http://www.unitedprosperity.org

1

2

100 million

entrepreneurs

served by

micro-finance

institutions1

Estimated 1.5

billion working

poor in demand

of microfinance1

Total working poor without

access to capital ~ 3 billion1

1. Gonzalez and Rosenberg (2006),

“The state of Microfinance” and

CGAP occasional paper #8 (2004)

The poor have limited access to capital

3

“The biggest problem we face in trying to expand

the reach of microcredit is not the lack of capacity.

Instead, it is the lack of availability of money to help

microcredit programs get through their initial years

until they reach break-even level.

Local banks cannot lend to MFIs because MFIs

cannot provide collateral.

However, if an international or domestic

organization steps forward to act as a guarantor,

local banks are happy to provide the money.” The Microcredit Revolution in ‘Creating A World Without Poverty: Social business and the future of capitalism ’,

New York, PublicAffairs, page 70). By Mohammad Yunus with Karl Weber

Lack of guarantees limits lending to small entrepreneurs1

1. Refer slide in Appendix for CGAP’s note on guarantees

4

Microfinance

Institution (MFI)/Partner

Repays loan Repays loan

Entrepreneur

Your guarantee will enable entrepreneurs to get loans

Bank

Lends1 Lends

1 - Banks also lend directly to entrepreneurs in some cases

Social Guarantors

(You)

Loan : $200

Guarantee: $60

Loan : $200Guarantee: $60

You guarantee loan to entrepreneur

on United Prosperity’s website

$20

$20

$20

On loan repayment

your funds are returned to you

5

How does it work ?

(slide 1 of 4)

Originate Loans

Guarantee Loans

Issue Loans

Repay Loans

Microfinance institution (MFI) uploads list of entrepreneurs or

groups seeking loans onto United Prosperity website

MFI also uploads photograph and profile of entrepreneur or a

group of entrepreneurs for whom it seeks funds

+ +

Loan No. Group No. Client Id. First Name Last Name Term Sex Amount Age Loan Purpose

10001 891 34454 Malati Ahir 9 F 7500 25 To buy a cow

10002 891 35656 Vasanti Tamhane 6 F 5400 32 To open a flower shop

10004 891 35666 Sujata Kumbhar 8 F 8000 28 To put up a tea shop

10005 891 35667 Aseema Sheikh 8 F 7850 23 To start an embroidery business

10006 891 35682 Farha Ismail 8 F 7540 23 To start an embroidery business

orEntrepreneur

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How does it work ?

(slide 2 of 4)

Originate Loans

Guarantee Loans

Issue Loans

Repay Loans

$50$20

$20Loan amount: $200

Guarantee: $60The guaranteed amount is always

less than the loan amount ,with the

initial loss in case of a default

borne by the MFI.

In this example, the guarantee is

focused on an entrepreneur, but it

could also be focused on a group

of entrepreneurs

Entrepreneur

Using United Prosperity’s website, social guarantors like you

select an entrepreneur whose loan they would like to guarantee.

$20

Social Guarantor

Social GuarantorSocial Guarantor

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How does it work ?

(slide 3 of 4)

Originate Loans

Guarantee Loans

Issue Loans

Repay Loans

The Bank and MFI issue loans

The MFI uploads the loan disbursal date on the United

Prosperity website

Microfinance

Institution (MFI)

Loan No. Date Month Year Amount

10001 23 6 2008 7500

10002 30 6 2008 5400

10004 23 6 2008 8000

10005 30 6 2008 7850

10006 23 6 2008 7540

EntrepreneurBank

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How does it work ?

(slide 4 of 4)

Originate Loans

Guarantee Loans

Issue Loans

Repay Loans

Loans are repaid

The guarantee amount is returned to you (social guarantor)

Microfinance

Institution (MFI)Entrepreneur

Bank

Weekly or

Fortnightly or

MonthlyMonthly

9

Your guarantee makes a difference to poor entrepreneurs’ families

Availability – Because of the guarantee, the

entrepreneur gets a loan

Timely – The entrepreneur can start her

business immediately and improve her family’s life.

Credibility - By repaying this loan the

entrepreneur can establish her credit worthiness in

the community

Lower Interest Rate – Because of the

guarantee the entrepreneur gets the loan at a

lower interest rateEntrepreneur

10

Strengthens institutions that serve the poor

Microfinance

Institution (MFI)

Access - Can borrow from local and

international banks and reach out to more

entrepreneurs

Relationships - Can establish relationships

with larger banks

Lower Cost - Reduce the cost of borrowing

from banks

Better Cash Flow – Reduce working capital

requirement and leverage existing capital

effectively

Credibility – Association with an international

organization like United Prosperity increases

their market credibility

11

Makes bank lending more inclusive

Credit Quality - Powerful cash-secured

guarantee significantly reduces the risk of

lending to the poor

Better Capital Utilization - With lower credit

risk, capital can be leveraged to increase lending

Greater Revenues - Enhanced conduit to

emerging MFIs and micro-enterprises to sell

loans and cross sell related products like savings

accounts, health and life insurance

Lower Risk – Continuous visibility and

monitoring of the MFI performance when the

guarantee is in force

Financial Inclusiveness - Increase financial

inclusiveness with minimal risk

Bank

12

Maximizes your impact

Maximum Impact – Because of the risk

sharing between the bank and United

Prosperity a $1 in guarantee translates to

$2 to $5 in loan to the entrepreneur

Transparent –You can see who’s life is

getting transformed by your guarantee

Multiplied – On loan repayment you can

support a new entrepreneur

Affordable – With as little as $25, you

can transform the life of a family

You

(Social Guarantor)

13

Appendix

14

Guarantors and MFIs managers report that loan

guarantees help MFIs to get loans—often the MFI’s

first local loan—from banks that otherwise would

not lend to them.

-Consultative Group to Assist the Poor (CGAP)

(Focus Note No. 40, January 2007)

Guarantees help emerging microfinance institutions gain bank

financing and reach more entrepreneurs

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There are estimated to be 10,000 MFIs worldwide

Banks lend to larger well-established MFIs ( Tier 1 and some Tier 2)

Banks are reluctant to lend to emerging (Tier 2-4)

Source: Jennifer Meehan(2004) “ Tapping Financial Markets for

Microfinance” and Grameen Foundation USA

Guarantees will accelerate the growth of smaller MFIs

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Guarantees help the entrepreneurial poor access capital

End loans intended for Entrepreneur objective Guarantee on

behalf of

Traditional microfinance

•Income generating activity

•Mostly part-time labor

•Often temporary, and sometimes

seasonal activities

•Additional family income MFI

Technology innovation financing

• Finance new technological

innovations which help the poor

improve their livelihood

•Improved livelihood

•Exponential productivity gains

•Potential to grow

Portfolio of loans

of bank intended

for financing

innovations

Microenterprises

•1-10 employees

•Fixed business premises

•Typically family labor

•Some orientation to growth and

capital accumulation

•Stabilization of income

Portfolio of

microenterprise

loans of bank

Self Help groups

•Groups of poor entrepreneurs who

borrow jointly

•Income generating activity

•Additional family income Portfolio of SHG

loans of bank

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Pro-bono legal services for United Prosperity by the Practicum group

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Thank you

bhalchander@unitedprosperity.org