Presentation

Microfinance means the provision of financial services (credit, savings, insurance, etc.) to those living in poverty and excluded from the financial system. These people do not have an income and do not own property, and are therefore unable to provide bank guarantees and are therefore generally “forgotten” by financial institutions and banks. Access to financial services and the development of microenterprises is one of the key pillars to Sustainable Development (in addition to Democracy, Education and infrastructures).

Microcredit allows those living in poverty to set up or develop a small business capable of generating income: a microenterprise. The loan can then be repaid using the income generated by this enterprise.

A secure savings plan service allows the poorest populations to ensure that their families have a future, and through micro-insurance, savings protect populations from external factors (natural catastrophes, macro-economic crises) affecting those populations most at risk from them.

Microfinance has developed over nearly 30 years, at the initiative of NGOs (Non-Governmental Organisations). These days, the following can be identified as the key players in the field:

• Microfinance Institutions (MFIs) : these are most often set up at the initiative of local communities and created with the support of International Cooperation Agencies and international NGOs. In France, organisations such as GRET, CIRAD or IRAM, have assisted in the creation of several MFIs. In the United States, networks such as ACCION, Opportunity International or FINCA have assisted in the creation of these MFIs, with funding coming from international cooperation organisations. In 2004, the estimated amount of clients of these microfinance institutions reaches 80 million people, for a total of 500 million persons eligible to microcredit.
• Public banks and national development banks: their involvement in this sector has increased, with national public institutions often acting as a “banker” for microfinance institutions. In Mali, an Institution such as the BNDA (National Bank for Agricultural Development) finances nearly 80% of MFIs, and in Mexico Institutions such as FIRA or Financiera Rural is responsible for refinancing many MFIs. Public banks sometimes directly provide microfinance, as did BancoEstado in Chile, for example (in 2005, this was one of the first microfinance programmes in Latin America, with over 150,000 clients).
• Commercial Banks: these have been increasingly involved in this sector, on several levels. They are able to assist MFIs, either by refinancing their activities or by providing technical assistance, as is the case, for example, in India with ICICI (the country’s second major commercial bank). They can also directly develop their own microfinance activities, as does Financial Bank in Benin via its branch office FINADEV, and BanColombia in Colombia via MicroEmpresarios, a specialised client segment.
• Donors: Bilateral cooperation (USAID, AFD, KFW, DFID), multilateral cooperation (European Commission, United Nations, World Bank, Regional Development Bank): all donors are active in developing the sector and assist in its development.

To learn more on microfinance on CGAP’s website: http://cgap.org/about/microfinance.html

 

"Microcredit gives impoverished women and men the opportunity to start or develop a profitable and sustainable activity."

Microfinance is defined as the provision of financial services (credit, savings, insurance, etc.) to persons living in poverty and excluded from the financial sector. Without income and property, these people are not able to offer required financial guarantees and are therefore banned from traditional financial or banking institutions. Access to financial services as a means of facilitating microenterprise development is one of the pillars of Sustainable Development (along with Democracy, Education and infrastructure building).

- Microcredit gives impoverished women and men the opportunity to start or develop a profitable and sustainable activity: a microenterprise. The loan is subsequently reimbursed thanks to the revenues generated from this small business.

- Secure savings services provide the poor with the ability to ensure a safer future for their families. Micro-insurance also protects the most vulnerable populations from external shocks such as natural disasters or economic crisis.

Today, more than 150 million people worldwide, served by more than 10,000 microfinance institutions (savings and credit cooperatives, NGO, microfinance banks, etc.) and commercial banks, benefit directly or indirectly from microfinance activities. It is estimated that over 500 million entrepreneurs remain excluded from financial services.

According to the Consultative Group to Assist the Poorest (CGAP), global microfinance demand (technical assistance excluded) reached in 2004 :

• US $100 billion, comprised of 500 million households with an average need of US$200 per household,
• World response to the demand of US$ 8 billion.
• Consequently, estimated unmet financing needs are US$ 92 billion.

The actors of the sector