Fortune at the bottom of the Pyramid

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Microcredit and Microfinance

Normally microcredit means only credit

But in Grameen Bank it means both savings and credit

Microfinance term is now nationally and internationally used

It means: savings, credit and micro-insurance

Who are the clients of NGO and Microcredit programs?

Very poor

Poor

Vulnerable poor

Gender focus on the clients particularly the women.

In MF sector, 80% members or clients are women.

Many NGOs have 100% women membership including the Grameen Bank.

Significance of women as clients:

NGO can also work for all sections of population on any social Issue- Not only poor.

Microfinance is small loan provisions for the Poor.

What is microfinance:

small provisions of loans for poor people

Poor, very poor has definitions in terms of land, asset value, calorie intake, etc.

Financial Products:

Savings: mandatory savings, voluntary savings and term deposits

Microcredit Loan: basically working capital loans, starts from Tk 5000-10,000 up to Tk 30,000-40,000

Microenterprise: More than Tk 30,000/40,000 up to Tk 1,000,000 or more (Tk1 million). Such loans are few. Most loans are within Tk 1 lac.

Microfinance and Micro-enterprise has n debt-equity ratio

Microfinance is collateral Free

- Microfinance is still collateral free,

- There is no group guarantee for loans which was initially introduced in Grameen Bank .

- Later some NGOs also applied this concept.

Meaning of Retailing and wholesale microfinance

- Retailing means lending direct to the members/clients by the MF-NGOs

- Wholesaling means lending to the members via an MF-NGO

- All NGOs do the retailing microfinance including the Grameen Bank. Government programs, (BRDB, Ministry of youth, Women Affairs, Grameen Bank, RDS of IBBL and some banks, Palli Darodro Bimochon Foundation (PDBF).

- Some NGOs like BRAC and ASA help some NGOs with money to lend to their clients

- PKSF is a major wholesale lending agency. It lends to the MF-NGOs to provide loans to their members.

- Some commercial banks do wholesaling as well to the MF-NGOs.

Why NGOs are called Not for Profit organizations?

The NGOs have no owners like the commercial organizations.

It can do business, earn money but its directors in the Board or the General body members cannot take any profit.

There is no provision of investing money.

This is why the NGOs are Not profit organizations.

Can the NGOs do business or financial activities?

As spelled out in the Acts of NGOs registered under the social welfare act and Societies under the Societies act in Joint stock companies, they have specified activities which are not commercial business or financial activities.

These organizations are doing commercial and financial activities as a tradition. All are silent on this issue.

Where NGOs are Registered?

- Non-profit organizations are registered with:

- Department of social welfare,

- Ministry of Women Affairs

- Joint stock companies as Society,

- Ministry of commerce as company limited by guarantee

- Company limited by guarantee cannot use Ltd after the name of the organization

Operational Mechanism of Microfinance Institutions (MFIs)

- Field level operations: (creation of groups of members 15-20. sometimes more. Weekly meetings are held where savings are collected and loan repayment by borrowers is done

- Branch level operations (Money has to be borrowed from the Branch).

- Branch structure ( one manager, one accountant, 5 field officers/loan officers, one aya.

- Overall operational mechanism (several branches are supervised by a zonal coordinator, zonal coordinators are supervised a coordinator or Director Program, He is reportable to the Chief of the Organization.

What is Social Business as says Prof. Dr Yunus?

- Is Microfinance a Social Business ?

- Is Grameen Bank (GB) activity a social business?

- A few examples of GB’s social business in Bangladesh:

- Grameen Danone Foods Ltd, Grameen Veola water, Grameen Eye Care Hospital etc (there are as many as 12 organizations under Grameen Bank)