Loans Through MicroFinance

Microfinance Provides Loans, Hope to Millions Worldwide

Small-scale lending helps people escape poverty, one loan at a time

Fatima Serwoni lives in the village of Namunsi in Uganda's Mbale district, where she owns a small store that sells food and household items. At one time, Serwoni barely had enough capital to keep her store's shelves stocked. But after buying a cell phone with a loan from Foundation for Credit and Community Assistance (FOCCAS), a local microfinance institution (MFI) and partner ofGrameen Foundation USA ( GFUSA), Serwoni could charge fellow villagers to make phone calls, allowing her to raise enough money to keep her inventory high -- and help her community, too.

In Uganda, Rwanda, and Bangladesh, programs like the Village Phone Program provide cell phones to people in rural villages where no telecommunications services previously existed. In Uganda, micro-entrepreneurs receive loans from local MFI partners to purchase phone kits from MTN villagePhone. For many, like Serwoni, this small piece of technology represents a chance to take one step away from poverty and toward economic self-sufficiency.
Yet often, a villagePhone's impact extends far beyond a single person. Serwoni's entire village benefits from her villagePhone because it allows people to perform simple -- yet economically vital -- tasks such as calling a small producer to check on and negotiate the market price of goods. The phone has also made a huge impact on Serwoni's family. Since becoming a "phone lady," Serwoni's income has increased by 80 percent, and she is now able to send her children to school.

Changing Lives through Microfinance:

GFUSA is an international nonprofit that uses microfinance, new technologies, and innovation to empower the world's poorest people to escape poverty. The Grameen Foundation grew out of the Grameen Bank, which was founded in Bangladesh in 1976 by microfinance pioneer Dr. Muhammad Yunus. The two organizations are now global partners, working together to extended small loans to people around the world through partnerships with local MFIs. To date, the GFUSA network has helped more than seven million people worldwide.

Unlike other types of lenders, GFUSA's partners don't ask for collateral like money or property before financing a loan. Instead, MFIs secure loans by leveraging social collateral in the form of peer pressure. Borrowers take out loans in groups of five to eight individuals; if one member defaults on a payment, the entire group is penalized. In some cases, a group will cover for that person, or the loan is rescheduled; in other instances, the entire group typically may be penalized and sometimes barred altogether from taking further loans.

These "solidarity circles" also give borrowers social support beyond the business advice and counseling provided by MFIs: If one borrower falls ill, for instance, her solidarity circle will help with her business until she is well; if she gets discouraged, the support group pulls her through. This system encourages borrowers to repay loans in full and on time, resulting in repayment rates as high as a 95 percent.

Microfinance loan cycles are often shorter than traditional commercial loans, typically spanning six months to a year, with payments (plus interest) due weekly. Shorter loan cycles and frequent payments help borrowers stay current and prevent them from becoming overwhelmed by large installments.

Because this transaction-intense collection schedule -- which often takes place in hard-to-reach rural areas -- is more expensive than providing large loans to economically secure borrowers in cities, MFIs must charge interest rates that may sound high -- often 30 to 70 percent annually -- to cover their costs. Yet these interest rates are still significantly lower than the 300 to 3,000 percent annual rates borrowers once paid to money lenders or credit card companies.
Over the next five years, Grameen expects to reach five million new clients. The organization also seeks to support innovation in three areas: using information and communications technology to reduce poverty; pursuing industry standards for data tracking and reporting; and developing and executing innovative financing models to expand the available capital for microfinance programs.

Other Microfinance Programs:

One way that Grameen has used information and communications technology to reduce poverty is through its now-completed Village Computing Program, which sought to empower and connect the rural poor by giving them access to information technology. During the two-year pilot phase in Tamil Nadu, India, partner MFI Activists for Social Alternatives (ASA) joined forces with information and communications technology provider Drishtee to create 20 Village Computing Centers.

ASA provided loans to a select group of clients to purchase equipment and set up and maintain the centers, while Drishtee provided content, services, and support. Each center offered a range of services, including access to government sites, agricultural information, and computer education. Centers were also equipped with a computer, scanner, printer, photocopier, and digital camera.

