Download this Document

“Microfinance and agricultural services are a potentially potent combination in
the quest to alleviate rural poverty and ensure food security,” write Abed et al.
“The market-oriented financing mechanisms of MFIs may be a superior, more
sustainable source of funding, relative to official development assistance grants
and loans and charities. There are many potential synergies between MFIs and
the agricultural sector. MFIs can contribute to agricultural development in three
broad ways: 1) [providing] financial services, 2) [offering] education and training,
and 3) [serving as] a conduit through which other players in the agricultural value
chain can more effectively distribute their products.” The paper goes on to outline
the many ways in which MFIs are adapting their products to support agricultural
finance, including seasonal repayments, crop insurance, value chain financing,
and links to other service providers, including agricultural extension services.
Step 3: Encourage Savings
Knowing your client means knowing they need good, safe places to save as much
or more than they need access to credit. MFIs that have regulatory approval
to accept savings and offer appropriate savings services often have many more
savers than borrowers. The Opportunity International Bank of Malawi has 45,000
borrowers and 250,000 savers. Equity Bank in Kenya has 715,000 borrowers and
4 million depositors. In 2001, Grameen Bank opened up savings facilities for
non-borrowers. As of July 2011, it had over $1.4 billion in deposits, which is 145
percent of its outstanding loan portfolio of $965 million.
In some parts of the world, however, it is still too costly to extend regulated
savings services to people living in remote areas. It is in these areas that “savingsled”
microfinance has taken root, using informal savings groups as a means of
providing needed financial services in places where there are no banks or MFIs.
The savings-led microfinance movement argues that the “credit-led microfinance
industry is not equipped to reach the hundreds of millions of people with the least
financial resources” 26 and insists that savings groups (SG) are a better mechanism
to provide access to the financial services they need. The big advantage that SGs
have over most MFIs is that these groups offer savings as the “entry” service, and
not loans, which some see as too risky for the poor and very poor, especially if
they don’t have microenterprises to invest them in.
[Savings groups]
are often the only
cost-effective financial
services delivery
mechanisms in sparsely
populated areas with
weak infrastructure,
as is the case in many
African countries.
Savings groups offer loans to members as well, albeit in a very different way than
MFIs. The groups pool their savings into a loan fund, where all interest revenue
accrues to group members themselves rather than to an external institution. As
such, they are often the only cost-effective financial services delivery mechanisms
in sparsely populated areas with weak infrastructure, as is the case in many
African countries.
A number of international non-profit organizations, including CARE, Catholic
Relief Services, Oxfam America, Plan International, Aga Khan Foundation, and
World Vision, have been promoting this kind of microfinance. Modeled after
26
CARE, 2011— Microfinance in Africa: State-of-the-Sector Report—Closing the Gap,
http://www.care.org/getinvolved/advocacy/access-africa/.
22
STATE OF THE MICROCREDIT SUMMIT CAMPAIGN REPORT 2012