What is the story of microfinance? How did it started? What were the last words of Professor Younus at the time when he was leaving Grameen Bank? What are the dynamics of microfinance in pakistan? This is a presentation made to a gathering of journalists on October 1, 2011 to provide them with basic information about microfinance. This presentation also includes a slide on different websites which can be used as resources by those who intend to find more material on microfinance.

1. SMALL LOANS, BIG
DIFFERENCES
Let’s explore Microfinance
Presentation to journalists on basics of Microfinance
Saturday, October 1, 2011
Malik Mirza, ACA, FCCA
http://wisdomfrombooks.com

2. WHAT IS MICROFINANCE?
“Let us be clear: micro finance is not the charity.
It is the way to extend the same rights and
resources to low income households that are
available to everyone else. It is recognition that
poor people are the solution, not the problem.
It is way to build their ideas, energy and vision.
It is a way to grow productive enterprise and to
allow communities to prosper” (Kofi Annan)

3. WHAT IS MICROFINANCE?
 ““The provision of small-scale financial services to
poor and low income people such as
 savings,
 credit and
 other basic financial services (insurance, funds
transfer etc.”.
 Micro-credit is part of ‘microfinance’

4. THE NATURE OF MICROFINANCE
 A social mission
 A financial mission; or
 Both?

5. THE STORY OF MICROFINANCE
 Traditional banking principle: The
more you have; the more you get
 1977
 A professor from Chittagong
University teaching economics to his
students
 Students questioned: What we read is
not in line with what we see around.
 Research by students: 20 cents may
let you to stop your business!
 $ 27 lent to 42 people

6. THE STORY OF MICROFINANCE
 In 2006, one of the biggest news of
your lifetime arrived. Grameen Bank,
in other words you, won the Nobel
Peace Prize. You brought the nation a
very big honour. Representing you,
your Board Members travelled to
Norway and brought back the Nobel
Peace Prize. One of you, Mossammat
Taslima Begum, from Pirghachi
village in Chapainawabganj district,
received the Nobel Peace Prize on
your behalf. And she gave her
acceptance speech on your behalf to
the global television.

7. THE STORY OF MICROFINANCE
 The entire world watched and listened to
her words. Those who had earlier been
chased out of their villages now had
brought back this great honour for the
nation. The entire nation felt proud of
you. You have raised your heads in front
of the nation. You will never lower your
heads again; you will always keep your
heads raised high and proud. You will
never bow your heads to anyone – this
pledge has become a part of each and
every one of you.
 Extract from letter by Professor Younus
to shareholders of Grameen – May 2011

8. THE STORY OF MICROFINANCE
 This is a bank which is owned by 8.3
million poor, rural women. This Bank
will remain committed to helping its
borrowers' struggle to realize their
dreams in life. We must ensure that
as owners they remain in control of
the Bank.
 May 14, 2011 – Mr. Muhammad
Yunus, a Nobel laureate moved out of
the bank he created!
 But the story of microfinance
continues

9. WORLD STORY OF MF
 The practice of Microlending is not new. Credit
cooperatives and charities making loans to young
entrepreneurs have been documented from 18th
century in Europe. A notable example is the fund
created by 18th century novelist Jonathan Swift.
Swift donated £500 of his own wealth for lending to
“poor industrious tradesmen in small sums of five,
and ten pounds, to be repaid weekly, at two or four
shillings, without interest.”
 Another interesting historical example of
microlending is the Irish Reproductive Loan Fund
Institution, which came into existence following the
scarcity in 1822. This fund, which received donations
from charities in London, was established to make
small loans (under £10) to individuals in small towns
for “relief of the distressed Irish”.

10. POVERTY IN USA?
• 46.2 million people living in
USA are poor.
• The official poverty rate in
2010 was 15.1 percent — up
from 14.3 percent in 2009.
• According to the Association
for Enterprise Opportunity,
88% of businesses (25.5
million) in the US are
microbusinesses (defined as
0-4 employees) and 70% of
businesses have revenues of
less than $100,000.

