3. Microfinance vs Microlending “ Poor people borrow some of the time but save all of the time” Very Poor People who have few (if any) assets – very limited chances to earn money credit savings Entrepreneurial Poor Self Employed Poor Laboring Poor Very Poor The Poverty Pyramid Entrepreneurial Poor People who are slightly below the poverty line. Laboring Poor Farm laborers, domestics and unemployed workers Self-Employed Poor Poor people who are meeting their basic needs by running microbusinesses *Source: FINCA’s Poverty Pyramid insurance The need of customer is more than credit….
Against an estimate demand of Rs. 20,000 crore to Rs. 50,000 crore for credit, the supply from financial sources was less than Rs. 2500 crores Traditionally, it has been believed that the poor are not bankable. The main reasons relate to Lack of information on the income flows and expenditure patterns of households (which makes it difficult to assess whether the individual will be able to pay for the services. E.g. in the urban retail client some indicators used are salary slip, income tax return, ownership of assets, number of family members, etc.) The costs of reaching services is very large. E.g. SHARE one of the largest micro finance organisations in the county employs over 3000 people to service a portfolio of Rs. 2000 million. Banks typically handle much larger amounts per individual (ICICI Bank has a 5 person micro-finance team that handles Rs. 4000 million) The absence of facilitative environment such as absence of well functioning commodity markets, non existence of credit bureaus, etc. act as a hindrance. Indian regulations do not permit MFIs to collect savings. However, the FM’s in his budget speech has allowed Banking Correspondents.
It is an attempt to marry the bank’s strength and the MFI s weaknesses and viceversa FLDG
