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WEEK 5 project and improve their standard of living Microfinance involves supplying financial services through the Group’s indirect financing in 2016 and products to disadvantaged populations that are Towards Inclusive Finance excluded...

WEEK 5 project and improve their standard of living Microfinance involves supplying financial services through the Group’s indirect financing in 2016 and products to disadvantaged populations that are Towards Inclusive Finance excluded from the traditional banking system. It all  Developed countries are also gradually began slowly in Bangladesh, in the village of Jorba, adopting the tools of microfinance within their before transforming into the global economic own economies. activity it has become today.  The expansion of microcredit to other financial Many aspects of modern society trace their roots products and services (like savings or insurance) back through history and microfinance is no tends to reinforce the viability and social exception. vocation of microfinance services. A. Mechanisms for issuing loans to destitute Inclusive finance also relies on new technologies to populations have existed in various forms in Asia give the poorest populations access to financial for thousands of years services. B. In Europe, Franciscan monks formed the Mounts  In Kenya, money transfer by SMS has enabled of Piety in the 15th century to reintegrate the nearly 200,000 households to escape extreme poorest populations into community life. poverty. C. First savings and loan cooperative opened in  The digitalisation of financial services also 1879 in Germany’s Rhineland (the first mutualist represents a potential GDP boost of 3.7 trillion financial institution, it primarily served working dollars for emerging countries by 2025. populations by giving them access to credit.) From its origins in a village of Bangladesh, D. Modern microfinance thus emerged in one of the microfinance has already left its mark on the past world’s poorest countries: Bangladesh. Muhammad 40 years of economic history. Yunus, an economics professor, came to a In 2014, according to microfinance barometer, staggering observation: the free market had failed to 1,045 microfinance institutions have served a keep famine from ravaging his country. combined total of 111.7 million customers The Grameen system turned traditional banking Between 2013 and 2014, the number of borrowers on its head. tripled. A. It offered small loans to poor populations, with The total amount of microcredits issued worldwide no financial guarantees required in return. climbed to $87.1 billion dollars, representing an B. It ushered in the principle of joint responsibility, increase of more than 12.6% over the previous year which involves solidarity between the members of This form of ethical and responsible finance, in the beneficiary groups. service of business, has already laid the C. The program targeted women, who had been groundwork for overcoming the immense traditionally excluded from the financial system challenges ahead:Meeting the needs of 500 million D. Though it was a bold gamble, the program was people awaiting an immediate success. financing and fighting against the economic The early 21st century marked the international exclusion of 700 million people still living in rise of microcredit. extreme poverty. It’s a tall order that starts with a A. First microcredit summit took place in small sum. Washington in 1997, MICROFINANCE LENDING PRODUCTS B. The G8 outlined the principles of microfinance Microfinance lending products mainly includes: in 2004, tracing the contours of a new economic Group Lending sector - Solidarity Group Lending C. The UN named 2005 the “International Year of - Group of Groups (Grameen Model) Microcredit”, and Individual Lending D. Muhammad Yunus won the Nobel Peace Prize - Individual / Business Loan in 2006. - Housing Loan BNP Paribas (an example) that quickly recognized Solidarity groups are peer group lending schemes. the revolution that microfinance represented in the Members receive loans and then make regular global economy. weekly or monthly payments, with all group Since 1989, the BNP Paribas Group has committed members providing a mutual guarantee of loan to promoting access to credit in emerging countries, repayment. This method differs from rotating financing MFIs and building ties with the sector’s savings and credit associations in which group major players. members make regular deposits and then take turns KEY DATES: in receiving the total amount of the deposits. 1989 - 1st microfinance loan issued to an Micro Identifies that solidarity groups have three principal Finance Institutions (MFI) goals: 2006 - Creation of the microfinance department  Providing services to the poor; 2012 - Integration of the microfinance department  Attaining financial self-sufficiency; into the Group’s CSR activity  Reaching a large numbers of clients. KEY FIGURES: Community-based organizations (CBO) differ  €248 million euros in loans and investments in from solidarity group in that they assume eventual 2016 graduation of their borrowers from the lending  More than 18% of support in 2016 compared institutions. Therefore, the primary function of with 2015 CBOs is to develop internal financial management  309,000 people, normally excluded from the capacity of the group in order to create a mini-bank, traditional banking system, able to carry out a independent of the lending institution, owned and managed entirely by the poor. The group lending model is a cornerstone of the Grameen methodology. In this model, individuals must form a group of five and receive a five day financial training in order to receive a loan from Grameen. The emphasis from the very outset is to organisationally strengthen the Grameen clientele, to build their capacity to plan and implement micro level development decisions. Multiple groups form a center and meet every week to repay their loans and meet with Grameen staff. Group of Groups Lending: (Grameen Model)  Borrowers form group, usually of five members;  A number of these groups (minimum of five) come together to create a Center;  Center and group members screen and qualify loan applicants;  MFI issues several loans to group members and holds the group and each of its members liable jointly and/or separately for the loan. Individual Lending is defined as the process of providing credit to one client, thereby not requiring other group members to serve as guarantors, but rather to base loan eligibility on a client character assessment and cash flow analysis.