AT-A-GLANCE · Microfinance today is about building entire local financial markets that meet the diverse financial needs of poor people. · Three decades after Muhammed Yunus founded Grameen Bank, about 80 million people in developing countries are served by microfinance institutions. Still the majority of people in developing countries are ‘unbanked’—they have no access to formal financial services. · Nearly three billion people in developing countries have little or no access to formal financial services that can help them increase their incomes and improve their lives. Access to a range of microfinance services—savings, loans, and money transfers—enables poor families to invest in enterprises, better nutrition, improved living conditions, and the health and education of their children. It is also a powerful catalyst for women’s empowerment. · But it requires more than just being able to get a loan. All types of financial services—deposit services, money transfers, credit and insurance—are fundamental tools for managing a poor family’s well-being and productive capacity: to smooth expenditure when incomes are erratic (occasional work, seasonality of crops), to build up purchasing power when expenditures are variable (school fees, buying seeds), or to protect against emergencies (natural disasters, death in the family). · The field of microfinance is evolving rapidly, with many new investors and new providers of financial services. New technologies promise to reduce transactions costs and increase access to hundreds of millions more people. In order to do that, the industry is developing a better understanding of what poor clients need and want. The World Bank Group is helping regulators to balance consumer protection with innovation, and work with phone companies and banks to create viable business models. The World Bank Group’s work focuses on supporting equitable local financial markets and building a strong microfinance sector in developing markets. The different members of the World Bank Group play complementary roles in achieving our goal of universal access to finance. IFC is the World Bank Group’s leading investor in microfinance, doubling its investment in commercial microfinance in the last two years. By FY07, IFC had committed over $600 million ($196 million in FY07 alone) and its microfinance portfolio was $498 million. IFC has committed to again double its investment in microfinance, to $1.2 billion by FY10, which would make IFC the largest investor in the microfinance industry. IFC is a leading investor in sustainable microfinance institutions, with cumulative commitments of almost $1 billion. At the end of 2007, 57 microfinance institutions supported by IFC had an outstanding portfolio of 5.8 million loans for over $7.2 billion. In 2007, 65% of micro-loan borrowers were women. The World Bank (IBRD/IDA). The World Bank (IBRD/IDA) offers policy advice and provides finance to governments to support lending and market development. In the last 3 years, the World Bank supported microfinance operations in 24 countries, the vast majority of them in the poorest countries. Investment lending supporting micro and small enterprises amounted to over $398 million per year (or 1.7 percent of IBRD/IDA lending). Microfinance, strictly defined, accounts for approximately one quarter of this amount. CGAP, a multi-donor partnership for microfinance created by the World Bank in 1995, contributes to the advancement of microfinance by building consensus on industry standards, funding innovation, and disseminating best practices. Today CGAP is widely recognized as the leading industry resource mandated to work with stakeholders to set standards and identify best practices, advise governments on formulating policies that address the needs of poor people locally, and provide technical assistance to financial institutions. CGAP has committed $99 million in microfinance-related grants and technical assistance since its founding in 1995. Overview Traditionally, microfinance focused on providing very small loans (microcredit) to the poor to help them engage in productive activities. But a much broader range of financial services—deposit services, money transfer services, and micro-insurance—can help poor people to build assets, increase their income and reduce their vulnerability to all types of risks. Microfinance allows poor people to manage their financial lives and plan for their own futures. In most developing countries, less than half the population has an account with a formal financial institution, and in many countries less than one in five households does. Even in countries that have seen substantial development in recent years, the numbers remain stubbornly low: 20 percent in Sub-Saharan Africa; 25 percent in East Africa; 30 percent in ECA; 35 percent in Latin America; 32 percent in MENA; and 25 percent in South Asia . While a huge variety of institutions now provide microfinance, including state-owned banks, postal, agricultural, and savings banks and other entities such as savings and loan cooperatives, the vast majority of people in developing countries do not have access to formal financial services. On average only about 26 percent of people around the world have access to formal financial services. The World Bank Group’s Work in Microfinance The World Bank Group has no less ambition than universal access to finance. The different arms of the Bank play complementary strategic roles in helping to advance microfinance—investor, advisor, innovator and researcher. IFC IFC’s focus is on creating and supporting commercially viable microfinance institutions that can attract the private capital needed. IFC plays a catalytic role by demonstrating the business case for commercial microfinance, enhancing the sector with innovative financial products, and promoting it as an asset class. IFC is the number one international investor in terms of outreach to microfinance institutions (100+ MFIs), operating in over 60 countries, including in 14 Sub-Saharan African countries. IFC is working to ensure that microfinance reaches the people and places where it is most needed, including in fragile and conflict-affected countries. IFC is already active in fragile or conflict-affected countries including Afghanistan , Kosovo, DRC, Sierra Leone , and Liberia . Project Examples · BRAC (One of Bangladesh’s largest MFIs). As of December 31, 2006, BRAC had a loan portfolio of about US$350 million to 4.55 million borrowers and member savings of US$155 million. IFC has structured a partial credit guarantee of $18 million to back a local currency loan provided by Citibank Dhaka. · Global Microfinance Facility (GMF). GMF was launched as a tranched vehicle in 2004 with an initial $30 million portfolio financing 16 MFIs operating worldwide. Building on its solid track record, GMF will reach $165 million in