi Arabia ($15.1 billion) are the largest source of workers' remittances to developing countries. Other top sources are Germany, Belgium and Switzerland, which account for about $8 billion each. (Ratha 2003).

Compared to FDI, ODA and stock markets, remittances were one of the least volatile sources of foreign exchange earnings for developing countries in the 1990s. While FDI, ODA and earnings from stock markets tend to rise during favourable economic cycles and fall in bad times, remittances show more stability over time or even rise during crisis (Ratha, 2003).

Development role of remittances

Remittances increase the foreign exchange earnings of the countries as well as the income of the receivers. The sheer volume of remittances of selected countries indicates that remittances do have a positive effect on the receiving households in terms of improved standard of living, which triggers a positive effect for the local economy due to increased consumption and investments. However there is no consensus to what degree remittances contribute to economic growth and employment creation. The example of Mexico shows a clear multiplier effect; for every dollar received from workers' remittances the GNP is estimated to increase by almost 3 dollars (Ratha 2003). On the other hand, Sanders (2003a), Orozco (2003) and Suro (2003) demonstrate that generally there is little multiplier effect of remittances in the receiving countries.

Most studies reveal that up to 80% of remittances are used for basic household consumption and 5-10% are used to invest in human capital such as education, health, and better nutrition. Third important turned out to be investments in land, housing and livestock, often seen as (future) assets of the emigrants themselves. Smaller portions of remittances are spent on socio-cultural events, for loan repayments, savings and generally only little is invested in employment and income generating activities other than agriculture and livestock (Sanders 2003a and Suro 2003).

Nevertheless, other examples in rural Mexican areas show that remittances spent on productive assets such as land, cattle and equipment allowed rural households to continue the agricultural activities and thus to strengthen their livelihoods. A study on micro-enterprises in Mexico revealed that remittances were responsible for 27% of the capital invested in micro enterprises (Orozco 2003) and a survey in Albania found that 17% of the capital to establish enterprises came from remittances (Sander 2003a). However, the rate of investment into productive activities depends on political stability and sound economic policy of the country.

For poorer households, remittances can be a source to build up savings. Suro (2003) shows that an average of 6% of the remittances go into savings in Central America. The world council of credit unions (WOCCU) estimates that 10% of the money transfers through their remittances network (IRNet) goes into savings and as a result, some receivers open a bank account and thus become bankable (Sander 2003a). Furthermore, remittances have an insurance function for vulnerable households (Orozco 2003).

Collective remittances are more often used for investment in the village or town, that improve living conditions of community members i.e. schools, churches etc. Examples are the large remittances that hometown associations mobilized after the hurricane Mitch in Nicaragua or the construction of the University of Hargeisa financed by the Somali diaspora (Sander 2003a).

However, there are also risks and possible negative effects of remittances. Higher income of households through remittances can remove pressure from governments to implement economic and social reforms. Further questionable effects that have been observed are inequitable growth at the community level. Very poor households can often not afford to send a family member to work abroad. Moreover, a study from Pakistan shows that the richest households usually receive more remittances, which increases the income gap (Ratha 2003). Extensive land purchases by remittance recipients can lead to higher prices for land, which affects poor households in the agriculture sector. Other authors argue that there is a risk for recipients of remittances to develop a culture of dependence, which does not favour self-initiative (Bagasao, 2004). Further concerns express that through migration a drain of skilled labour and taxpayers has a negative impact on a country's development. Other researchers state that the inflow of remittances offsets the losses that a developing country suffers from emigration (Ratha 2003).

The money transferring market

The choice of the right provider for remitting money depends on an interplay of factors at both the senders and the receivers end. The main criteria for the choice of remittance channels are accessibility (familiarity, proximity, talk the language of the client), costs and quality of the service (quickness, trust, reliability). The choice of service is often limited at the receiving end due to the lack of an outlet near the receiver's home, especially in rural areas, which tend to be much less serviced by the financial institutions. Thus, accessibility of a service is often as important as the costs.

