1. What is microfinance?

9839985037- sunny Microfinance is often defined as financial services for poor and low-income clients offered by different types of service providers. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as microfinance institutions (MFIs . !hese institutions commonly tend to use new methods developed over the last "# years to deliver very small loans to unsalaried borrowers, ta$in% little or no collateral. !hese methods include %roup lendin% and liability, pre-loan savin%s re&uirements, %radually increasin% loan si'es, and an implicit %uarantee of ready access to future loans if present loans are repaid fully and promptly. More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a ran%e of hi%h &uality and affordable financial services offered by a ran%e of retail providers to finance income-producin% activities, build assets, stabili'e consumption, and protect a%ainst ris$s. !hese services include savin%s, credit, insurance, remittances, and payments, and others. (end us feedbac$ on this answer or su%%est your own) bac$ to top

2. What is the difference between microfinance and microcredit? Microcredit refers to very small loans for unsalaried borrowers with little or no collateral, provided by le%ally re%istered institutions. *urrently, consumer credit provided to salaried wor$ers based on automated credit scorin% is usually not included in the definition of microcredit, althou%h this may chan%e. Microfinance typically refers to a ran%e of financial services includin% credit, savin%s, insurance, money transfers, and other financial products provided by different service providers, tar%eted at poor and low-income people. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

3. How is microcredit different from other tar eted de!e"o#ment "endin ? In addition to the new techni&ues e+plained in $%& '1( the microcredit approach has tried to avoid the pitfalls of an earlier %eneration of tar%eted development lendin%. !he approach focuses on fosterin% better repayment discipline and char%in% interest rates that cover the costs of credit delivery, both of which support development of sustainable institutions that can continue to e+pand their services in the future. (end us feedbac$ on this answer or to su%%est your own)

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). Who are microfinance c"ients? !ypical microfinance clients are poor and low-income people that do not have access to other formal financial institutions. Microfinance clients are often self-employed, household-based entrepreneurs. !heir diverse microenterprises include small retail shops, street vendin%, artisanal manufacture, and service provision. In rural areas, microentrepreneurs often have small income-%eneratin% activities such as food processin% and trade, some but far from all are farmers. -ard data on the poverty status of clients is limited, but tends to su%%est that most microfinance clients fall near the poverty line, both above and below. -ouseholds in the poorest .#/ of the population, includin% the destitute, are not traditional microcredit clients because they lac$ stable cash flows to repay loans. Most clients below the poverty line are in the upper half of the poor. It is clear, however, that some MFIs can serve clients at the hi%her end of the bottom half. 0omen often comprise the ma1ority of clients. 2ver the past decade, some financial institutions have started developin% a ran%e of products to meet the needs of other clients, includin% pensioners and salaried wor$ers. 3lthou%h little is $nown about the universe of potential clients, the number of households without effective access to financial services is enormous. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

5. How do borrowers use microcredit "oans? Many microcredit borrowers have microenterprises4unsalaried, informal income-%eneratin% activities. -owever, microloans may not predominantly be used to start or finance microenterprises. (cattered research su%%ests that only half or less of loan proceeds are used for business purposes. !he remainder supports a wide ran%e of household cash mana%ement needs, includin% stabili'in% consumption and spreadin% out lar%e, lumpy cash needs li$e education fees, medical e+penses, or lifecycle events such as weddin%s and funerals. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

*. What +inds of institutions de"i!er microfinance? Most MFIs started as not-for-profit or%ani'ations li$e 562s (non-%overnmental or%ani'ations , credit unions and other financial cooperatives, and state-owned development and postal savin%s ban$s. 3n increasin% number of MFIs are now or%ani'ed as for-profit entities, often because it is a re&uirement to obtainin% a license from ban$in% authorities to offer savin%s services. For-profit MFIs may be or%ani'ed as non-ban$ financial institutions (57FIs , commercial ban$s that speciali'e in microfinance, or microfinance departments of full-service ban$s.

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7. ,o -$.s do other thin s besides financia" ser!ices for "ow-income #eo#"e? (ome MFIs provide non-financial products, such as business development or health services. *ommercial and %overnment-owned ban$s that offer microfinance services are fre&uently referred to as MFIs, even thou%h only a portion of their assets may be committed to financial services to the poor. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

