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Occasional Papers are technical guides for practitioners on key microfinance operational topics.
This Occasional Paper reports on two separate studies of SHG programs. Part I looks primarily at the financial viability of SHG programs. Part II proposes a methodology for designing SHG programs to ensure their sustainability.
Renewed emphasis on poverty reduction has put rural populations, particularly
agricultural households, back in the spotlight of development efforts.
Agricultural development programs often include credits for agricultural
production, which have renewed the debate about how to provide finance in rural
areas. This paper offers a model (agricultural microfinance), for providing
financial services to poor, rural farming households, which combines the most
relevant and promising features of traditional microfinance, traditional
agricultural finance, and other approaches.
Formal remittances constitute the second largest source of external funding for
developing countries, ahead of capital market flows and development assistance.
From the viewpoint of financial service providers, transferring remittances can
be a lucrative business, and smaller providers have begun to explore market
segments not yet penetrated. This paper explores operational and strategic
considerations involved in launching a money transfer product.
This paper outlines the rationale for higher microcredit interest rates, the
historical performance of subsidized lending, and the impact of interest rate
ceilings on microfinance clients. It includes recommendations for fostering
lower microcredit interest rates through competition and consumer protection
without imposing interest rate ceilings.
Here are the results of CGAP's survey of the global outreach of a broad set of
institutions that extend financial services downward---institutions with a
"double bottom line" of financial and social/development objectives. The survey
found that over 750 million acccounts exist below the traditional level of
commercial banks, and that a substantial fraction of these predominantly savings
accounts probably belong to the poor or near poor--and represent an important
opportunity for outreach.
Scoring is a new way to judge the risk of whether the self-employed poor will repay their microcredit debts as promised This paper discusses how scoring works, what microlenders can expect from it, how to use it, and what its implications are for microcredit.
The paper reviews the experience of national microfinance apexes--wholesale mechanisms that channel funds, with or without supporting technical services, to retail microfinance institutions (MFIs) in a single country or integrated market.
The impact of commercialization and increased competition on the strategy and performance of MFIs in Latin America is examined, with particular focus given to " mission drift"--that is, whether or not commercialization drives microfinance institutions to deviate from their original missions. Drawing on an analysis of 205 Latin American MFIs, the paper describes the state of the industry in the region, the rapid changes it has undergone over time, and the challenges it now faces.
This paper discusses a wide range of issues concerning regulation of microfinance and presents a range of alternative mechanisms for supervision. Although the authors contend the future of microfinance lies in a licensed setting, they urge caution with respect to the timing of regulation and expectations of its impact. While motivations for regulating micro-finance are varied, the authors argue that the costs are generally underestimated and the benefits overestimated.
Not only can poor ratios mislead donors, they can also obscure urgent problems
from MFI managers until it is too late to reverse them. Many an MFI has died of
a repayment cancer that could have been cured if it had been detected and dealt
with earlier. Meaningful delinquency monitoring is thus a crucial diagnostic
tool for MFI management.
Using examples from the field and an actual MFI (BRAC), the paper explores
alternative answers to a series of questions that MFI managers should ask
themselves regarding the allocation of costs and assets among cost centers and
the impact of cost allocation on the financial statements of multi-service MFIs.
This paper explains how an MFI should estimate the interest rate on its loans if the institution wants to become sustainable; how to calculate the effective interest yield on loans; and what different loan and repayment methods are used to determine the true rate of interest income received by an MFI. The paper also discusses evidence that MFI clients are capable of paying high interest rates, concluding that MFIs should charge clients a rate high enough to ensure their own sustainability.
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