The formal channels are represented by commercial banks, money transfer operators (MTOs) and to some extent by postal banks. Sending money by banks is reliable but expensive, slow and sometimes difficult to access in receiving countries due to scattered branch networks. Further, banks require bank accounts on both ends, thus interest of rural populations is limited, while better off segments of remitters use more often banks. MTOs (e.g. Western Union, MoneyGram, VIGO) are well accessible in many centres in both senders and receiving countries, fast and reliable but expensive (Orozco 2003). Surveys proved that MTOs are the most popular among the formal channels (Suro 2003, Sander 2003b), especially in countries with a weak banking sector.

Examples of informal channels are the so-called Hundi or Hawala transfer systems, which build on trust relationship. The sender conveys the money to an agent, who communicates by phone, email or fax with another agent in the receiving country, who then pays the amount to the receiver. Agents can be import-export traders, travel agents, foreign exchange bureaus, etc. These services proved to be reliable, cheap, fast and accessible also in rural areas. In the aftermath of September 11 such informal services experienced pressure for regulation and supervision because they are seen as instrumental for criminal money transfers (Maimbo & Passas 2004). Other informal channels such as transfer via relatives and friends or by ordinary postal service seem to be used by 17% of all remittance senders (WOCCU 2004). Average cost to remit money is about 13% of the remittance value, usually MTOs being the most expensive before banks. Cheapest options are informal channels usually charging 3-5% of the value.

As for domestic and regional transfers micro finance institutions do have a potential to engage in the remittances market. Cases of credit unions, postal banks, micro finance banks, rural development banks, etc. in Africa and Latin America doing remittances business are documented (Sander 2003b). It shows that most of these MFIs are fully licensed banks and many are in a sub-contract relation with an international MTO, e.g. Kenya Post Office Saving Bank partnering with Western Union. MFIs' comparative advantage is proximity to clients and outreach. The emerging information technology even in rural centres makes them more competitive. An interesting initiative from the World Council for Credit Unions (WOCCU) is the international remittances network IRNet, which facilitates remittance distribution through credit unions by partnering with VIGO, the third largest MTO worldwide. This system joins the advantages of both the credit unions' proximity to clients especially in the receiving countries, and the MTO's transferring experience and dense network in the sending countries (WOCCU 2004). Other examples of MFIs engaged in remittances are the National Microfinance Bank of Tanzania, Uganda Microfinance Union, Centenary Rural Development Bank in Uganda and Teba Bank for mineworkers in South Africa. In Latin America there are examples such as the Banco Solidario in Ecuador and PRODEM in Bolivia. The Microfinance Bank in Kosovo is also engaged in remittance transfers (Sander 2003b).

Important readings

Orozco M. (2003) Remittances, the rural sector and policy options in Latin America.
http://www.basis.wisc.edu/live/rfc/cs 15a.pdf

Ratha D. (2003) Workers' remittances: an important and stable source of external development finance. Worldbank.
http://www.worldbank.org/prospects/gdf2003/GDF_vol_1_web.pdf

Sander C (2003a) Migrant remittances to developing countries, a scoping study: overview and introduction to issues for pro-poor financial services.
http://www.livelihoods.org/hot_topics/docs/Remitstudy.pdf

Suro R (2003) Remittance senders and receivers: tracking the transnational channels. Multilateral Investment Fund (MIF) and Pew Hispanic Centre.
http://www.iadb.org/mif/V2/files/StudyBendixen2003Nov.pdf

Further cited references

Bagasao I (2004) Migration and development: the Philippine experiences. Small enterprise development. Vol 15, p.62-67, Bath University, UK.

Maimbo S & Passas N (2004) The regulation and supervision of informal remittance systems Small enterprise development. Vol 15, 53-61, Bath University, UK.

