OIKOCREDIT Not all that glitters is gold: Key success criteria for effective MFIs

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1 Pressezentrum Sperrfrist: Programmbereich: Veranstaltung: Referent/in: Ort: ; 15:00 Uhr Themenbereich 3: Wie sollen wir handeln? Themenhalle Globalisierung: Mikro-Kredite Jimenez, Guillermo Salcedo Halle 1, Messegelände Dokument: GLN_39_337 Programm Seite: 194 OIKOCREDIT Not all that glitters is gold: Key success criteria for effective MFIs Outline Most acknowledged impacts of microfinance Effectiveness as a development tool The major criticisms to MFIs Key success criteria for effective and socially responsible MFIs Challenges ahead Most acknowledged impacts Access for the poor Essential resource Financial services Investment opportunities Opportunity for a better life Self employment Increase the business Improve family income Cover essential needs

2 2 Inclusion of marginalized people and sectors Marginal urban sectors Empowerment of women Rural inhabitants Effective development tool? Outreach and depth Serving tens of millions of poor people Most disadvantaged sectors Rural and marginalized urban areas Replicable worldwide Latin America and the Caribbean Southeast Asia, India, Bangladesh, Pakistan Sub Saharan and Northern Africa Central Asia and the NIS Central and Eastern Europe An effective development tool Efficient Loans, not donations: recyclable resources High repayment rates Sustainable Socially Financially Satisfies needs Demand driven model Based on trust Loans in cash, not in kind

3 3 Major criticisms to MFIs Costs High interest rates and fees Hard currency loans High salaries for MFI Managers Transparency and quality of service Questionable collection practices Poor customer service Low product diversity Not all that glitters is gold Costs Relative cost of providing small loans and financial services is much higher Financial services require competent and qualified managers Access to marginal urban and rural areas is difficult: security issues, no banking facilities Information and communication systems to manage thousands of small transactions and distant branches are expensive Funding capital available for MFIs is mostly in hard currency Transparency and quality of services Field staff often poorly remunerated to keep costs down Local staff has a basic education: requires human and financial skills It takes hard work to change a non repayment culture: Clients, managers, staff Inadequate legal frameworks lead to non transparent practices (fees, collection) Most markets are still underdeveloped Few MFIs, lack of competition Shortage of funds, demand>supply Low product diversity

4 4 Key success criteria for MFIs Specialize in financial services for the poor Qualified and competent managers Business like administration Responsible and efficient resource management Portfolio quality, collection of bad loans Long- term financial sustainability and planning Donor and subsidy free; efficiency Permanent training Financial aspects Customer service Proper technology and MIS Decision making Monitoring of performance High quality services Key criteria for social effectiveness Vision, mission and policies Balance between financial and social objectives Stick to the mission: not only a business Balanced governance and leadership Financial expertise combined with social commitment Integrity and affinity with the social objectives Monitoring of social indicators Outreach No. of clients, branches Depth Urban/rural portfolio, income strata Quality Service, products, financing conditions

5 5 Challenges ahead Adequate and facilitating legal framework Awareness Public opinion, regulatory authorities Increase understanding of MF and MFIs Social impacts Operational characteristics, costs, financing terms Sustainability and the need for competent management Greater transparency Public information on financial and social performance MFI associations and networks Transparency with clients Effective costs of services Legal contracts Improved customer service Products must respond to needs Efforts to improve financing terms (sharing +results) Permanent institutional strengthening Improvements in operational efficiency Competences, training, technological solutions