wwb nancy barry
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Building Domestic Financial Systems that Work for the Majority
Women’s World Banking
Women’s World BankingAffiliates, Associates, GNBI and AFMIN Members provide
financial services to about 18 million low income entrepreneurs, in about 40 countries
BoliviaBrazilChileColombiaDominican RepublicEcuadorHaitiMexicoParaguayPeru
LAC
BeninBurundiEthiopia
The GambiaGhana
GuineaIvory Coast
KenyaMali
NigerNigeria
South AfricaTogo
Uganda
BangladeshIndia
IndonesiaMongolia
NepalPakistan
The PhilippinesSri LankaThailand
Bosnia-HerzegovinaJordanMoroccoThe NetherlandsRussian FederationSwitzerland
USANorth
America
Africa
Europe,ME andNorthAfrica
Asia
Why Microfinance Can Changethe Way the World Works
500 million poor entrepreneurs and producers, mainly women
1. 4.3.2.
Microfinance:
• Lending
• Savings
• Insurance
• Housing
• Remittances
Increases:
• Income
• Assets
• Security
• Confidence in future
Better:
Health
Population
Education
Community participation
Banking for the majority
Building Financial Services thatRespond to What Poor Women Want
What Poor Women
Want
Asset Building, RiskMitigating Products • Voluntary savings• Health and life insurance
Variety of Products• Housing loans• Education loans• Life cycle products• Business development
services
Group Individual Loans
Flexible Loans• Small initial loan sizes• Larger loans over time• Longer terms
No Traditional Collateral
Service• Rapid, convenient
access• Respect, connection
Source: WWB research
Building Core Microfinance Services―Focus on Income and Assets
Core Offerings
Flexible Working Capital
LoansEducation Loans
Housing Finance
Insurance
SavingsRemittances for
Microfinance
Consumer
Finance
Transfer Payments
Debit and Credit Card Facilities
Other Non-core Offerings in Inclusive Financial Systems
Key Non-Financial Products and Services
• Financial counseling and training
• Commercial linkages
• Health and education
• Business advisory services
• Dealing with legal barriers
What Low Income Women Needto Build Income and Assets—
Needs That Microfinance Can Meet Profitably
Market Penetration of
Target Market in Most Countries
Credit to fuel growth of productive activities <10%
Ability to accumulate savings <10%
Ability to finance housing, education, health care <1%
Life and health insurance <1%
The Core Paradigm in Building Financial Systemsthat Work for the Poor Majority
Encourage a range of financial institutions and methodologies:
• Commercial banks
• Regulated MFIs
• Microfinance NGOs
• Finance companies
• Coops, credit unions
• Grassroots organizations
Adopt standards on performance in:
• Client reach
• Efficiency, profitability
• Financial integration
• Impact
• Portfolio size, growth
• Portfolio quality
Provide appropriate support modalities—institutions that meet high standards need:
• Policies, regulations and legal structures that fit microfinance
• Access to finance that fits the institution’s size and stage
• The ability to mobilize savings
1. 3.2.
Policy, Regulatory and Legal Frameworks are Needed for Microfinance Operations
Key Features of Microfinance
Transaction costs are high
Clients lack conventional collateral
Simple MIS, accounting
Savings important to client and MFI
Many small branches
Loan officers not traditional bankers
Institutions need to be able to charge relatively high interest rates
Microloans as loan class, with portfolio Quality and lending methods--not loan Collateral—used to evaluate risk.
