Kiva’s Post

Microfinance: SHGs, JLG & debt trap.. Almost half of our country is still excluded from financial inclusion, 30% of Indians (above 15 years) still do not even have a bank account. This segment requires financial services so that their aspirations can be fulfilled. Microfinance provides access to capital who are financially underserved and are low income individuals or groups who are excluded from traditional banking. Who has served these individuals or groups so far? and at what cost? - They end up borrowing from the informal market at a very high rate of interest from some individuals or groups/money lenders. The Focus of the microfinance is in the low income segments, offerings are small amount and small ticket size loans, and importantly do not require any collateral to be backed which makes it unsecured. Major sourcing or servicing channels of microfinance? - Women centric model through Self Help Groups: these are focussing on financially underserved women who create a group of 10-15 members and are majorly from lower income segment. The model has achieved a lot of success across the states and districts. It has also got a popularity because of the women empowerment model it follows. - JLG Groups: Joint liability groups are the groups of 5-10 people who seek loans either in a group or individually. Microfinance institutions are helping the underserved segment, low income individuals and groups by providing them mainstream financial services and supporting the poor in achieving the financial stability. The flip side? Though by providing easy access to credit, the microfinance is helping in decreasing the unemployment and improving the earning power by enabling the borrower to generate income from the loan, but the cases where the credit is used to pay the existing debt or funding the basic necessities raises a concern to people because they need to take more loans to settle the former and further going into a bigger debt trap. (The flip side becomes a matter of concern and raises a red flag in case the end use of the credit is not monitored or the intent is not identified prior and can be avoided.) #microfinance #shg #jlg #financialinclusion #servingthecommunity #loans #debt #fintech

THE WASH MICROFINANCE HALO - A NEXUS FOR FEMALE EMPOWERMENT? A CLOSER LOOK AT THE IMPACT FOR WOMEN AND GIRLS Within my recent Masters dissertation, I consider the question of ethics around corporate ‘gender empowerment’ language, specifically as it has been applied to microfinance loans for water, sanitation and hygiene (WASH). Often presented in near charitable terms, I find that glossy brochures have a tendency to present microfinance loans as the foundational solution for gendered problems in some of the world’s poorest societies. In other words, gender related problems have notably been viewed as the conversation starter or ‘hook’ for many microfinance programmes, targeted specifically at female debtors. Advantages claimed for women and girls include long term financial and domestic emancipation through impacts such as time saving, purportedly allowing space to work and earn income outside the home. Wider physical health benefits are often noted. Within my discussion, I consider the meaning of female empowerment. I note that microfinance for WASH can indeed be viewed as having generated some positive interventions in gender terms, including the implementation of associated programmes raising local consciousness of issues.  However, it remains critical not to overlook that many microfinance loans are ultimately provided on what essentially constitute commercial terms for interest. They are often taken up in circumstances where there may be very little choice with regards to how the family access their human right to water and basic needs. For example, willing entry by women into micro finance loan documents requires literacy and a basic level of legal understanding of repayment terms, if it is not to lead to what has been termed the further ‘feminization of indebtedness’[1]. With the need to consider each programme on a case-by-case basis, my dissertation reviews a case study from Bangladesh. More generally, it asks proponents of WASH microfinance programmes to further reflect on the fact that, notwithstanding the purported benefits, the true impact of microfinance for women and girls should neither be ‘green washed’ nor ‘gender washed’ by the corporate sales machine. This requires acknowledging, for example, that in many circumstances, whilst microfinance may be one solution, there may well be other, more empowering ones. I argue that, at the very least, the realities of the WASH loan halo should not be mis-sold. With greatest of thanks to the University of Kent and my supervisor, Professor Luis Eslava, my full work is available for the benefit of my LinkedIn contacts upon request. I would be happy to consider any questions by private message. [1] Christa Wichterich (2012):

