Posts tagged under microfinance
Click on the picture to see the full size infographic! And stay tuned for the next issue of the Asian Trends Monitoring Bulletin, coming soon!
In our survey on urban poverty and service provision we collected a total of 1,398 responses from four cities (Jakarta, Manila, Hanoi and Vientiane). Our sample included 69% women and 31% men. 87% of respondents indicated that they are the head of the household (513 respondents), or the wife (702 respondents) of the head of household. The average age was 43 years with an average household size of five members.
In this blog post I will give you a quick look at our results with regard to the borrowing behaviour of the urban poor in our sample.
When asked whether they borrow money regularly, 62% of respondents from Manila and Hanoi affirmed. Borrowing was much less prevalent in Jakarta and Vientiane, at 28% and 27% respectively. The primary sources of loans were relatives and friends. More than half of respondents in all four cities turned to someone they know to ask for small loans. The clear lack of alternatives became apparent when 22% of respondents said that they take loans from informal money lenders – often at annual interest rates higher than 100%. In that regard, Manila stood out with 42% of those regularly borrowing using informal money lenders.
Ekpatthana Microfinance Institution (EMI) was the first provider of microloans in Laos. It was founded in 2005 with the goal to reduce poverty in Laos through the provision of financial services to people excluded from formal banking services. Their clients are mainly small entrepreneurs, such as market vendors, shopkeepers, some micro-enterprises and small scale farmers.
Rapid growth – no need for a marketing budget
The organisation is experiencing a phase of rapid growth, despite spending little to no money on marketing their products. In the last two years, staff numbers have doubled to 75 employees, assets have grown from US$ 1 million to US$ 2.9 million, and the number of active borrowers now exceeds 4,000. The average loan size is around US$ 350 with a loan repayment rate higher than 98%.
EMI’s loan portfolio includes a forced-savings component in order to ensure that clients learn the importance of building up reserves for either business expansion or personal emergencies. Founder and Executive Director of Laos’ first licensed MFI EMI, Somphone Sisenglath, adds that “savings is part of our mission…[...] Access to credit is one thing, but if there is nothing left [at the end of repayment], they are still poor.” EMI makes it a requirement for all their clients to save 10% of their initial loan. The company’s more than 10,000 deposit account holders enjoy interest rates for their savings of up to 16% per annum.
The Asian Trends team conducted a survey among urban poor residents in Jakarta, Manila, Hanoi and Vientiane. The questions covered basic services such as water, sanitation, health care, education as well as access to financial services. Here is a short preview of the survey results in the area of financial inclusion.
Four out of five respondents did not have a bank account. More than half of respondents still keep their savings in cash hidden at home. The majority of respondents are employed in the informal economy, struggling to make enough money to feed their families every day. Thus, even a single emergency, such as urgent medical treatment for a family member, can wipe out a family’s entire savings. The survey also showed that 53% of respondents have severe difficulties to save at all.
Despite the fact that at least a handful of Microfinance institutions (MFI) currently offer their services in each of the cities included in our survey, the vast majority of the urban poor in Southeast Asia fly below their radar. With incomes below US$2/day, they are a difficult and often not very profitable client group. Several MFIs confirmed that they prefer to lend to the “upper poor”: households that have some existing working capital, a certain level of business acumen, and more reliable revenue streams.
The talk will take place on April 24, 2013 at 12:15 h at the Lee Kuan Yew School of Public Policy. RSVP to firstname.lastname@example.org
It is crucial for the world’s poor to gain access to savings, credit, transfers and insurance, so that they can seize economic opportunities and reduce their vulnerability to shocks. However, half of the world’s population – including 70% of people in developing countries – remain unbanked.
There is a fast growing interest in financial inclusion at the moment. Under the impulse of the G20 Global Partnership for Financial Inclusion, governments are developing national strategies to improve financial access. Technology is also bringing great opportunities to cut costs and expand the reach of banking to the poor. Still, the gaps are not fully bridged.
In the last eighteen years, CGAP, an international global research center, has produced ample research and global good practice guidelines to improve financial inclusion for the poor. The presentation will highlight major opportunities and challenges, the early successes of technology based business models, as well as innovative models for serving the poorest.
Mr. Karlan is a 54 year old native Jakarta resident who has spent the last six years of his life working as a tukang ojek, or motorcycle taxi driver. He chose his current profession after deciding that his aging body was no longer suited to handle the physical strains of working in construction. His decision was also made easier by the fact that he owns a motorcycle, a luxury that not all motorcycle cabbies have.
Karlan makes an average of IDR 100,000 (US$ 11) per day, while spending about IDR 25,000 per day on the road for meals, cigarettes, and fuel expenses. Thus, he earns IDR 2,250,000 per month to spend on his family, provided that he is able to work every day. This puts his family of four barely above the US$ 2 per day mark that some are currently using as the new poverty line. Unfortunately, this is only possible because he owns his own motorcycle. Other motorcycle cabbies would have to pay rental fees ranging between IDR 25,000 – 40,000 per day, which would slash that household income in half.
This video explains in very simple terms how microfinance works and how it fits into the bigger picture. I am currently working a bulletin on access to finance for the poor in Southeast Asia and thought this explanation was powerful due to its simplicity.
Credit to Kiva for producing the video.
During our field trip to Laos in September we interviewed Ali, proud owner of a shop in Vientiane and client of Laos’ first registered microfinance provider Ekphatthana Microfinance Institution (EMI). Access to finance under fair conditions has enabled her to expand her product range and helped her build up personal savings. She is also full of confidence about further business development and thinks about venturing into the wholesale market.
Where did you learn how to run a business?
I learned by myself. First, I sold noodles, one bowl for 3,000 kip (US$0.37). But it became difficult as more people started to sell noodles, so that’s why I changed to this shop with a wider range of goods on offer. Our shop is in between two noodle shops, so I switched to selling different food, but you can still get a warm meal in front. I have sold at this location for 30 years now.