The Village Computing Program was designed to explore microfinance's potential to bring sustainable technology to rural communities. To promote financial tenability and encourage entrepreneurship, the program was structured under a franchise business model, meaning that all computing center operators paid a buy-in fee to join the program, plus monthly franchise fees. These fees covered the costs of the intensive training programs and the business and technical support required to launch and sustain the centers.
GFUSA is reviewing the lessons learned through this program and will be publishing a report on its findings.

Alternative Microfinance Models:

GFUSA describes microfinance as small loans (usually less than $200) to individuals to establish or expand a small, self-sustaining business. Yet other microfinance organizations use the term more loosely. The Al-Thiqa Organization for Microfinance and Small Business Loans provides loans ranging from $100 to $25,000 to small businesses in northern Iraq. Since its 2003 creation by ACDI/VOCA, a nonprofit that promotes economic growth around the world, Al-Thiqa has distributed more than 3,700 small business loans (valuing a total of $7.8 million) and has generated an estimated 7,400 sustainable jobs in the war-torn country.
Al-Thiqa loans are secured by property (lien on house or business premises for loans over $2,500) or by the personal guarantee of a government employee, plus two references. In assessing the loan amounts, Al-Thiqa conducts interviews and site visits, reviews balance sheets, and performs cash-flow analyses.

Yet despite its rigorous application process, Al-Thiqa doesn't turn down any legitimate request completely. The average Al-Thiqa loan is $2,000, although Iraq's weak economy has led to an increased need for small loans well. Ironically, Al-Thiqa's $8 million in funding comes from stashes of cash discovered in Saddam Hussein's palaces following the United States' invasion of Iraq. The money was turned over to help rebuild Iraq's business infrastructure, with $30 million designated for microfinance loans.

One of Al-Thiqa's success stories is an Internet cafe in Daquk on the outskirts of Kirkuk. Cafe owner Zaid Serwan says that he wouldn't have been able to upgrade his one-computer shop without help from Al-Thiqa. The loan took him only a few days to procure, but has made a lifetime of difference to him and his community.
"My dream came true by converting the small bureau to an Internet cafe. Now I have many computer devices, and I [can] serve my neighbors, friends, and natives by improving their computer and Internet skills," said Serwan. "I am thankful to Al-Thiqa for believing in my dream."

Technology in Support of Microfinance:

MFIs are quickly integrating technology into their programs. To assist its partners with automation, accounting, and loan tracking, Grameen is sponsoring Mifos (Microfinance Open Source), a project that uses an Open Source information-management system that can be customized to fit the diverse needs of local microfinance organizations around the world. The software is currently being tested in India with an international release planned over the next three years.

The Mifos project's primary objectives are to:
Develop a flexible information management system that can be modified to meet the changing needs of any microfinance institution.
Build an Open Source community that effectively and efficiently manages the ongoing development of the Mifos system.
Establish a global community of Mifos adopters and Mifos implementation and support specialists.

Yet some financial experts are skeptical about the effectiveness of improving MFIs through technology. At a 2004 World Affairs Council program entitled "Reconstructing Iraq: The Role of Microfinance," Brad Swanson, Former Deputy Director of Private Sector Development in Iraq, spoke out against the use of technology in microfinance. According to Swanson, it is loan officers in the field -- and not technology -- that will encourage the microfinance's continued success.
Microfinance itself also has its drawbacks. It creates debts, albeit small ones with safety nets. But there is no doubt that Fatima Serwoni -- along with the more than 2,000 other participants in the Village Phone Program -- is delighted with the success and significantly improved quality of life microfinance has made possible. For millions of micro-entrepreneurs around the globe, small loans have made a great difference.

