Best Practices in Microfinance

and Development
Carmen Velasco
PRO MUJER
Microfinance an end in itself or
a means for poverty reduction

Microfinance was born with the

commitment to become an
alternative to improve the living
conditions of excluded persons
 Human Development Index
1975-2003
COUNTRY 1975 2003

MEXICO (53) 0.689 0.814

BRAZIL
PERU (79) 0.643 0.762
ECUADOR (82) 0.630 0.759
NICARAGUA (112) 0.587 0.690

BOLIVIA (113) 0.512 0.687

2005 HUMAN DEVELOPMENT REPORT
 Population % and Poverty Levels
COUNTRY
US $ 1 per US $ 2 per Threshold of
Poverty
day day
MEXICO 9.9 26.3 10.1
BRAZIL 8.2 22.4 17.4
PERU 18.1 37.7 49.0
ECUADOR 17.7 40.8 35.0
NICARAGUA 45.1 79.9 47.9
BOLIVIA 14.4 34.3 62.7
2005 HUMAN DEVELOPMENT REPORT
 MALNUTRITION IN LATIN
AMERICA
% MALNOURISHED PERSONS % < 5 YEARS WEIGHT
COUNTRY BELOW MEAN

1990/1992 2000/2002 1995-2003

MEXICO 5 5 8
BRAZIL 12 9 6
PERU 42 13 7
ECUADOR 8 4 12
NICARAGUA 30 27 10
BOLIVIA 28 21 13

2005 HUMAN DEVELOPMENT REPORT

 ALPHABETIZATION AND NET
SCHOOL ENROLMENT RATE

ALPHABETIZATION PRIMARY EDUCATION CHILDREN ATTENDING 5TH.

COUNTRY RATE, YOUNGSTERS % NET ENROLMENT RATE GRADE, % OF FIRST GRADE
(15-24 YEARS)

1990 2003 1990 2003 1990 2002

MEXICO 95.2 97.6 99 99 80 93
BRAZIL 91.8 96.6 86 97 X X
PERU 94.5 96.8 88 100 X 84
ECUADOR 95.5 96.4 98 100 X 74
NICARAGUA 68.2 86.2 72 86 46 65
BOLIVIA 92.6 97.3 91 95 X 84

2005 HUMAN DEVELOPMENT REPORT

 PARTICIPATION IN REVENUE OR
CONSUMPTION
POOREST POOREST WEALTHIEST WEALTHIEST
10% 20% 20% 10%

MEXICO 1.0 3.1 59.1 43.1

BRAZIL 0.7 2.4 63.2 46.9

PERU 0.7 2.9 53.2 37.2

ECUADOR 0.9 3.3 58.0 41.6

NICARAGUA 2.2 5.6 49.3 33.8

BOLIVIA 1.3 4 49.1 32.0

2005 HUMAN DEVELOPMENT REPORT

“IT IS OBVIOUS THAT MICROCREDIT IS
AN INSTRUMENT OF SOCIAL POLICY
RATHER THAN ECONOMIC POLICY”

Fernando J. Cardim de Carvallo. Professor of the Institute of Economics of Universidad

Federal de Río de Janeiro

This means that microcredit is an instrument to fight

against poverty.
It generates integral development processes (access to
financial and technical resources, basic services and
training).
But what is even more important:
It generates SELF-ESTEEM among the excluded
population .
 Microfinance in Latin America
Some of the countries, among others, where
MFIs have attained high level of development
are:
• Bolivia, Peru, Ecuador, Nicaragua, Mexico,
Brazil
However the scope thereof was unable to meet
the demand and needs of the most
impoverished population.
– For example: In Bolivia microfinance serves only 18%
of the 3,000,000 EAP
 Microfinance in Bolivia

• Bolivia has stood out in LA because of the excellence of

the MFIs. By 2005 they served 544,544 clients and their
current portfolio totals US $ 620,878,160.
• Bolivia is one of the poorest countries in Latin America
• It has very high levels of social exclusion: 62%, and
“unemployment” (9.5%)
• The informal sector constitutes an important alternative
for the impoverished population. 63% of the total number
of people employed is informal.
• An adequate financial regulatory framework has been
developed
 Microfinance in L.A.

• Trend for the past 10 years:

1. Territorial coverage: urban and rural
2. Greater access to FS for excluded population
3. Methodological and service diversification
4. Marketing of Microfinance
5. Development MFIs
6. Challenge to extend offer
 Microfinance Actors in L.A.
Entities Regulated by Development
SIBEF or CB, Microfinance Entities
• Private Financial • Non-profit
Funds • Civil Associations
• Cooperatives • Foundations
• Mutual Funds
• Banks
 Differences among actors
PFFs and Banks Foundations and CAs
• Commercial • For development
• For Profit • Social object
• Shareholders • Social Mission
• Mobilize deposits and • Funding: commercial
savings funds, social investors
 FINANCIAL NEEDS BY
POPULATION
Population