Simple while rigorous reporting requirements – with microfinancestandards and benchmarks
Ability for high performing MFIs to mobilize deposits from borrowers and from the public
Ability to establish branches and agencies rapidly
Flexibility in hiring, andperformance-based incentives
ResponsiveFramework
Focus for Country Actionsin the Next Three Years
• Retail capacity needs to be built in most countries
• Savings and other asset building products require attention
• Transaction costs need to be reduced
• Financing that fits different stages of MFIs is needed in many markets
• Country-level visions and strategies—built by key stakeholders
• Policies, regulation, legal structures need to be implemented
• Key elements of institutional infrastructure need to be constructed
• Performance indicators and standards need to be implemented
• Increased attention is needed in measuring impact of microfinance
• Government and private sector have important roles to play
Interest rates
Financial sector
policies
Governmentpolicy
Regulations, supervision
Legal structures
Legal systems
Performance indicators
Governmentrole
Policy
IndustryInfra-structure
Financing Microfinance – Domestic Capital Markets
Domestic capital
markets
Tech service providers
Wholesale financial
institutions
MF networks,
associations
Rating agencies
Credit bureaus
Tech applications
Payment systems
Donor support
Business services
Savings mobilization
Wholesale financing
Bonds, securitizations
Grants for smaller MFIs
Guarantee mechan-
isms
Transpar-ency
Healthy market overall
Commercial Banks
Micro-FinanceNGOs
RegulatedMFIs
Coopera-tives, Credit
Unions,
Savings Grass Roots Groups
OthersRetail Capacity, Supply
Product Offerings
Impact in Poor Households
Savings Microloans – Working Capital
Insurance Remittances, savings, assets
Income Assets Education, Health
Women’s Decision-making, Power
Community Participation
Building Blocks of Domestic Financial Markets That Work for the Poor Majority
The nine most important measures for building the policies, regulations and legal structures for financial systems
that serve the poor majority
1. Liberalized interest rates for microfinance, relying on competition and transparency to lower costs and rates
2. Inclusive financial sector policies that incorporate measures to ensure responsive, solid services to the poor
3. An explicit, supportive government policy and strategy for microfinance, with objectives, key policies and support, roles
4. Regulations and supervision capacities that respond to the characteristics of microfinance.
5. A range of suitable legal structures that enable organizations of different types and sizes to provide diversified microfinance products in a sustainable way.
6. Legal and judicial systems that support secured and unsecured lending7. Common performance indicators, definitions and standards8. Government’s role as an enabler, not retail provider9. Donor support to complement private capital, e.g., financing younger
institutions, capacity building, innovation and policy change
Key institutions and services that need to be in placeto support the build-up of solid,
responsive retail capacity in microfinance
• Technical service providers
• Wholesale finance institutions
• Microfinance networks, industry associations
• Rating agencies
• Credit bureaus
• IT platforms and application of technology
• Payment systems
• Information and business services for microentrepreneurs
• Domestic capital markets development
Key financial instruments and arrangements if the domestic financial market is to respond to the needs of MFIs
• Domestic savings mobilization
• Domestic wholesale financing
• Bonds and securitization issues
• Grants and soft loans to enable high potential MFIs to reach sustainable scale, and to support capacity building and innovation for MFIs at all stages
• Guarantee mechanisms
• Enhanced transparency, ratings, credit bureaus, information disclosure
• Healthy domestic capital market
Role of Government
DO DON’T
• Promote microfinance as a key vehicle in tackling poverty, and as vital part of the financial system
• Create policies, regulations and legal structures that encourage responsive, sustainable microfinance
• Have government agencies provide retail microfinance
• Encourage a range of regulated and unregulated institutions that meet performance standards
• Back one model
• Support autonomous, wholesale structures
• Encourage competition, capacity building and innovation to lower costs and interest rates in microfinance
• Place interest rate ceilings on micro loans
Paradigm Shift in Retail Banking with the Poor
• Low interest rates
• Low repayments
• Low “know your customer”
• Minimal loan amounts
• Low, sporadic, and shallow outreach relative to demand
• Interest rates that cover costs, enable profits
• Excellent portfolio quality• Understand household
economies, economic activities of the poor
• Financial products and processes that respond to poor households, enterprises
• High outreach, impact
Compliance Culture Sustainable Microfinance
Leading banks and microfinance institutions are innovating to provide efficient, responsive,
sustainable services
InnovationsInnovations
Helping clients build assets and
mitigate risk
Cutting costs to clients and the
institutions
Mobilizing capital markets for
microfinance
Building new distribution
channels
• Average loan US$ 900
• Average savings account US$ $125
• Cross-selling of 3.4 products per client
• First banking experience for 50% of new clients
Moving to Customer Focus in Microfinance
Key areas for action
• Build retail capacity in microfinance
• Build the depth and diversity of product offerings
• Build domestic financial markets for microfinance
• Utilize technology to cut costs and expand outreach
• Build permanent state policies and country strategies
• Mobilize new actors, help them learn the business and play effective roles
Private Sector
Private Sector
WWBWWBNetworkMembers
Low Income Women
Low Income Women
Policy Makers, Donors
Policy Makers, Donors
Mobilizing Key Actors to Focus on the Majority
LARGEENTERPRISES
Middle Class
Low-Income Entrepreneurs and Households
Wealthy
Building Enterprise Systems that Treat the Poor as the Top Priority