Sander C (2003b) Capturing a market share? Migrant remittances and money transfers as a microfinance service in Sub-Sahara Africa. Small enterprise development. Vol 15, p 20-34, Bath University, UK.

Wimaladharma J et al. (2004) Remittances: the new development finance. Small enterprise development. Vol. 15, p. 12-20, Bath University, UK.
http://www.livelihoods.org/hot_topics/docs/remittance.pdf

(WOCCU) World Council for Credit Unions (2004) A technical guide to remittances, the credit union experience. Washington.
http://www.woccu.org/development/guide/remittances_techguide.pdf

Georg Felber 17/05/2004 © Intercooperation

 

top of page Regulation and Supervision of Microfinance Institutions

Nowadays, you find microfinance institutions or operations in almost every developing country, under one or the other form: savings and credit cooperatives, commercial banks which serve low-income households, specialized micro banks, projects that support self-help groups, etc. Quite a lot of these institutions have reached important volumes (in terms of clients and portfolio); others take in deposits from low-income households. Hence, donors and governments get more and more confronted with the question of regulating and supervising these institutions, which, by the clients they serve, differ from traditional commercial and state banks.

The questions that arise when different actors participate in the process of elaborating a regulation and supervision system for microfinance are:

All these questions have been broadly discussed among practitioners of the microfinance sector and have led to "CGAP's Consensus Microfinance Policy Guidance on Regulation and Supervision" [PDF, 140 KB]. This technical document does not give recipes, but provides the reader with important questions that have to be addressed when elaborating a regulatory and supervisory system for the microfinance sector. The document particularly stresses the importance of taking into account the context of each country, in terms of organisational diversity of microfinance institutions and existing laws and regulations.

Two new studies provide interested readers with practical examples and case studies of regulatory frameworks for microfinance institutions, as an illustrative complement to CGAP's guidances. The paper by Stefan Staschen (GTZ), Regulatory Requirements for Microfinance: A comparison of Legal Frameworks in 11 Countries Worldwide [PDF, 1496 KB], highlights specific questions and problems related to regulation, and compares them among eleven countries. The document by Patrick Meagher (IRIS), Microfinance Regulation in Developing Countries: A comparative Review of Current Practice [PDF, 249 KB], provides the reader with examples of different types of microfinance institutions and the way they are being regulated and supervised in their respective countries.

Isabelle Dauner 17/07/2003 © Intercooperation

 

top of page Supervising & Regulating Microfinance in the Context of Financial Sector Liberalization: Lessons from Bolivia, Colombia and Mexico

by Jacques Trigo Loubière, Patricia Lee Devaney, Elisabeth Rhyne; 2004, Paperback, 40 pages.

Supervising and Regulating Microfinance examines the regulatory framework for microfinance in three countries: Bolivia, Colombia and Mexico. It explores the impact of financial reform and crisis on the choices regulatory authorities have made about microfinance, and in turn, explores how these choices have affected the character of the microfinance industry in each country. This monograph also addresses the elements of good microfinance regulation (financial sector environment, preparation of supervisors, norms). These topics are illustrated by comparing the experiences and policies on the three subject countries. The monograph is available in both English and Spanish, and can be purchased and downloaded at www.accion.org/pubs/

 

top of page Pawnshops and Microlending: A Fresh Look is Needed

In his article [1], N.A. Fernando from the ADB (Asian Development Bank) offers a fresh view at pawnshops, showing many positive aspects of that service, especially for poor households in developing countries. He agrees that pawnshops charge relatively higher interest rates than microfinance institutions, but clients benefit from lower transaction costs, by having immediate access to cash. Exploitation may happen, when a pawnshop occupies a monopolistic position on the market. Nevertheless, experience shows that through competition, or a certain control from the state, pawnshops can operate with competitive interest rates. Pawnshop opponents argue that poor households do not have assets to pawn, which in the view of the author is not true. Even poor households have assets (jewellery, tools, electro domestic appliances, etc.), which they would have to sell in emergency situations in the absence of a pawnshop. The author also argues that credits from pawnshops are not only used for consumption purposes, but also to pay school fees and invest in the family business.

