MORE ABOUT MICROFINANCE
The origin can be traced back to the mid 1800s in Germany, Europe. The modern use of the term originated in several countries in 1970 particularly in Latin America and Asia.
Microfinance is often used as:
- A generic term for financial services tailored to the needs of the poor and the economy. A loan is normally granted without collateral and is based on knowledge of the particular customer.
- The loans are designed for the poor, especially women, providing them access to loans, savings, remittances and insurance. Products that are known in the regular financial market are now being developed specifically for the microfinance market.
- Small loans provide many opportunities of which include starting their own business, improving living conditions and purchasing clothing for children so they can attend school.
- Kolibri Kapital wants to achieve the following: better living conditions for families, children of microfinance clients receive further education, better nutrition and health and borrowers are better equipped to cope with adversities and crises.
But there are many challenges and 2011 was, in many ways, a difficult year for parts of the microfinance sector because of many factors which include:
- For fast growth in many areas, particularly parts of Asia, the result was – “over borrowing” for customers, especially some areas in India and Bangla Desh.
The challenge: how can the microfinance institutions we support better meet the individual needs of the clients and provide them with more customized products and services tailored to their needs.
A positive development was the G20 meeting in Mexico in 2011 where they put “financial inclusion” for all on the agenda for development.
The microfinance market today:
- Characterized by the market commercialized and operated as pure banking with the number and new players with different lending practices have come to,
- Varying degrees of government control and regulation in different countries.
- Aggressive lending practices have, in some cases, led to “over lending” and tragedies.
- Commercialization can be positive in that available lending capital provides the poor more access to banking services.
- Profit can be at the expense of the social benefits behind microfinance.
- Regulation of the microfinance market is starting to happen in many countries, including regulating interest rates.
- The microfinance institutions need to be supported and the borrowers must be carefully considered and followed up – reporting, loan practices, social profile is important.
- Microfinance is designed for the poor and therefore obliges us an ethical responsibility when lending to this group.
- Microloans are often consumer loans – it is therefore important that borrowers receive training in order to use the funds in a constructive manner and fully understand what the terms are of taking on a loan.
- Therefore, many microfinance institutions offer training for clients for, for example, economics, health and nutrition, etc.
- High interest rates are linked to costs in microfinance institutions.
- 70% of the world’s poorest still lack access to financial services.
- Therefore: The need for microfinance is still great.