Basic Concepts of Microfinance Flashcards
What is Microfinance?
Microfinance refers to financial services to the poor that included not only credit, but also savings and other services such as insurance and money transfers. (Ledgerwood, 1999)
“banking with the poor”
Bangko Sentral ng Pilipinas defines Microfinance as:
“Provisions of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products.
-to the poor and low-income households
-for their microenterprises and small businesses
-to enable them to raise income levels and improve their living standards”
What are the microfinance services?
Insurance (Micro-insurance)
Loans (Micro-loans)
Savings (Micro-savings)
Transfers or Payments
__________ out of 89 million Filipinos were considered poor. (Year 2006)
28 million
In 2009, the population was estimated to reach _________.
92 million
How can we say that individual is poor?
These are the people who cannot afford to provide continuously for their minimum basic needs for food, health and their social amenities in life.
They are basically the individuals who are below the poverty line or threshold.
During the first semester of 2012, poverty threshold for a family of 5 was at ________ per month to meet the basic food and non-food needs. (Php260.7 per day)
Php 7,821
What is Microenterprises?
Microenterprises are small business with total assets (excluding land) below Php 3,000,000.00 and employs no more than 9 staff (Source: DTI, 2008)
Owners of microenterprises are considered self-employed individuals (Microentrepreneurs)
Examples of Microenterprises
Vending vegetables in the market
Running a carinderya (small eatery)
Operating a tiny sari-sari store (general merchandise)
The Two Financial Sources of the Microentrepreneurs
Formal Financial Services
- Hesitance to lend the poor
- One of the reasons is because of the belief that the poor cannot pay back loans
Informal Financial Services
- Commonly these includes the Indiano “Bombay”, the 5’6 moneylenders
- Interest rate of 20%
- Fast Loan Release
The end result once your accustomed to moneylenders:
End Result:
People dependency to moneylenders has pushed them to poverty.
- Supply-led credit from rural banks and cooperatives for agricultural activities
- Low repayment rates
What specific year did these scenarios happened?
1950s
What specific year is the birth of Microfinance?
1960s
In what year this specific scenario happened?
✓ Bangladesh was one of the first countries to conduct an experiment involving tiny loans (microcredit) extended to poor women to invest in microbusinesses.
1970s
Dr. Mohammad Yunus, an _________________ in Bangladesh.
Economic Professor
In 1. ________, Dr. Yunus
established the Grameen Bank (which means “2. ______________”)
which now serves millions of clients in Bangladesh.
- 1983
- Village Bank
What year did these scenarios happened in the History of Microfinance?
✓ Adaptation of Grameen group methodology and village banking models in Philippines.
✓ Microcredit era had begun
1980s
What specific year did these scenarios happened in Microfinance History?
✓ Microfinance was growing rapidly worldwide.
✓ During this time that the term “microcredit” was replaced by “microfinance” not only credit but also savings and other financial services.
1990s
Benefits of Microfinance for Microenterprises (IGSGB)
✓ Increase economic activity and income
✓ Generate employment
✓ Save and invest in the future
✓ Guard against emergencies and shocks
✓ Better invest in health, nutrition and education
Benefits of Microfinance
(IEC)
✓ Improve Lives
✓ Empower People
✓ Create Opportunities
The Two Types of Microfinance Products and Services
✓ Financial
✓ Non-Financial
Financial Services
✓ credit (loans)
✓ savings
✓ micro insurance
Non-Financial Services
✓ Social Services
- focus on improving the well-being of the microfinance clients
✓ Enterprise Development Services
- includes business trainings and skills development
What are Microfinance Loans (Micro Loans)?
These are small loans granted to the entrepreneurial poor for their microenterprises to enable them to raise their income levels and improve their living standards.
Maximum amount of microfinance loans does not exceed to ______________ (Bangko Sentral ng Pilipinas, 2001).
P150,000 pesos
Features of Microfinance Loans:
(TGPS)
✓ Typically unsecured
✓ Group or individual loans
✓ Progressive lending
✓ Short loan term
This is a form of microfinance where organizations and financial institutions encourage individuals to save money. Its accounts are similar to traditional savings accounts, but are designed for small deposits.
Microfinance Savings (Micro Savings)
This is a financial arrangement to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved.
Microfinance Insurance (Micro Insurance)
Who are the Microfinance Client?
Microfinance Clients
✓ are the individuals who avail of microfinance services.
✓ referred as “entrepreneurial poor”
✓ owners of micro-enterprises or just starting up a new one
Profile of Microfinance Client
✓ Mostly women (average age of 44 years old)
✓ Undergraduates (mostly reaching high school)
✓ Residents of community for a long time
✓ Not clients of traditional banks
✓ Self-employed
✓ Engaged in home-based business
Examples of businesses of microfinance clients/members are:
✓ “sari-sari” store
✓ tailoring
✓ hog-raising
✓ fish vending
✓ small canteen (“carinderya”)
“Microfinance is a weapon to fight ________.”
Poverty