Each Large & medium

population businesses
W.P.
level has
different
financial
needs
Threshold of Small and micro
poverty businesses

Moderate and extreme Subsistence micro

businesses
poverty self-employment
 MFIs in Bolivia
Client Evolution
900.000

800.000

700.000

600.000

500.000
Clients

400.000

300.000

200.000

100.000

-
1990 1995 2000 2005

Bancos Nacionales Bancos Extranjeros Mutuales Cooperativas FFPs + Banco Sol y Los Andes IFDs
 MFIs in Bolivia
Portfolio Evolution
4.500

4.000

3.500

3.000

2.500
US$

2.000

1.500

1.000

500

-
1990 1995 2000 2005

Bancos Nacionales Bancos Extranjeros Mutuales Cooperativas FFPs + Banco Sol y Los Andes IFDs
 MFIs in Bolivia
Average Portfolio per Client

300.000 4.000
3.500
250.000
3.000
200.000
2.500
150.000 2.000
1.500
100.000
1.000
50.000
500
- -
1990 1995 2000 2005

Bancos Nacionales Bancos Extranjeros

Mutuales Cooperativas
FFPs + Banco Sol y Los Andes IFDs
If MFIs are an Instrument of Social
Policy rather than Economic Policy
To comply with the Social mandate of MICROFINACE,
MFIs must promote the self-esteem of their clients and
their families enabling access to:

1. Financial Resources
2. Access to education
3. Access to health
4. Access to sanitation
5. Access to housing
6. Generation of sustainable production means
 Factors that Permit a Social
Approach to MICROFINANCE

1. Maintaining status as a non-profit

organization
2. The discipline to listen to the client
3. Flexibility and innovations with
financial services
4. Offering integrated social services
5. Strategic alliances
6. Focusing on excluded populations
 Factors that permit a social
approach: 1. Maintaining status
as a non-profit institution
Benefits Risks
No pressure from Difficulties in
commercial investors governance
Potential to attract social Difficulties in raising
investors funds.
Reinvestment of earnings Challenges
Inclusion of social Assure excellence and
development services efficiency
Reduced risk of mission Achieve profitability
drift Assure best practices
Factors that permit a social
approach: a commitment to
listening to the clients

• A personal commitment to the mission

• Continuous client assessments
• Periodic impact evaluations
• Adjusting services based on results
• Offering new services… Demand driven
• Demonstrate results with clear indicators and
impacts
 Factors that permit a social
approach: Flexibility and
Innovation with financial services

• Develop and “test” new products

• Adjust products based on the population’s
demands
• Offer credit without guarantees
• Work with the highest risk population
• Include mandatory savings
• Include “the internal account”
 Factors that permit a social
approach: Offering social
development services

• Financial & business training services

• Social development training services:
leadership, empowerment, health, legal
rights, etc.
• Basic health services
• Day care centers
 Factors that permit a social
approach: Establishing
strategic alliances
• Facilitate access to additional financial
services (for example: FIE–PRO MUJER)
• Social development services
• Ensure the quality of services offered
• Leverage financial and human resources
to achieve the greatest impact possible
 The basis of the social
approach:

The social approach is

appropriate only if the institution
focuses its services on the
population that lives in
conditions of socioeconomic
exclusion
TARGET POPULATION
CHARACTERISTICS
Excluded Population
* No or unstable business
* Little or no business exp.
* Little or no access to health
* Little to no education
* Unstable income generation
* No assets
* Few contacts w/ suppliers
* Low confidence in business
* Lacks means to participate
 INTEGRATED APPROACH
MICRO Excluded Population
FINANCE Health
SERVICES
Educ. Power

Social Return of
Credit Microfinance Partici-
Savings pation

Credit
Savings Social return not
achieved
MICRO
FINANCE
SERVICES
CHALLENGE FOR MICROFINANCE INSTITUTIONS
COMMITTED TO THE DEVELOPMENT OF THEIR
TARGET POPULATIONS
SELF-
INSTITUTIONAL SELF-
SUSTAINABILITY OF
SUSTAINABILITY
THE BORROWERS

•Increase Income
•Improve living
COST RECOVERY conditions
•Satisfy clients’ needs
with new services

PROFITABILITY Reinvest in more

and new services
 Pro Mujer’s Social Impacts

• Increased Savings
– Average savings balance of $143
• Improved Food Security
– 65% of clients had no food shortages
(versus 57% of non-clients)
• Improved Health Care
– 55% of clients’ children received
prescription medications (versus 46% of
non-clients)
 Pro Mujer’s Social Impacts,
continued
• Improved Education
– 47% of clients attended educational centers for
instruction (versus 35% of non-clients)
– 92% of clients’ children received a basic or
secondary education (versus 87% of non-clients)
• Improved Housing Quality
– 20% of clients performed major home
improvements last year (versus 12% of non-
clients)
• Female Economic Empowerment and Increased Self-
Esteem
– 44% of clients participate in social organizations,
31% as leaders (versus 20% non-client
participation, 13% non-client leadership)
Thank you...