Technical Side of Loan Management System part-2

Functionality:


• Based on the type selected by the user (i.e. SHG, JLG, GRAMEEN, Individual) data gets populated for Branch, Agent, Center and Group.
• (I). SHG: In case of SHG user has to select Branch and Agent. According to MFI (which comes from login screen) Branches will be populated. Similarly Agents will be populated against a Branch.
• (II). JLG: On Selection of a Branch, Agent, Groups, related Group Members will be displayed.
• (III). GRAMEEN: User has to select all the hierarchies (i.e. Branch, Agent, Center and Group). Here also respective Branches will be displayed against a particular MFI. Once he selects the Branch, respective Agent will be populated. Same way center will be populated against an Agent and groups will be populated against a center.
• (iv). Individual: Similar like SHG here also according to MFI ,related branch names will be populated and according to Branch applicable Agent names will be displayed.


Functional Flow Chart:

Network Architecture Diagram

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Technical Side of Loan Management System Part 1

Loan Management System mainly consists of following Modules

Ø Customer Enrollment.
Ø Loan Application Process.
Ø Loan Sanction Process.
Ø Loan Disbursement Process.
Ø Loan Repayment Process.
Ø Reports & Registers for All Processes.

Offline Loan Management System architecture:

Project LOS envisions one common workflow system for all Data Capture divisions of Loans depending on the different group types.

Below is the overall picture of the different locations within Data Capture division. Depending on the no.of users, criticality & nature of transactions associated with each location, they have been classified as various types. To know more about the individual system types, please refer to the associated Network Architecture Diagram

Technologies used in micro finance Part -5

Biometric Enabled Terminals:

SOME ORGANIZATIONS Biometric enabled terminals ensure that only upon appropriate biometric authentication can an end customer or an agent of the financial institution interact with the SOME ORGANIZATIONS system. SOME ORGANIZATIONS develops a customized terminal application that ensures that the end customer is able to enjoy the benefits of the product functionality offered to him by the financial institutions. In addition SOME ORGANIZATIONS terminal application also provides for “origination services” in the field thereby ensuring that the communication for new relationship is communicated quickly to SOME ORGANIZATIONS clients.

Technologies used in micro finance Part -4

Biometric Enabled Multi- Application Smart Cards:

SOME ORGANIZATIONS provides a personalized hybrid card to the end customers and agents representing the financial institutions. Card personalization comprises of chip level personalization (demographic / account details) of the customer and fascia personalization comprising of end customer demographic profiles along with corporate branding aspects. Every card is equipped with 10 pockets that enable the customer to hold 10 different multi-entity relationships with the financial institutions. Card also holds transaction history for every pocket. Thus enabling the customer, to generate transaction history reports using the Terminal Application. In addition the card is equipped with a mag-stripe which enables the end customer to migrate to existing on-line banking networks as and when required from a smart card based offline system.SOME ORGANIZATIONS cards are unique fool proof IDs for the consumer and hold the consumer demographic data, relationships and finger print on the card. SOME ORGANIZATIONS cards allow customer identification without any requirement for a PIN / password as in traditional channel delivery systems. SOME ORGANIZATIONS's robust fingerprint identification engine ensures that there will be no duplicate identity created for the same customer. This is a completely offline solution and requires only a smart card reading device and a fingerprint sensor at any point of transaction. Consumers are uniquely identified by the biometric finger print authentication at the field level (devices)

Technologies used in micro finance Part -3

Biometric enabled multi-application:

Pos Machine For Biometric:

Technologies used in micro finance Part -2

Micro Finance:

