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Micro Finance and
Economic Development
A2 Macroeconomics, Autumn 2013
Basics of Micro Finance
Micro-credit - provision of small-scale
loans to the poor
Micro-savings – for example, voluntary
l...
Aims of Micro Finance

Poverty
reduction
(the
original
aim)
through
financial
inclusion

Raising
domestic
savings in
lowes...
Professor Muhammad Yunus


Started the
Grameen Bank
(GB) more than 30
years ago with the
aim of reducing
poverty by
provi...
The rapid growth of Grameen
The organisation now has 2,565 branches and total lending
stands at 6bn taka ($77m), with a 97...
Grameen America
Micro Finance in Action
The World Health
Organisation says
2.5bn people lack
adequate
sanitation. This
undermines
developm...
Micro Finance in Action
Sanergy is a
social enterprise
focused on
making
sanitation
accessible,
affordable and
hygienic in...
Critics of Micro Finance
Debt

• Sub-prime style lending, charged high rates of
interest
• Coercive collection practices b...
Verdicts on Micro Finance
Microfinance can't operate in a
vacuum, it must be part of a
broader strategy. There is a
strong...
Micro Insurance
Risktaking
behaviou
r

Safety net will
envourage less
risk averse
behaviour

Schoolin
g, Death
and
Saving
...
What are some of the Limits /
Risks from Micro Insurance?
Moral hazard
• The chance that the insured will be more
careless...
Follow Up Videos
Follow Up Videos
Get help for unit 4 from
fellow students, teachers
and tutor2u on Twitter:

#econ4
@tutor2u_econ

25/10/2013 07:54:10
Follow our Scoop It Boards!
Tutor2u
Keep up-to-date with
economics, resources, quizzes
and worksheets for your
economics course.

25/10/2013 07:54:10
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Micro Finance and Economic Development

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A2 Macro revision presentation on aspects of micro finance and micro credit as a source of funding to stimulate economic development

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Micro Finance and Economic Development

  1. 1. Micro Finance and Economic Development A2 Macroeconomics, Autumn 2013
  2. 2. Basics of Micro Finance Micro-credit - provision of small-scale loans to the poor Micro-savings – for example, voluntary local savings organisations provided by charities Micro-insurance- especially for people and businesses not traditionally served by commercial insurance businesses Remittance management – e.g. transfer payments made through mobile phone solutions
  3. 3. Aims of Micro Finance Poverty reduction (the original aim) through financial inclusion Raising domestic savings in lowest income countries Protection against income volatility (insurance ) Sustainabl e finance for new enterprises Gender empowerment Microfinance has long been used in developing countries to help poor entrepreneurs who cannot access mainstream finance
  4. 4. Professor Muhammad Yunus  Started the Grameen Bank (GB) more than 30 years ago with the aim of reducing poverty by providing small loans to the country’s rural poor  At the end of 2009 in Bangladesh, there were 20.5 million active borrowers and the average loan per borrower was $114.
  5. 5. The rapid growth of Grameen The organisation now has 2,565 branches and total lending stands at 6bn taka ($77m), with a 97 per cent loan recovery rate Grameen now has 30 companies to its name e.g. Grameen Danone Grameen Danone • produces yoghurt with added nutrients Grameenphone • Subsidiary with Norway’s Telenor Grameen America
  6. 6. Grameen America
  7. 7. Micro Finance in Action The World Health Organisation says 2.5bn people lack adequate sanitation. This undermines development and spreads illness – an estimated 1.8m die every year from diarrhoeal diseases, accounti ng for the vast majority of deaths of children under five.
  8. 8. Micro Finance in Action Sanergy is a social enterprise focused on making sanitation accessible, affordable and hygienic in Africa slums. Their work is being piloted in informal settlement in Nairobi, Kenya
  9. 9. Critics of Micro Finance Debt • Sub-prime style lending, charged high rates of interest • Coercive collection practices by some lenders • Sustainable savings more important in long run Saving real incomes need to rise • Credit just one factor in lifting income or output s Cash Invest • Esther Duflo - direct cash transfers and better funding of skills training have bigger effect • Credit is often used to finance consumption • Micro-finance cannot compensate for inadequate healthcare, education or infrastructure
  10. 10. Verdicts on Micro Finance Microfinance can't operate in a vacuum, it must be part of a broader strategy. There is a strong argument for supporting small and medium-sized enterprises for which microfinance institutions have no demonstrated comparative advantage. Maren Duvendack, lecturer in development economics, University of East Anglia
  11. 11. Micro Insurance Risktaking behaviou r Safety net will envourage less risk averse behaviour Schoolin g, Death and Saving More children from poorer families will be able to continue their education Insurance can be a spring-board as well as a safety net Many of the poorest spend large sums of funerals insurance reduces this burden Insurance can help smooth volatility in income and spending Life insurance schemes promote small scale saving
  12. 12. What are some of the Limits / Risks from Micro Insurance? Moral hazard • The chance that the insured will be more careless and take greater risks because he or she is protected, Adverse selection • When individuals buying a particular insurance policy have a much higher than average chance of making a claim Asymmetric information • When different parties have unequal access to information in a market.
  13. 13. Follow Up Videos
  14. 14. Follow Up Videos
  15. 15. Get help for unit 4 from fellow students, teachers and tutor2u on Twitter: #econ4 @tutor2u_econ 25/10/2013 07:54:10
  16. 16. Follow our Scoop It Boards!
  17. 17. Tutor2u Keep up-to-date with economics, resources, quizzes and worksheets for your economics course. 25/10/2013 07:54:10

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