Low-income households have a broad variety of needs in terms of financial services. Hence, a variety of institutions, which offer different types of services are demanded. Why should one institution do everything, when another one can reach cost reducing economies of scale by offering one specific service? Pawnshops present many advantages, both for the institution and for the clients. For the clients, it provides them quick access to cash, often at a lower interest rate than the moneylender, and avoids them having to sell an asset. Transaction costs are low because borrowers only have to go twice to the pawnshop, first to deposit their item and get the cash, and a second time at term. For the service provider costs are also kept low, in terms of monitoring and transaction cost, as pawning transactions are simple. She/he hands out cash against a collateral, and if the borrower does not pay back, she/he keeps the collateral. Pawnshops just have to be careful about evaluating correctly the value of the asset and make sure that the object has not been stolen.

Two practical examples of Indonesia and Sri Lanka show the outreach that pawnshops have gained in serving low-income households with loans. In Indonesia, private companies are not authorized to pawn. This service is provided by a state owned company, Perum Pegadaian (PP), which has 722 branches and 14 regional offices throughout the country. In 2001 it provided 22.2 million loans to 15.7 million clients, compared to 2.9 borrowers served by the Unit Desa of Bank Rakyat Indonesia. PP accepts for pledging a wide range of items, ranging from used clothes to electronic cooking appliances, along with gold and jewellery. In Sri Lanka, the pawning services are offered by a diversity of competing institutions, like private and state owned commercial banks and cooperative rural banks, which has led to a reduction of lending rates for clients. Institutional pawning has been introduced to Sri Lanka by the state owned People's Bank [2] along with the cooperative rural banks (CRB). At the end of 1999, the CRBs had more than $33 million in outstanding pawning loans, about 39% of their total loan portfolio.

To know more on that subject, you may read:

Isabelle Dauner 24/06/2003 © Intercooperation

 

top of page Saving Services for the Poor

Savings Services for the Poor (Ed. Madeline Hirschland. Kumarian Press, November 2005). This book provides practical guidance for developing and managing sound savings operations for small and rural depositors. Based on case studies and practical tools, it addresses two types of institutions: microfinance institutions that want to develop savings operations and mainstream financial institutions that seek to go "down market". Read www.kpbooks.com/details.asp?title=Savings+Services+for+the+Poor

 

top of page Mobilizing Savings: Lessons from Credit Unions in Latin America

Brian Branch and Janette Klaehn (eds.), "Striking the Balance in Microfinance: A Practical Guide to Mobilizing Savings, Lessons from Credit Unions in Latin America", Washington, D.C.: Pact Publications, 2002. Website: www.pactpublications.org. WOCCU website: www.woccu.org.

The book shows the extent to which the philosophy of credit union leadership has changed over the past 20 years from borrower dominated concerns to increasing attention to the well-being and interests of cooperative members who wish to be savers. Three cheers for the change!
The book is especially strong in describing how to boost deposit mobilization and also detailing how this will strengthen financial cooperatives. A few of the topics covered include the environmental conditions needed to mobilize deposits, designing and providing savings products, setting interest rates, marketing deposit services, and calculating the costs of deposit mobilization. Case studies from Ecuador and Nicaragua are also presented to illustrate successful deposit mobilization efforts.
Two classes of people should read this book carefully: First, the book is a must for those leaders in the credit union movement in low-income countries who want to build stronger financial cooperatives with substantially more outreach. Second, all donor employees who attempt to design a credit union project should be required to sign an affidavit that they have carefully read this book and swear their project will not damage the willingness and ability of the associated credit unions to mobilize more deposits.
The only flaw I see in the book is that it wasn't published and widely read 30 years ago. Comment by: Dale W. Adams

 

top of page Impact Assessment for Microfinance

Impact assessment in general and impact assessment in relation to Microfinance is on the agende in the donor community and in many international gatherings and discussion groups.