Micro-finance is now recognized as a cost effective and sustainable way of expanding outreach of the banking system to the rural poor. The guiding spirit behind microfinance initiatives of the formal banking sector has been : To offer cost effective approach to formal institutions for expanding outreach to poor; To develop collateral substitutes; To focus on the rural and the urban poor, especially women; To pilot test other micro-credit delivery mechanisms as alternative channels to the formal banks; To effectively pursue the objectives of macro-economic growth.There are two major models under microfinance, i.e., Self-Help Group (SHG)-Bank Linkages and Micro-Finance Institutions (MFI) - Bank Linkages being operated in the country.MFIs employ an army of field agents to provide doorstep banking. This manual approach translates into higher cost of servicing and operational inefficiencies because of multiple hand-offs in record keeping. The need gap is to provide better processes, customized products and automated systems to these MFIs so that they can overcome the constraints of manuals processes. Less than 10% of micro finance institutions use commercially developed management information systems. The vast majority of micro finance institutions use back-end systems that were developed internally or they use spreadsheets to manage their client and transaction history.In many of these organizations, the systems are elementary and more useful in keeping accounts rather than in comprehensively gathering and analyzing data. These results in problems with early detection of default, lack of system maintenance, and inability to perform data mining for micro level analysis. SOME ORGANIZATIONS provides a shared technology platform to MFIs to manage their data electronically at the same time ensure that they do not loose the last mile human interface to their end customers. SOME ORGANIZATIONS system supports the SELF HELP GROUP MODEL, JOINT LIABILITY GROUP MODEL and PARTNERSHIP MODEL based operations adopted by various MFIs. Thus, MFIs are assured of early availability of data to make timely decisions. In addition, field level request enablement on SOME ORGANIZATIONS system ensures that MFI are timely and suitably empowered to service new relationship requests quickly and adequately

Technologies used in micro finance Part -1

Banking:
India financial sector, guided by the Central Controller, THE Reserve Bank of India (RBI), has been on a constant endeavour to expand its base and bring the entire country within the umbrella of formal banking system with a view to improve access to basic financial services in both the Urban and Rural Areas within the country. Though the urban public and private sectors have enjoyed the benefits arising out of initiatives of the RBI the rural sector has largely been highly regulated and has shown sluggish growth in spite of creation of Regional Rural Banks (133 in 2006) and Rural Co-operative Credit Institutions (1,09,924 in 2006) on account of basic challenges that the formal banking sector encounter in its day to day operations. Some of the challenges have been...
Appropriate methods of pinpointing Customer Identification & location presence leading to high customer acquisition costs
Delays due to need for guarantors and third party collateral requirement in serving the end customer
In ability to point out productive customer clusters consequently leading low foot falls in rural branches. Branches that registers high number of foot falls, suffer from customer dissatisfaction as end customers have to typically travel a great distance to reach a bank branch. Consequently leading to delayed banking interactions on behalf of the customers.
Low value, small ticket transactions typically seen in the rural sector
Spread out geography hampering the growth of branch based operations due to high capital investments to support a branch
Largely manual operations in rural braches leading delayed decisions by typical Bank Head offices Despite considerable expansion of the banking system in India, large segments of the country is population do not have access to banking services. Government of India has officially vide a recent speech by the Finance Minister Mr. P Chidambaram acknowledged that almost 60 to 80 per cent of enterprises and individuals within the country lack access even to basic financial services such as savings credit and, insurance services. In a country as vast as India this translates to a very large number of (potentially over 500 million) 'unbanked' people - two times the entire population of the US .The banking arena in India, over the last decade has undergone a substantial change. The concept of banking evolved by the use of Internet, phone and ATMs have made 'anywhere banking' possible and has though transformed the urban mainstream, have left the rural segment totally untouched.

Why Focus on Technology?

Technology increases the efficiency of microfinance institutions (MFIs), eventually resulting in lower interest rates to borrowers and new loan programs that attract additional clients and expand opportunities for the MFI and the borrower to become self sufficient. We are transforming the microfinance sector through innovations and collaborations that improve the delivery of financial services to the poor and integrate microfinance with the global financial system.