Microfinance plays a vital role in bridging the gap between the unbanked population and the formal financial sector. By offering accessible financial services to underserved communities, microfinance institutions promote financial inclusion and help individuals build credit histories, accumulate savings, and access a range of financial products. This inclusion not only improves livelihoods but also enhances resilience to economic shocks and reduces vulnerability. Microfinance goes beyond financial assistance; it creates a positive social impact. MFIs often prioritize social objectives alongside financial sustainability. They provide financial education, promote responsible borrowing, and support social programs aimed at improving the well-being of their clients. Additionally, the social collateral-based lending methodology fosters a sense of community and mutual support among borrowers. Challenges and the Way Forward Microfinance faces several challenges, including limited funding, high operational costs, and ensuring responsible lending practices. MFIs must strike a balance between reaching the underserved and maintaining financial sustainability. Regulatory frameworks that facilitate innovation and consumer protection are crucial for the sector's growth. To further enhance the impact of microfinance, governments, development agencies, and private sector entities need to collaborate. Investments in financial infrastructure, capacity building, and technology can improve the efficiency and reach of microfinance services. Partnerships with mainstream financial institutions can facilitate the integration of microfinance clients into the formal financial sector. Conclusion Microfinance has emerged as a powerful catalyst for social and economic progress in developing countries. By empowering individuals, particularly women, and promoting entrepreneurship, microfinance has contributed to poverty reduction, local economic growth, and financial inclusion. As the sector continues to evolve, stakeholders must address challenges, invest in innovation, and foster partnerships to maximize the potential of microfinance in creating sustainable and inclusive societies.

Though standardised products/services may be a hindrance currently which is not customised to women borrowers needs, it should be looked at as an opportunity. Financial institutions providing microfinance should use this as a catalyst to bring in more customised products/services and categorise them as per the requirement for which loan is taken. Eg - few loans for children’s education can be clubbed as a cycle as most academic years begin from a certain month. Others which begin in a different can have a similar product with a different cycle. #microfinance #banking #customerexperience #financialinclusion

WHAT IS NEEDED TO SUSTAIN MICROFINANCE RELATIONSHIPS Conventionally, financial inequalities have proved to be a going concern in most communities and microfinance institutions (MI) often strive to bring a glimpse of hope for numerous undeserving individuals and micro businesses. The success of relationship between microfinance and its publics is pegged on trust, goodwill and steadfast commitment. Microfinance institutions bridge the financial gap that cannot be fulfilled by traditional banking system by not only focusing on deposits but also fostering credibility in the community. To attain that, MIs tend to exercise transparent operations, consistent record keeping, fair interest and ethical lending practices. The three pillars outlined above that is trust, goodwill and commitment are not just one-sided concept but a two way traffic with both parties playing their honest role. MIs contribute to community development by providing financial literacy which empower local entrepreneurship and the clients reciprocate by taking loans to improve their lives and to scale up their businesses hence stimulating economic growth. For the sustainability of this kind of relationship, microfinance organizations commits to long-term success of their clients by coming up with innovative ways to meet ongoing financial needs of their clients. Individual who have capitalized on this kind of affair has seen their lives transition and have shifted their status from struggling to making their ends meet. They regard MI as not just lenders, but partners in the journey of financial manifestation. As the world continues to face unprecedented financial moments, the bond which has been formed between MI and clients has translated in to empathy and cooperation. In days where society grapple with enormous financial crisis, microfinance system stands as a hope. Placing trust, goodwill and commitment at the heart of financial services will strengthen relationship leading to brighter future for all.

Microfinance, the provision of small loans and financial services to low-income individuals and small businesses, has had a significant impact on Pakistan's economy. First and foremost, microfinance has helped alleviate poverty in Pakistan. The country has a substantial population living below the poverty line, and many of them lack access to formal financial institutions. Microfinance institutions (MFIs) have stepped in to fill this gap by providing loans to the unbanked and underserved population. These loans are often used to start or expand small businesses, purchase livestock, or invest in agricultural activities. By providing access to financial resources, microfinance has enabled individuals to generate income and improve their living standards. As a result, it has contributed to reducing poverty levels across the country. Moreover, microfinance has played a significant role in women's empowerment in Pakistan. In many parts of the country, women face social and economic barriers that limit their participation in the formal labor market and entrepreneurship. Microfinance has actively targeted women as beneficiaries, providing them with the means to engage in income-generating activities. This has not only improved the economic well-being of women but has also enhanced their status within their households and communities. It has led to greater gender equality and increased decision-making power for women in various aspects of their lives. Furthermore, microfinance has fostered economic development by promoting small and micro-enterprises. Small businesses are a driving force for economic growth in Pakistan, employing a substantial portion of the population. Microfinance loans have enabled individuals to start or expand their businesses, leading to job creation and increased economic activity. The growth of these small enterprises contributes to the diversification and resilience of the economy, reducing its reliance on a few key industries. Microfinance has also encouraged financial inclusion in Pakistan. By providing financial services to those who were previously excluded, it has expanded the reach of the formal financial sector. This has led to increased savings, access to insurance, and better financial planning for many individuals and households. A more inclusive financial system promotes stability and economic growth. In conclusion, microfinance has had a substantial impact on Pakistan's economy. It has helped alleviate poverty, empowered women, fostered economic development, and promoted financial inclusion. While there are challenges to address, the overall effect of microfinance in Pakistan has been positive, contributing to the country's social and economic progress. As Pakistan continues to develop, microfinance is likely to play an increasingly important role in shaping its economic landscape.