For the ones of you who would like to get a short overview on where the ongoing discussion and major lessons learned for impact studies in the field of Microfinance, we recommend the note of Koenraad Verhagen, Overview of conventional and new approaches towards impact assessment, May 2001, 11 pages (Download [PDF, 59 KB])

For further deepening on the subject we recommend:

 

top of page Grameen Bank II

Read also the short summary below about the revolutionary changes at Grameen Bank, the micro finance industry's flagship (the original article to be found at www.gfusa.org/monthly/june/news.shtml).

After more than 25 years of experience, Grameen Bank introduces a drastic change in its service offer...

As Mr. Yunus says in his article, "... Now (clients) can really ENJOY micro-credit, rather than having occasional nightmares".

Grameen is proud to present its new financial technology after a two years' process of re-evaluation and transformation of its financial services. It has been a participatory process, including Grameen Bank's (GB) 12'000 employees, working in 1175 branches and covering 40'000 villages all over the country. Grameen's clients themselves, who started having problems in repaying their loans, after 1998's dramatic flood, which affected the whole country, induced this process. But that problem was overlapping with an already older concern of clients, whose husbands asked for a change in GB's rules, to allow withdrawing from the "group tax" component of "group funds".

Before that drastic change, credit services and related savings accounts were driven by the offer, i.e. by the idea that Grameen workers had of the needs of their clients. They aimed at "educating" people in credit discipline and responsibility. That scheme clearly benefited of the advantage of simplicity and was one of the successes of Grameen in reaching so many people. But in the end, clients, probably becoming more involved in the institution, asked for change. The new credit and savings technologies are much more demand driven: employees and clients negotiate together about the amount and the repayment plan of the credit. Grameen bank has recognized that their clients are able to manage their money and always willing to repay. Impossibilities to honour a debt are due to temporary problems and should not be sanctioned.

Grameen's Generalized System (GGS), replacing the old Grameen Classic System (GCS), offers a combination of Basic Loan and Flexible Loan. Professor Yunus himself characterizes the basic loan as "Grameen's micro-credit highway", which as before is meant to be paid back on a regular bases, after having fixed the duration and repayment schedule according to the client's need. If the borrower cannot stay on that "highway", she enters in the flexible loan scheme, until she manages to get back on the highway. Actually, Grameen's employees promote regularity of payments -i.e. the ability to stay as long as possible on the highway -. Clients get rewarded for that achievement.

But not only the lending methodology has changed. Grameen has also re-evaluated its write-off policy. A client is considered as a defaulter if she has failed to pay back either ten instalments consecutively, or the total amount of six months, and she does not go on the flexible track. 100 percent of the due principal and interests are provisioned; they are written off one year later.

The Group Funds, which were constantly criticized by clients, who did not want to pool their money with others', were abandoned and replaced by three obligatory savings accounts. GB has also newly put more emphasis on the "capacity building to stay out of poverty", by giving higher education loans to students from Grameen families. Until now, only area offices were highly computerized. In order to diminish the workload of branch employees, computer systems are being installed in all branches, in order to computerizes the accounting and monitoring systems of branches and interconnect them soon. GB has also newly introduced more competition between the employees of the different branches, by awarding them for their achievements (repayment, outreach, profits, impact on clients, etc.). For more detailed information on Grameen Bank's new services and principles, we highly recommend to read Professor Yunus' article:
Yunus Muhammad (2002), Grameen Bank II designed to open new possibilities, Grameen Foundation, USA. Mimeo.

We would like to congratulate Grameen for that remarkable process of re-evaluation and transformation. We wish them all the best and hope that the new strategy will be a winning one.

Isabelle Dauner 29/07/2002 © Intercooperation