8. How does microfinance he"# the #oor? !he impact of microcredit has been studied more than the impact of other forms of microfinance. Microcredit can provide a ran%e of benefits that poor households hi%hly value includin% lon%-term increases in income and consumption. 3 harsh aspect of poverty is that income is often irre%ular and undependable. 3ccess to credit helps the poor to smooth cash flows and avoid periods where access to food, clothin%, shelter, or education is lost. *redit can ma$e it easier to mana%e shoc$s li$e sic$ness of a wa%e earner, theft, or natural disasters. !he poor use credit to build assets such as buyin% land, which %ives them future security. 0omen participants in microcredit pro%rams often e+perience important self-empowerment. 8mpirical studies on the impact of credit are difficult and e+pensive to conduct and pose special methodolo%ical problems. Most impact studies to date have found si%nificant benefits from microcredit. -owever, only a few studies have made serious efforts to compensate for the methodolo%ical challen%es. In fact, many studies would not be re%arded as meanin%ful by most professional econometricians. 3 new wave of randomi'ed control trials are now in process, which should yield a more definitive picture. 8ven so, there is a stron% indication from borrowers that microcredit improves their lives. !hey faithfully repay their loans even when the only compellin% reason is to ensure continued access to the service in the future. 2ther microfinance services li$e savin%s, insurance, and money transfers have developed more recently, and there is less empirical research on their impact. *lient demand indicates that poor people value such services. MFIs that offer %ood voluntary savin%s services typically attract far more savers than borrowers. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

9. When is microfinance /01 an a##ro#riate too"?

Financial services, particularly credit, are not appropriate for all people at all times. For loans that will be used for business purposes, microcredit best serves those who have identified an economic opportunity and can capitali'e on it if they have access to a small amount of ready cash. 9e%ardless of how loans are used, MFIs can provide lon%-term, stable credit access only when clients have both the willin%ness and ability to meet scheduled loan repayments. Microfinance is particularly inappropriate for the destitute, who may need %rants or other public resources to improve their economic situation. 6rants are a more efficient way to transfer resources to the destitute than are loans that many will not be unable to repay. !oo much ris$ is placed on the MFI and client, when the only way a client can repay a loan is by startin% a successful business. 7asic re&uirements li$e food, shelter, and employment are often more ur%ently needed than financial services and should be appropriately funded by %overnment and donor subsidies. 6overnments and development a%encies often use microfinance as a tool to address socioeconomic problems such as relocation of refu%ees from civil strife, %eneratin% employment amon% demilitari'ed soldiers, or assistance followin% a natural disaster. Microfinance may or may not be able to respond to these situations effectively, and certainly not as a stand-alone intervention. Implementin% a successful microfinance pro%ram to address these types of situations depends upon a number of factors, the most important of which is a client base capable of ma$in% re%ular repayments. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

10. Why do -$.s char e hi h interest rates to #oor #eo#"e? *oncerns often arise as to why microcredit interest rates are hi%her than the ban$ interest rates that wealthier people pay. !he issue is cost: the administrative cost of ma$in% tiny loans is much hi%her in percenta%e terms than the cost of ma$in% a lar%e loan. It ta$es a lot less staff time to ma$e a sin%le loan of ;.##,### than .,### loans of ;.## each. 7esides loan si'e, other factors can ma$e microcredit more e+pensive to deliver. *redit decisions for borrowers who have neither collateral nor a salary cannot be based on automated scorin%. !hese decisions re&uire substantial intervention of a loan officer in 1ud%in% the ris$ of each loan. MFIs may operate in areas that are remote or have low population density, ma$in% lendin% more e+pensive. !his is often why traditional ban$s tend to stay away from such areas. If an MFI wants to operate sustainably, it has to price its loans hi%h enou%h to cover all its costs. 3lthou%h microcredit interest rates can be le%itimately hi%h, inefficient operations can ma$e them hi%her than necessary. 3s the microcredit mar$et matures in a %iven country, administrative costs usually drop as mana%ers learn from e+perience and in some cases because competition forces lower pricin% and %reater efficiency. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

11. Why does the microfinance industry #"ace so much em#hasis on sustainabi"ity? From a development perspective, financial sustainability is not an end in itself. 9ather, it is a tool for reachin% the ma+imum number of clients. MFIs may only operate for a limited time, reach a limited number of clients, or be driven more by political %oals than by client needs if services are not priced at sustainable levels. <onors and %overnments cannot li$ely provide enou%h subsidi'ed funds to meet the hu%e demand for microfinance. 8ven if there were enou%h donor and %overnment money, it would be better spent on other development priorities that, unli$e microfinance, cannot be delivered without continuin% subsidies. (ustainable MFIs have the potential to attract non-subsidi'ed resources to finance e+pansion of outreach. 8+perience has even shown that borrowers are more li$ely to repay lenders who operate without subsidies at they are more confident the institution will be around to %ive them future loans. !he trade-off between financial viability and reachin% very poor people is much less acute than many once thou%ht. 3 number of financial providers have mana%ed to offer hi%h-&uality financial services to very poor people while also coverin% their costs. Moreover, correlation between MFI profitability and client poverty level has proven to be a statistically wea$ one. !his may be more driven by the vision of particular MFIs than by any inherent unprofitability of low-end microcredit. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

