4. Introduction
Microfinance is usually understood to entail the provision of services
to micro-entrepreneurs and small businesses.
The main reason is the lack of access to banking and related services
due to the high transaction costs associated with serving these client
categories.
Microfinance is a movement whose objective is:
“A world in which as many poor and near-poor households as possible
have permanent access to an appropriate range of high quality financial
services, including not just credit but also savings, insurance, and fund
transfers.”
5. Modes of Micro Financing
Non-Market modes of Micro Finance:
Zakat
It is universal in sense it is imposed on adult and some Muslims who own
wealth beyond a prescribed minimum.
Awqaf
It is endowment in perpetuity treated for specific purpose. It can neither
be sold off nor gifted away and nor can be inherited.
Qard e Hasna
A Qard e Hasna is where the borrower is only required to repay the
amount borrowed. It is a ‘benevolent loan’ or ‘good loan’.
6. Marketing modes of micro finance:
Commercial Micro Finance
Commercial microfinance institutions structure a profitable business
model around the principles of microfinance. This does not prevent
them from being socially responsible, or “pro-poor”. Kenya’s K-REP
describes itself as a “commercial bank” with a “social mission”.
Charitable, and not-for-profit microfinance
Modern microfinance has its roots in non-profit structures. Grameen
Bank of Bangladesh now claims to be sustainable, in that it covers its
costs from interest earned on loans, and so does not require donor
funding. However, unlike commercial microfinance, profits are
reinvested into the business, or what it calls a “Rehabilitation fund”,
which is set up to provide support and relief in disaster situations.
7. Obstacles of Micro Financing:
Inappropriate donor subsidies.
Poor regulation and supervision of deposit-taking MFIs
Few MFIs that meet the needs for savings, remittances or
insurance
Limited management capacity in MFIs
Institutional inefficiencies
Need for more dissemination and adoption of rural,
agricultural microfinance methodology.
8. Developments of Micro Financing:
Financial sector development, market failures and the development of
micro finance. Financial sector development is important because it
fosters economic growth (Levine, 2004).
Microfinance has received increased attention as a tool for poverty-
reduction (barr, 2005).
Process towards self sustainability, mfis become more formalized and
often take another formal regulatory status (robinson, 2001). Some
have transformed completely into banks, like bancosol in boliviaand
comparators in mexico (armendariz and szafarz, 2009).
9. Micro Finance in Different Sectors
Micro Finance in Agriculture:
There is a consensus that agriculture is inadequately funded and that
the supply does not met the needs of farmers.
This is essentially due to the fact that financing agriculture is generally
more costly, risky and less profitable than other forms of financing.
Setting up financial services in rural zones, agricultural activities are
characterized by a number of specificities that financing mechanisms
must take into account.
10. Micro Finance in Health Care:
Recent interventions by NGOs in the form of community based health
insurance schemes or Mutual Health Organizations (MHOs) have been
fairly successful in improving access to healthcare.
In 2003, realizing the potential that MHOs have to increase healthcare
utilization and protect people against catastrophic health expenses, the
government of Ghana became the first country in Africa to set up MHOs
in every district in Ghana through the National Health Insurance Act.
As of January 2007, approximately seven million people (35% of the total
population) have enrolled in MHO. Enrolment in MHOs is low, especially
among the poor.
11. Supportive Countries for Micro Financing
The European Union runs microfinance programs (loans under €25 000)
for self-employed people and businesses with fewer than 10 employees.
The EU does not directly provide microloans (loans up to €25 000) to
individuals or businesses, but provides guarantees, loans and equity to
intermediaries who can then lend to small businesses or make available
equity finance.
12. Percentage of People in Pakistan
MFI has 1.8 million people.
Borrowers:3 million by 2010 and 10 million by 2015.
According to the Pakistan Economic and Social Review, the potential
customers of the microfinance credit range between 25 — 30 million
borrowers. Out of this amount 2.4 million are currently being served by the
microfinance banks. The microfinance banks have set up their branches in
rural and remote of areas as well so as to cater the needs of all sorts of
small and medium sized enterprises which formulate 90% of the total
business of Pakistan and also to cater the agricultural sector, since it is still
the biggest employers of all sectors.
13. Rules for Micro Finance
Poor people need not just loans but also
savings, insurance and money transfer services.
Microfinance must be useful to poor households: helping them raise
income, build up assets and/or cushion themselves against external
shocks.
Interest rate ceilings hurt poor people by preventing microfinance
institutions from covering their costs, which chokes off the supply of
credit.
“Microfinance can pay for itself." Subsidies from donors and
government are scarce and uncertain and so, to reach large numbers
of poor people, microfinance must pay for itself.
14. Examples:
First microfinance bank
Khushali bank
Pak oman microfinance bank
Rozgar microfinance bank
Tameer microfinance bank
Waseela microfinance bank
Kashaf microfinance bank
Apna microfinance bank
15. Conclusions
The strategic objectives will be to cultivate a thorough understanding of
the Microfinance industry and developing a keen sense of key areas
where innovation and initiatives are likely to pay off with an ability to
allocate resources.
Other strategic objectives of the Bank include:
Increase geographical outreach of the bank.
Focus on productivity and operational efficiency.
Provide financial services through branchless banking.