Smart Card Technology in micro finance

Independent research and advisory firm, Financial Insights, has announced the release of a new report examining the growing use and effectiveness of innovative technology solutions in microfinance initiatives. Abhishek Kumar, senior research analyst, Asia/Pacific banking advisory service, notes, "Banks in Indonesia and India have emerged as leaders in deploying innovative technologies to grow their microfinance businesses. These banks have shown that technologies like biometrics and smart cards can be successfully deployed to target previously under-served customer segments, providing business benefits alongside poverty reduction." Historically, the perception of microfinance has been one of being a resource-intensive and generally unprofitable business venture. Concerns over high administration costs, especially the fear of default rates with the lack of conventional risk management tools (such as credit histories) have often dissuaded financial institutions from entering this field. However, in recent years, banks with microfinance experience have been able to prove that a well-run microfinance program can maintain low levels of loan default. For e.g. Bangladesh's Grameen bank's portfolio-at-risk (PAR) ratio between 2002-2005 remained below 3%. Grameen bank has been providing microfinance services since 1976 and has grown proficient at ensuring low levels of loan default. In June 2007, the banks stated that its loan recovery rate was at 98.61%. Another example is Indonesia's Bank Rakyat Indonesia (BRI) whose goal is to establish itself as the largest bank in the region serving the microfinance and SME sectors. In 2006 the bank attributed more than 60% of its total loans to these sectors with more than 40 million clients by the end of the year. In addition to year-on-year double-digit growth in microfinance loans, the bank has been able to maintain NPL ratios of approximately 5%. BRI's microfinance strategy has attributed to its net income growth in excess of 11% from 2005 to 2006. In light of such successes, banks in India and Indonesia are actively growing their microfinance operations. Indonesia's Danamon bank and India's ICICI bank are relying on biometric and smart card technologies to alleviate the high cost of microfinance administration as well as the expansion of microfinance distribution points. The use of such technology is proving to be quite attractive to the unbanked population. Biometric authentication systems are particularly useful in areas with low literacy rates. Customers no longer have to rely upon signatures or filling out documents - they can simply provide their fingerprints to authenticate themselves and access their accounts through specialized biometric teller machines (BTMs). In addition to this, smart cards are used to track customer interactions to build real-time credit histories and bolster know-your-customer initiatives. Ultimately, the use of biometric and smart card technology makes it easier for the masses to access financial services.

Flexcube Design Specially for Loan Management System level-2

Flexcube Design For Core Banking System-Level 1

About Micro Finance

1. What is microfinance?
To most, microfinance means providing very poor families with very small loans (microcredit) to help them engage in productive activities or grow their tiny businesses. Over time, microfinance has come to include a broader range of services (credit, savings, insurance, etc.) as we have come to realize that the poor and the very poor who lack access to traditional formal financial institutions require a variety of financial products. Microcredit came to prominence in the 1980s, although early experiments date back 30 years in Bangladesh, Brazil and a few other countries. The important difference of microcredit was that it avoided the pitfalls of an earlier generation of targeted development lending, by insisting on repayment, by charging interest rates that could cover the costs of credit delivery, and by focusing on client groups whose alternative source of credit was the informal sector. Emphasis shifted from rapid disbursement of subsidized loans to prop up targeted sectors towards the building up of local, sustainable institutions to serve the poor. Microcredit has largely been a private (non-profit) sector initiative that avoided becoming overtly political, and as a consequence, has outperformed virtually all other forms of development lending.Traditionally, microfinance was focused on providing a very standardized credit product. The poor, just like anyone else, need a diverse range of financial instruments to be able to build assets, stabilize consumption and protect themselves against risks. Thus, we see a broadening of the concept of microfinance--our current challenge is to find efficient and reliable ways of providing a richer menu of microfinance products.


2. Who are the clients of microfinance?
The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs. In rural areas, they are usually small farmers and others who are engaged in small income-generating activities such as food processing and petty trade. In urban areas, microfinance activities are more diverse and include shopkeepers, service providers, artisans, street vendors, etc. Microfinance clients are poor and vulnerable non-poor who have a relatively stable source of income. Access to conventional formal financial institutions, for many reasons, is directly related to income: the poorer you are, the less likely that you have access. On the other hand, the chances are that, the poorer you are, the more expensive or onerous informal financial arrangements. Moreover, informal arrangements may not suitably meet certain financial service needs or may exclude you anyway. Individuals in this excluded and under-served market segment are the clients of microfinance.As we broaden the notion of the types of services microfinance encompasses, the potential market of microfinance clients also expands. For instance, microcredit might have a far more limited market scope than, say, a more diversified range of financial services which includes various types of savings products, payment and remittance services, and various insurance products. For example, many very poor farmers may not really wish to borrow, but rather, would like a safer place to save the proceeds from their harvest as these are consumed over several months by the requirements of daily living.

