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SOCIAL FINANCE AND MICRO FINANCE

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The informality of many financial arrangements. The social dimension of finance ... Majority of population usually has no bank account; pervasive informal finance ... – PowerPoint PPT presentation

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Title: SOCIAL FINANCE AND MICRO FINANCE


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Founding of the International Labour Organisation
- 1919
  • Universal and lasting peace can be established
    only if it is based upon social justice
  • The failure of any nation to adopt humane
    conditions of labour is an obstacle in the way of
    other nations which desire to improve conditions
    in their country.
  • Poverty anywhere constitutes a threat to
    prosperity everywhere

3
Decent work
  • Fundamental rights in and through work
  • Job creation
  • Social protection
  • Social dialogue

4
The social dimension of finance
  • Links between labour and financial markets.
  • Impact of policies addressed at the financial
    sector.
  • Access to financial markets.
  • Financial institutions as vehicles for the
    attainment of social objectives.
  • Scope for financial organizations based on
    self-help.
  • The informality of many financial arrangements.

5
The social dimension of finance
  • Links between labour and financial markets.
  • Impact of policies addressed at the financial
    sector.
  • Access to financial markets.
  • Financial institutions as vehicles for the
    attainment of social objectives.
  • Scope for financial organizations based on
    self-help.
  • The informality of many financial arrangements.

6
Micro Finance
  • The provision of financial services on a
    sustainable basis to the poor
  • Now becoming a key feature of the global agenda
  • Social summit 1995
  • Monterey Finance for Development 2000
  • PRSPs WDR 2000
  • Working Out of Poverty
  • A strategy that promises to pay for itself?

7
The socio-economic benefits of microfinance are
threefold
!
  • Job creation
  • Poverty reduction
  • Empowerment

8
The Need for Micro Finance
  • legal status
  • transaction costs
  • information asymmetries

9
The Need for Micro Finance
  • legal status
  • transaction costs
  • information asymmetries

10
Microfinance in developed and developing
countries A comparison
  • .

11
Significance of Microfinance
In developing countries MFIs respond to a real
demand. In developed countries the demand is
much smaller and more segmented
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Significance of Microfinance
  • MFIs reach a high proportion of women


13
Significance of Microfinance
A growing number of MFIs in developing countries
have attained full financial sustainability,
i.e. they are free from subsidies.
14
Significance of Microfinance
In developed countries, financial independence
is probably an unrealistic goal for most if not
all MFIs.
15
Significance of Microfinance
MFIs worldwide are moving towards higher degrees
of cost recovery and subsidy independence.
16
Developing countries
Developed countries
  • Objectives
  • Provision of credit to specific target groups
  • Market size
  • Eligible target population is a minority in the
    active population
  • Market Density
  • Low client density higher transaction costs
  • Access
  • Despite competitive financial sector,gradual
    disappearance of accessible high street banks
  • Income alternatives
  • Income packaging at a higher level with broader
    range of resources social safety net greater
    scope for planning
  • Regulation
  • Complex
  • Operational Costs
  • Relatively high
  • Loan amounts
  • Nominally and relatively small often less than
    5 per cent of GDP per capita
  • Economies of scale
  • difficult to achieve
  • Objectives
  • Provision of financial services to the poor on a
    sustainable basis
  • Market size
  • Majority of the population between 60 and 80
    per cent of households
  • Market density
  • Often high which lowers transaction costs
  • Access to financial services
  • Majority of population usually has no bank
    account pervasive informal finance
  • Income alternatives
  • Income packaging with limited sources and
    substantial instability (transfers, wages,
    entrepreneurial income)
  • Regulation
  • Less defined. Generally less constraining
  • Operational costs
  • Relatively low for clients and for MFIs
  • Loan amounts
  • Nominally small but relatively large often
    more than annual GDP per capita
  • Economies of scale
  • Exist

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IMPACT OF MICRO FINANCE
  • Microfinance contributes to employment and income
    stabilization

18
IMPACT OF MICRO FINANCE
  • In developing countries, MFIs tend to focus on
    the group of clients near the poverty line

19
IMPACT OF MICRO FINANCE
  • Another aspect of employment quality is the
    stability of the income-earning opportunity.

20
IMPACT OF MICRO FINANCE
  • Self-employment induced through the provision of
    microfinance in developed countries may not
    necessarily be superior to prior wage employment

21
IMPACT OF MICRO FINANCE
  • For women in particular, self-employment
    whether part or full time is often a strategy
    to manage domestic and work duties

22
The cost-effectiveness ofmicrofinance programmes
  • In developing countries, microfinance is mostly
    (or at least increasingly) market-driven.
  • In developed countries, the cost-effectiveness of
    microfinance programmes is a matter of comparing
    per capita subsidies with the welfare transfers
    that would otherwise be necessary.

23
The cost-effectiveness ofmicrofinance programmes
  • .

24
Concluding Points
  • MFIs reach an impressive number of the
    poor
  • most MFI still do not fully cover their costs,
    they still depend on subsidies.
  • there is a case for subsidies, at least some form
    of subsidies
  • but what makes up an efficient, poverty-oriented,
    subsidy-dependent micro-finance institution? 

25
THANK YOU
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