11. TRADITIONAL BANKING
 Traditional banking
is simple
 It demands
‘collateral’ or
‘guarantee’
 Size of loans is big
and consumers are
less

12. MICROFINANCE BANKING
• Loans are provided for
variety of reasons
including business
• Borrowers are large in
numbers while loan
amounts are very small
• Costs are relatively high

13. MF LENDING METHODOLOGY
 Group focused i.e. group guarantee model; This
works well in rural areas but has issues in urban
areas as people don’t know each other too often
 Individual with strong ‘personal guarantee’ from
third party or any other form of collateral, as
suitable to the financial instituion

14. UNBANKED IN USA – 5 THINGS TO
KNOW
• Microfinance in USA is not new, though the term
‘microfinance’ may be new
• Demand for microfinance in USA is strong
• Reasons for ‘unbanked’ in USA are similar to the
rest of the world
• There are several key differences between
Microfinance in USA and rest of the world
• Several international organizations have
programs of microfinance in USA too

15. WORLD MF AND USA MF
US Other Markets
No, but Grameen
Yes, common
America is testing a
Group Loan approach to
group model in New
underwriting loans
York City
Usually no more than
Loan Size Up to $50,000
$1,000
Support Services Yes Usually no

16. MICROFINANCE INSTITUTIONS
 The term "microfinance institutions (MFI‟s)" now,
refers to a wide range of organizations dedicated
to providing these services and includes non-
governmental organizations, credit unions,
cooperatives, private commercial banks, non-bank
financial institutions and parts of State-owned
banks.”

17. INSTITUTIONALIZATION OF MF
 Formal institutions e.g. MFBs
 Semi-formal e.g. NGOs
 Informal e.g. relatives

18. A FEW KEY PRINCIPLES OF MF
• Poor people need a variety of financial services,
not loans only
• MF is a tool for poverty alleviation; Microcredit
might not always be the answer
• MF has to be a ‘sustainable’ operation which
should result into creation of 'Financial system’
to serve the poor people.
• Government should provide an ‘enabling’
environment

19. PAKISTAN
 Population: 150 – 180 mln
 Poverty: 30 – 35%
 Market size: 20 mln to 25 mln
 Outreach as of December 31, 2010: 2 mln active
borrowers (Number of loans outstanding)

20. MICROFINANCE IN PAKISTAN
 NGOs
 Cooperative societies
 Dedicated NGOs called MFIs
 RSPs
 Microfinance Banks

21. MFIS IN PAKISTAN

22. MF IN PAKISTAN

23. WHO IS A POOR PERSON IN
PAKISTAN?
 An individual whose income (net of business
expense) is less than Rs. 300,000/- on an annual
basis is a poor person
(Prudential Regulation # 10, Microfinance as per the
State Bank of Pakistan, January 1, 2011)

24. CHALLENGES OF EXPANSION – A
CASE STUDY
 Year: 2008
 Institution: Kashaf Foundation
 Place: Tehsil Muridke, Punjab
 Issue: Group default
 Intervention: A politician!
 Request: Write off loans please…..
 To add fuel to fire – A news added: MFI’s
President has passed away
 A few people got the news ‘published’ in the news
papers
 Result: Huge Non Performing Loan!

25. CHALLENGES OF EXPANSION – A
CASE STUDY

26. CHALLENGES OF EXPANSION – A
CASE STUDY
 MF players are clustered in same province to
avoid loan defaults
 More reliance on ‘group leaders’
 Parallel loans by same borrowers
 Making terms and conditions easier for
borrowers

27. CHALLENGES FOR MICROFINANCE
INSTITUTIONS
 ‘Fungibility’ of loans
 NGO or a sustainable MFI?
 Scale
 Financing of Institutions
 Human resource in the sector
 Education

28. NEWS ON MICROFINANCE?

29. THE NEXT BIG NEWS
 Telecom companies granted Microfinance
licenses
 Telenor already ‘in’ with Tameer Bank
 Mobilink to launch Waseela Bank soon
 Others will follow the path
 Question: Would it bring improvement in quality
of lives?

30. THE NEXT BIG NEWS
 Branchless banking culture
 Islamic microfinance

31. RESOURCES
International information
 www.microfinancegateway.org
 www.themixmarket.org
 www.cgap.org
Pakistan’s information
 www.microfinanceconnect.info
 www.sbp.org

32. CONCLUSION
 The bank which started with Tk. 856 given out
as loans, today it disburses Tk. 1000 crore in
loans every month. We can give interest free
loans to over 100 thousand beggars to find ways
to get out of the humiliating life of begging.
 We have to remain united. The biggest enemy of
an organization is internal division; suspicions
and distrust among each other. We have to rise
above all these and keep ourselves free of mutual
distrust and suspicion. Grameen Bank is a bank
based on trust; it is a bank based on discipline –
we should never forget this.

33. CONCLUSION
 You have learned over the years to rely on your
own strength. That was the reason for your
success. Don’t forget to rely on your own strength
in the future. Grameen Bank must move on to
greater success. You must move on to greater
success. Please remember me in your prayers.
 Please accept my salaam, and convey my salaam
to all in your family. May the blessings of God be
with you.
 Yours faithfully,
 (Professor Muhammad Yunus)

34. THANK YOU