late 2007, backed by commercial investors as well as Citigroup, which will be an equity partner and underwrite the placement of senior notes (AA rated by Fitch) to institutional investors. This milestone facility will provide financing to 30 MFIs. · IFC is moving ahead with an initiative for responsible microfinance. In conjunction with other development finance institutions, banks, microfinance networks, and others IFC aims to build support for a set of responsible microfinance practices. The practices, or principles, would cover: (1) a list of prohibited practices, (2) standards for consumer education, and (3) standards on disclosure/transparency. IBRD/IDA IBRD/IDA provides financing through credit lines to governments, broader lending support for market development, and technical policy advice. Over the last 3 years IBRD/IDA’s investment lending to support microfinance amounted to over US$250 million per year (just over 1% of IBRD/IDA lending). It is sometimes difficult to distinguish between lending that ultimately benefits microenterprises as opposed to small and medium-sized enterprises. Investment lending supporting MSMEs amounted to over $560 million per year (or 2.4% of IBRD/IDA lending). Project Examples · Microfinance Investment Support Facility for Afghanistan (MISFA) . Set up after the war, MISFA was designed by CGAP and the World Bank to help build a strong and sustainable microfinance sector in Afghanistan . By creating a facility that other funders could join, the aim was to stimulate entry of microfinance organizations and to build local capacity, with best practice performance and reporting standards from the beginning. Today, MISFA has transformed into an independent organization that supports 15 microfinance institutions, with a network of 280 branches in 24 provinces, with almost 500,000 active savings and loan clients. Sixty-five percent of the clients are women, and the loan repayment rate is 96 percent. The microfinance sector has so far disbursed more than 1 million microloans, is expanding into other financial services, and employs 4,500 Afghans. · In Andhra Pradesh, India, with the support of a World Bank International Development Association (IDA) project, the number of poor rural households accessing loans increased from less than 500,000 in 2000 to 6 million over a six-year period. Nearly 8 million poor women in rural areas have been organized into nearly 800,000 self-help groups and 30,000 village organizations. The groups manage their joint savings and provide small consumption loans to members. As a result of the project, incomes have increased for nearly 90% of the households. Cumulative savings of poor households reached US$292 million in 2006. And more than 3.3 million rural poor families now have death and disability insurance coverage. · Another World Bank IDA-supported pilot project in Bangladesh , launched in 2002, reached 60,000 destitute families with micro-loans and skills training. Its success led the Government to replicate the project all over Bangladesh , providing credit to around 450,000 of the poorest of the poor. At least half of the original clients reported increases in their income and consumption. CGAP: The Consultative Group to Assist the Poor CGAP was created by the World Bank in 1995 as a multi-donor partnership for the advancement of microfinance. Today CGAP is widely recognized as the leading industry resource mandated to work with stakeholders to set standards and identify best practices, advise governments on formulating policies that address the needs of poor people locally, and provide technical assistance to financial institutions. Working through a network of worldwide partners, CGAP develops innovative solutions that help microfinance to more effectively serve the needs of poor people. CGAP distributes vital industry information and research through a variety of free publications and Web sites. Project Examples · New Delivery Technologies improve efficiency and reduce costs. Many large microfinance institutions and banks serving the poor now use technology such as ATMs, credit cards, and mobile phone banking, enabling customers to make payments, transfers, and cash withdrawals outside of branch offices. With more than 3.3 billion cell phones in the world and more users in the developing world than in the West, these new technologies offer the potential to reach many more people with affordable financial services. With backing from the Bill and Melinda Gates Foundation, CGAP is working with partners in Colombia , Ecuador , India , Kenya , Maldives , Mongolia , Pakistan , the Philippines , and South Africa to design new, technology-driven channels to be able to serve rural and remote areas and very poor households. We are also providing research and advice on new policy issues introduced by these technologies, and potential policy and regulatory responses, with engagements in nine developing countries to date. Over 200 microfinance institutions, banks, and technology providers have applied to CGAP's Technology Program to get advice and funding for deploying technology and new business models to reach clients they cannot reach today. · Reaching the Poorest. Microfinance generally does not reach people living on less than $1 a day. Ongoing subsidies and greater efforts to increase institutions’ outreach to very poor people are needed to reach those who lack shelter, income and even sufficient food. Safety net programs in the form of cash transfers, food aid, or guaranteed employment schemes can help meet the immediate consumption needs of the poorest people. Such iniatitives are often unable to develop long-term income-generating activities or build assets to move people out of poverty. “Graduation” programs may create a pathway out of poverty for chronically poor and destitute people. The World Bank Group’s graduation programs offer a carefully sequenced combination of stipends or the transfer of assets, such as goats or chickens, with livelihoods training and savings services. The goal is to “graduate” recipients out of extreme poverty and to enable them to access mainstream microfinance. Pilots in Haiti , Pakistan , and West Bengal show promising results, while other pilots are being designed for Ethiopia , Honduras , and Yemen . Each pilot is accompanied by a rigorous impact study. Measuring Poverty Levels and Impact. Implementing poverty measurement tools can motivate and assist microfinance institutions to serve poorer people. For this reason, CGAP has partnered with the Grameen and Ford Foundations to develop the Progress out of Poverty Index, a simple index that microfinance institutions can use to measure the poverty level of their clientele. ### Media Contacts: Una Gallagher Pulizzi (202) 758-4290 Email upulizzi@worldbank.org Lotte Pang (202) 758-4290 E-mail: LPang@ifc.org Updated October 2008 | 
RSS