Information You Can Use: A Bi-monthly Service for the UN and Civil Society
Volume 2, Issue 3, May-June 2005
Good Future Predicted
for MFIs Delivering Microcredit
30 May 2005
Source: Indonesia
Relief
Sydney, Indonesia-Relief -- The attention being paid to microfinance
schemes in Aceh lines up with massive growth in the numbers of clients that
are expected throughout the world once microfinance becomes mainstreamed.
That's according to a newspaper interview recorded by Opportunity International
Australia (OIA), defining MFIs (micro finance institutions) as NGOs providing
microcredit which are ‘’fully and virtually exclusively dedicated
to offering financial services.’’
‘’We have every reason to expect that programs that reach out to the very poorest microclients can be sustainable once they have matured, and if they commit to that path. The evidence supports this position.’’
‘’While the programs that reach out to the poorest clients perform less well as a group than those who reach out to a somewhat better-off client segment, their performance is improving rapidly and at the same pace as the programs serving a broad-based client group did some years ago.’’
‘’More and more MFI managers have come to understand that sustainability is a precursor to reaching exponentially greater numbers of clients. Given this, managers of leading MFIs are seeking ways to dramatically increase operational efficiency.’’
The report noted financial returns for MFIs can be attractive, citing data from MicroBanking Bulletin which said 63 of the world's top MFIs had an inflaction-adjusted 2.5 percent average rate of return - with all subsidies deducted. ‘’This compares favourably with returns in the commercial banking sector and gives credence to the hope of many that microfinance can be sufficiently attractive to mainstream into the retail banking sector,’’ the report said.
The businesses that support local funds lending to microenterprises can be either MFIs or non-MFI NGOs. OIA comments that a great many NGOs that offer microcredit, perhaps even a majority, do many other non-financial development activities and would bristle at the suggestion that they are essentially financial institutions. ‘’Yet, from an industry perspective, they are engaged in supplying financial services to the poor.’’
OIA says it shares the credit for developing the microcredit concept with a few hundred NGOs that led the development of microcredit, and subsequently microfinance, the world over. ‘’Most of these constitute a group that is commonly referred to as 'best practice' organizations, ones that employ the newest lending techniques to generate efficient outreach that permit them to reach down far into poor sectors of the economy on a sustainable basis.’’
The key difference
between MFIs non-MFI NGOs is that, in most cases, the latter are not allowed
to capture savings deposits from the general public. MFIs don’t have
not-for-profit/charity organisation advantages but can lever their finance.
The microfinance institution can get access to equity and easier access to
debt from commercial sources. The changeover is a complex process which often
means replacing the NGOs loan/microloan portfolio with shares, depending on
the laws of the corporate laws of the particular country.
© alan