12. .s the microfinance industry sustainab"e? Is the microfinance industry financially sustainable4is it profitable after ma$in% ad1ustments for subsidies not li$ely to continue in the future? Most MFIs are still unprofitable, especially if one includes the many small MFIs that do not report to the international databases described in $%& '17. 3 more meanin%ful way to loo$ at profitability is to consider the overall number of overall clients served by profitable MFIs, rather than the number of profitable MFIs themselves. In =##>, ??/ of all microborrowers captured by the MI@ database ( see $%& '17 are bein% served by profitable institutions. If one narrows the focus to private MFIs such as 562s and licensed institutions, then more than "AB of the borrowers are already bein% served profitably, and the lon%term trend is upward. 3re MFIs as profitable as ban$s? Measured by return on assets, MFIs are on avera%e more profitable than the commercial ban$s in their countries. !his does not show that microfinance is inherently more profitable than commercial ban$in%. 9ather, the differential is li$ely due to microfinance bein% an immature industry in most countries where providersC profits have not yet been s&uee'ed down. Measured by return on the e&uity invested by shareholders, MFIs are on the avera%e less profitable than ban$s, but this is mainly because MFIs are not yet as fully levera%ed as ban$s4i.e., MFIs fund their assets with more of their own money and less of the money deposited by savers. 8ven so, well-mana%ed microfinance have already shown to be profitable enou%h to inte%rate into mainstream financial sectors. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

13. ,o o!ernments do a ood 2ob of de"i!erin microcredit? !here are several hi%hly successful %overnment MFIs, such as 7an$ 9a$yat IndonesiaCs microfinance department. -owever, the vast ma1ority %overnment microfinance pro%rams do a poor 1ob of deliverin% retail credit. (uch pro%rams are usually sub1ect to political influence, hi%h default, continuin% drain on national treasuries, and sometimes lendin% based more on the borrowersC influence than their actual &ualifications. 3mon% %overnment pro%rams reportin% to international databases, only .AD of clients are bein% served sustainably. !here are structural dynamics that ma$e it hard for %overnments to deliver %ood retail credit. (ound credit administration re&uires screenin% out borrowers who are not li$ely to repay, char%in% interest rates hi%h enou%h to cover costs, and respondin% vi%orously to late payments. !hese re&uirements usually run counter to the practical incentives and imperatives of even the sincerest wor$in% politician. !he %overnment-run MFIs that deliver %ood microcredit tend to be insulated from politics, mana%ed by technocrats, and stron%ly and e+plicitly focus on sustainability. It is important to remember that these incentive problems for %overnment providers pertain more to credit than to other services. For instance, %ood %overnment savin%s ban$s are considerably easier to find than %ood %overnment retail loan pro%rams. (end us feedbac$ on this answer or to su%%est your own) bac$ to top

1). What is the o!ernment3s ro"e in su##ortin microfinance? 6overnmentCs most important role is not provision of retail credit services, for reasons mentioned in $%& '12. 6overnment can contribute most effectively by: (ettin% sound macroeconomic policy that provides stability and low inflation 3voidin% interest rate ceilin%s - when %overnments set interest rate limits, political factors usually result in limits that are too low to permit sustainable delivery of credit that involves hi%h administrative costs4such as tiny loans for poor people. (uch ceilin%s often have the announced intention of protectin% the poor, but are more li$ely to cho$e off the supply of credit 3d1ustin% ban$ re%ulation to facilitate deposit ta$in% by solid MFIs, once the country has e+perience with sustainable microfinance delivery, *reatin% %overnment wholesale funds to support retail MFIs if funds can be insulated from politics, and they can hire and protect stron% technical mana%ement and avoid disbursement pressure that force fund to support unpromisin% MFIs. (end us feedbac$ on this answer or su%%est your own) bac$ to top

15. How do sa!in s ser!ices he"# #oor #eo#"e? (avin%s has been called the for%otten half of microfinance. Most poor people now use informal mechanisms to save because they lac$ access to %ood formal deposit services,. !hey may tuc$ cash under the mattress, buy animals or 1ewelry that can be sold off later, or stoc$pile inventory

or buildin% materials. !hese savin%s methods tend to be ris$y4cash can be stolen, animals can %et sic$, and nei%hbors can run off. 2ften they are illi&uid as well E one cannot sell 1ust the cowCs le% when one needs a small amount of cash. Foor people want secure, convenient deposit services that allow for small balances and easy access to funds. MFIs that offer %ood savin%s services usually attract far more savers than borrowers. (end us feedbac$ on this answer or su%%est your own) bac$ to top