In this week's blog, we discuss what microfinance is, its importance, and some case studies where microfinance has been successful. Follow the link below to find out more! https://lnkd.in/em5zYYxv #microfinance #microcredit #microloans #GrameenBank

Microfinance Statistics You Need to Know for 2024 📈🔎🌍 - More than 120 million people have borrowed money from microfinance institutions (MFIs) worldwide. - Microfinance institutions have disbursed over $248 billion in loans since 2000. - Microfinance has helped to lift 170 million people out of extreme poverty. - Microfinance has created over 110 million jobs. - Microfinance has helped to empower women, who make up over 80% of microfinance borrowers. - Microfinance is playing a growing role in addressing the Sustainable Development Goals (SDGs). 👁 Read more in this article: https://lnkd.in/g7acZUZr #GrowingTogether #SocialImpact #FinancialInclusion

Amidst various experiments in financial inclusion, microfinance remains the funnel for millions of women entrepreneurs to enter the formal credit system. The sector having witnessed 21% CAGR over the last six years is a big affirmation of the character of these borrowers. The right intent of borrowing, proper repayments combined with resilience in the face of large macro events for the last three decades come far ahead of all other asset classes time and again.   Our Chief Executive Officer Ganesh Narayanan talks about all these aspects in detail and much more.   https://lnkd.in/g_2KWaXQ   #relevance #socialcapital #microfinance #viksitbharat #ETBFSI 

Surprisingly informative new book out about microcredit Out this month is a book by the US-based journalist Mara Kardas-Nelson on the history and impact of microcredit in the Global South, with the example of Sierra Leone highlighted in particular. Kardas-Nelson provides an entertaining and highly informative account of an idea that captured the world’s attention but went, she admits, quite disastrously wrong. My interest in Kardas-Nelson’s book was especially piqued because two individuals that were pioneers of the microcredit model in the Global South - Jeff Ashe and Elisabeth Rhyne - had agreed to quite extensive conversations with the author and were referenced and quoted at length throughout the book. Ashe bravely admitted to being for a long time an “utter and true believer” in the microcredit model, but that his negative experiences in Bosnia and Bolivia eventually led him to completely disavow it (I get where he is coming from as my own critical stance on microcredit was initially forged through my experiences in Bosnia in the 1990s and early 2000s). Rhyne, by comparison, is evasive about her own central role in the rise of microcredit model. Discussing the IPO of Banco Compartamos in 2007, for example, she admits to be being “flabbergasted” by the egregious profiteering enjoyed by almost everyone associated with it. But she fails to see or admit that, as Kardas-Nelson rightly goes on to point out, the IPO was actually the pivotal point when the microcredit sector was turned away from its social mission and on to a pathway to commercialisation disaster. Rather strangely, Rhyne ends by admitting that she believes the fintech lending model is going to be “..worse than microfinance ever was.”! The important contributions of Ashe and Rhyne, and that of many others, along with the many other insights the author provides are all very nicely interwoven with Kardas-Nelson's own personal reflections from her time in Africa working on various projects that gave her a window into how microcredit worked in practice. All told, I thoroughly enjoyed reading this book. I think anyone interested in the subject of microcredit, and development in general, and especially how and why it can all go wrong for the Global South but somehow very well indeed for the Global North, will enjoy reading it too.