Articles

Formal Banks & Micro Finance Institutes (MFIs)

Bank -

An establishment authorized by a government to accept deposits, pay interest, clear checks, make loans, act as an intermediary in financial transactions, and provide other financial services to its customers.

Read more: http://www.businessdictionary.com/definition/bank.html#ixzz309ZHfcRQ

Micro-finance Institutions:

 A financial institution that provides micro-finance products and services to low-income clients. Commercial banks can be considered MFIs, but MFIs can also be nonprofit organizations and are often not licensed in the same way as banks, so in some cases they cannot legally take deposits or handle many financial transactions.

Read more:  http://www.csa.com/discoveryguides/microfinance/gloss.php

Main differences of Loan services between Formal banks & MFIs

	BANK	MFI
Clients will be	Saving account holders only	Person who has capacity to repay loan / needy communities
Interest rates	Comparatively LOW	Comparatively High
Loan size	High	Low
Guarantors	Formal / Gov guarantors need	Join liability
Securities	Need Mortgage	Not essential
Service Providing	Client has to come to Banks	Door to door services (maximum)
Processing period	Comparatively high	Comparatively Low
Documentation	High	Low
Services	Savings & Loans (max)	Credit Plus services
Alternative cost	High (Generally )	Low (generally)
Main tool for recovery	Formal Delinquency management procedures	Highly keen about Peer pressure & Peer monitoring
Repayment period	High	Low
Eligibility of Poor / below main stream	Low	High

Micro-finance is a source of financial services for entrepreneurs and small businesses lacking access to banking and related services. The two main mechanisms for the delivery of financial services to such clients are: (1) relationship-based banking for individual entrepreneurs and small businesses; and (2) group-based models, where several entrepreneurs come together to apply for loans and other services as a group.

In some regions, for example Southern Africa, micro-finance is used to describe the supply of financial services to low-income employees, which is closer to the retail finance model prevalent in mainstream banking.

For some, micro-finance is a movement whose object is "a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services, including not just credit but also savings, insurance, and fund transfers."^[1] Many of those who promote microfinance generally believe that such access will help poor people out of poverty, including participants in the Micro-credit Summit Campaign. For others, microfinance is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses.

Microfinance is a broad category of services, which includes micro-credit. Microcredit is provision of credit services to poor clients. Micro-credit is one of the aspects of micro-finance and the two are often confused. Critics may attack microcredit while referring to it indiscriminately as either 'microcredit' or 'microfinance'. Due to the broad range of microfinance services, it is difficult to assess impact, and very few studies have tried to assess its full impact.^[2] Proponents often claim that microfinance lifts people out of poverty, but the evidence is mixed. What it does do, however, is to enhance financial inclusion.

Link - http://en.wikipedia.org/wiki/Microfinance

Why Poor…..,

Why Poor…..,

Around 33% of south Asians are below the line of 1.5$ income per day. Especially in village level we can find many more poor families. They are very far from modern technology and very poor in education level. But they have much more experiences about life. Poor communities are struggling lot to overcome their uncomfortable life style. We can shortlist mainly two fields as root courses of poverty.

•           Lack of Capital to invest
•          Lack of knowledge / Education level

Lack of capital to invest . . .

One of main reason for the poverty is lack of capital to invest. Therefore they are unable to invest enough capital or working capital to their existing or new businesses. It will directly affect to performances of their cash flow.  

AS per the chart can identify how it link one by one. Low investment directly affect to income. If income not enough for their basic needs, they can’t save money for their future expectations as well as can’t expand the capital to invest too. If any person or Organization helps to expand their investment capacity in correct way, they can overcome poverty cycle.

Lack of knowledge / Education level…..

In this financial situation members in poor families are not much keen about their education. They don’t have enough financial capacity to basic education requirement. Always struggle with earnings & spend more time for that.

POOR & ASSETS

THINK BIG>>>>>>>>>

Micro Finance in Simple VIEW....

Micro Finance is a one kind of Development tool for eradicate poverty. Mainly micro finance is very popular in developing countries. We cant find very clear specific definition for Micro Finance, because its depend on trend of economy in country & visions of MFIs.

In simple way we can consolidate Micro Finance as " CREDIT PLUS SERVICES". Earlier it was a financial services to poor community, but day by day its change as " Financial services to Needy people" (in general view). Because MFIs need to achieve their institutional sustainability level,  to expand their services with huge competition in the ground level.  Therefore practical definition is " Credit plus services to needy communities, who cant reach to banking services"
And the main thing is, maximum MFIs do not like to expand their services to ultra poor communities. They mainly focus, people who living around the poverty line. Because they are very keen about their clients cash flow.

Unfortunately  maximum MFIs moving from social mind to Commercial mind. They don't like to analyze Social impact of micro finance, they just selling money.

BUT WE CAN DO IT DIFFERENT WAY.... THINK BIG >>>>

What Is Micro Finance

What is Microfinance?

Micro-finance refers to a variety of financial services that target low-income clients, particularly women. Since the clients of micro-finance institutions (MFIs) have lower incomes and often have limited access to other financial services, micro-finance products tend to be for smaller monetary amounts than traditional financial services. These services include loans, savings, insurance, and remittances. Micro-loans are given for a variety of purposes, frequently for micro-enterprise development. The diversity of products and services offered reflects the fact that the financial needs of individuals, households, and enterprises can change significantly over time, especially for those who live in poverty. Because of these varied needs, and because of the industry's focus on the poor, micro-finance institutions often use non-traditional methodologies, such as group lending or other forms of collateral not employed by the formal financial sector.

MIX recognizes many general definitions of micro-finance, but for analysis purposes, employs a functional definition:
Micro-finance services – as opposed to financial services in general – are retail financial services that are relatively small in relation to the income of a typical individual. Specifically, the average outstanding balance of micro-finance products is no greater than 250% of the average income per person (GNI per capita).

Read more: http://www.themix.org/about/microfinance#ixzz2yHvvF4d1