1*. What is the microfinance industry doin to ensure that the #oor do not fa"" #rey to #redatory "enders? Many countries are concerned about the impact of e+cessive interest rates, abusive lendin% practices, and over-indebtedness on poor borrowers. Guite a few players in the industry are now focusin% on consumer protection issues. !ypical consumer protection measures include disclosure re&uirements, rules and prohibitions related to lendin% practices, mechanisms for handlin% complaints or disputes, and consumer education. !he 3**I25 InternationalA MicroFinance 5etwor$ Fro-*onsumer Fled%e, FI5*3Cs *onsumer2riented 8thical (tatement and Freedom from -un%erCs (tatement on 8thical !reatment of *lients are e+amples of networ$ or%ani'ations articulatin% pro-consumer principles. !he (88F 5etwor$, throu%h its Fro-*lient 0or$in% 6roup, has resources on the sub1ect. 8ven in countries where consumer abuse is not yet a problem, promotin% voluntary consumer protection codes and practices may reduce future pressure to over-re%ulate. 3n increasin% number of individual MFIs are adoptin% voluntary pled%es or codes that promote effective consumer protection and a consumer-oriented culture. For instance, the 7osnian MFI Fri'ma has wor$ed with Freedom from -un%er to articulate 2ur *ommitment to *lients. Investors are in the process of si%nin% on to *63FHs Investor Initiative for *lient Frotection in Microfinance. Finally, the slow but steady inroads of social performance measurement and mana%ement (F3G I.B into the field of microfinance is focusin% more attention on protection and transparency dimensions, as well as potential unintended ne%ative conse&uences for clients. (end us feedbac$ on this answer or su%%est your own) bac$ to top

17. What is socia" #erformance measurement and why is it im#ortant for financia" institutions? !he (ocial Ferformance !as$ Force defines social performance as: J!he effective translation of an institutionHs social mission into practice in line with accepted social values that relate to servin% lar%er numbers of poor and e+cluded people, improvin% the &uality and appropriateness of financial services, creatin% benefits for clients, and improvin% social responsibility of an MFI.J Most MFIs have a social mission that they see as more basic than their financial ob1ective, or at least co-e&ual with it. !here is a %reat deal of truth in the ada%e that institutions mana%e what

they measure. (ocial performance measurement helps MFIs and their sta$eholders focus on their social %oals and 1ud%e how well they are meetin% them. (ocial indicators are often less strai%htforward to measure, and less commonly used than financial indicators that have been developed over centuries. !odayCs increasin% use of social measures reflects an awareness that %ood financial performance by an MFI does not automatically %uarantee client interests are bein% appropriately advanced. (end us feedbac$ on this answer or su%%est your own) bac$ to top

18. Where can . find financia" #erformance data on -$.s wor"dwide? Increasin% numbers of MFIs report their performance to international databases each year. !he MI@ Mar$et is the primary source for this information, containin% financial and other performance data from almost =,### MFIs collected and processed by the Microfinance Information e@chan%e (MI@ . <ata for participatin% MFIs, includin% client outreach measures, simplified financial statements, and a number of standard financial performance indicators, is publicly available on their website. !he MI@ also publishes MI@ Microfinance 0orld, featurin% country, re%ional and %lobal analyses based on the MI@ Mar$et database, such as benchmar$in% reports, and the Micro7an$in% 7ulletin, a periodic publication coverin% a variety of topics includin% financial reportin%, social performance, transparency, policy K re%ulation, and investment. !he Microcredit (ummit *ampai%n collects outreach data annually from hundreds of MFIs around the world. (ummary information is published annually and the (tate of the *ampai%n reports can be found on their website.

What is microfinance?
Opportunity International Australia helps people out of poverty through microfinance. Microfinance includes basic financial services - including small loans, savings accounts, fund transfers and insurance. Alongside non-financial services such as business training, microfinance assists people living in poverty who wouldn t usually !ualify for regular ban"ing services because they have no form of collateral or formal identification. #oans as small as $%&& help people in poverty start or grow their own small business. 'his enables them to earn an income so they can afford food, clean water, proper shelter and an education for their children. 'hrough our local partners in the countries where we wor", Opportunity is a provider of socially focused microfinance - we e(ist to help people out of poverty above all else. 'o learn about how we measure our impact, please clic" here.

)ere s how it wor"s*

+y helping a mother buy a sewing machine to start a tailoring business or a father buy seeds to plant a vegetable garden, small loans enable people in poverty to earn an income and provide for their families. As each business grows, loans are paid bac" and lent out again. With ,-. of loans repaid, the cycle continues, year after year. /ach successful business feeds a family, employs more people and eventually helps empower a whole community.

Microfinance plus
As well as microfinance, we provide people living in poverty with non-financial 0community development1 services to strengthen their businesses and develop their communities.

Our partners
Opportunity wor"s through local, socially focused microfinance institutions in developing countries. 'his ensures we understand the needs of people living in poverty in the area and allows us to serve them effectively.