3. How does microfinance help the poor?
Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change. Poverty is multi-dimensional. By providing access to financial services, microfinance plays an important role in the fight against the many aspects of poverty. For instance, income generation from a business helps not only the business activity expand but also contributes to household income and its attendant benefits on food security, children's education, etc. Moreover, for women, who, in many contexts, are secluded from public space, transacting with formal institutions can also build confidence and empowerment. Recent research has revealed the extent to which individuals around the poverty line are vulnerable to shocks such as illness of a wage earner, weather, theft, or other such events. These shocks produce a huge claim on the limited financial resources of the family unit, and, absent effective financial services, can drive a family so much deeper into poverty that it can take years to recover.

CAPITAL CONTROLS ??? THREAT OF A REPEAT OF THE ASIAN FINANCIAL CRISIS IN 1997/98 ???

In June 1997,currency speculators attacked Thai baht causing its currency to dip by more than 35%...during 1997/98 Asian financial crisis.
Malaysia's central bank, BNM (Bank Negara Malaysia) in reaction to the regional currency crisis, imposed a series of capital control in Sept 1998 which shocked the financial/currency markets.
This drastic measure,according to BNM was to ward off currency speculators, after the Malaysian Ringgit (RM) fell (from RM2.50 - prior to the crisis) against the US dollar. BNM on 2.9.98 pegged the local currency at RM3.80 to the US dollar.
However, in June 2005 (after more than 6 years) BNM dismantled almost all of the capital controls, including removing the ringgit 3.80 peg against the US dollar.

Two days ago,Thailand's central bank 'shocked' the Asian financial and currency markets again ! - - by unexpectedly imposed restrictions on capital inflows into that country, to curb speculation on the baht !!!
This anti-speculation (of currency) move not only sent jitters in several Asian currency/money markets, but also weaken Asian bourses.
It triggered Thailand's stock market to plunge 108 points (almost 15%)- biggest one-day fall since 1990 ! - Losses ? - more than US$20 billion (or RM 72 billion)!
The Malaysian stock market fell as much as 35 points - its largest one-day dip in 5 years, before closing 21 points lower.
BNM - Malaysia central bank assured the investors that Malaysia is not going to follow Thailand, to impose capital controls. BNM said that they are in fact,, still on the mode of liberalising Malaysia's financial system progressively, in order to attract more foreign investments into the country.

THE SAID CONTROLS :-
- ALL THAILAND'S FINANCIAL INSTITUTIONS ARE REQUIRED TO WITHHOLD 30% OF FOREIGN CURRENCIES BOUGHT OR EXCHANGED AGAINST THE THAI BAHT
- IMPOSITION OF A 10% PENALTY FOR WITHDRAWAL OF FOREIGN FUNDS THAT HAD BEEN IN THAILAND FOR LESS THAN A YEAR.
EXEMPTIONS :-
- THOSE FOREIGN EXCHANGE TRANSACTIONS RELATED TO COMMERCIAL TRADES IN GOODS AND SERVICES OR REPATRIATION OF INVESTMENTS ABROAD BY RESIDENTS ARE EXEMPTED.
- FOREIGN EXCHANGED TRANSACTIONS WHICH HAVE BEEN TRADED PRIOR TO THE CAPITAL CONTROLS IMPOSED, ARE ALSO EXEMPTED FROM THE 'RESERVE REQUIREMENT ON SHORT-TERM CAPITAL INFLOW'.

LATEST !!!
THAILAND'S FINANCE MINISTER,SUBSEQUENTLY (one day after the control) EASED CURRENCY CONTROLS ON FOREIGN INVESTMENTS INTO THE STOCK MARKET, AFTER 15% SHARE PLUNGE CAUSED BY EARLIER IMPOSITION OF RESTRICTIONS.

COMMENTS :
Given the fact that Malaysia's fundamentals still remained strong and BNM's policy of gradual and sequenced liberalisation of the financial/currency markets, it is unlikely Malaysia will impose another capital controls.