Download ARGENTINA

Microfinancing
Hope for Argentina’s Poorest
Microfinancing

Small loans and small deposits for poor
households left unattended by banks
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Uncollateralised loans to borrowers
without a constant source of income from
a wage job


Helps small farmers and self-employed
Increases costs for lenders to judge risk and
enforce repayment
Grameen Bank in Bangladesh

Professor Muhammad Yunus
Rural Financial Markets Matter
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Agriculture
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Sustained growth
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Increased domestic savings
Poverty is deep and wide


More than ½ of foreign exchange earnings
Between 37% and 55% of 37 million
Efficient production is facilitated
Equity is affected
Investment is affected

Creation of jobs (unemployment at 16%)
History of Populism

Access to credit is a right.


Equity under democracy requires that voters
get what they think they deserve.
Liberal democracy and capitalism
defensible only if equal opportunity
for all

In education, financial services, etc.
Equity: Rich vs. Poor

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Government has responsibility to reduce
the differences
Wealthiest 5% 25% of national income
Wealthiest 10% 40%
Poorest 30% 7.5%
Government should provide redress for
the poor
Purpose/ Challenge of
Microfinancing

To reach the poor in substantial
numbers

To enable them to move out of
poverty

To create financial institutions that
are sustainable
The Savings Equation
∞
∞
s(t) = -∑ Et ∆Y(t + k) + ∑ Et ∆0(t + k)
k=1
(1 + r)k
k=1
(1 + r)k
∞
+
γ
∑ Ωt (t + k)
2(1+r) k=0 (1 + r)k
+ ln(r - δ)
r
The Triangle of Microfinance
Macroeconomic and sectoral policy
framework and socioeconomic environment
Impact
Institutional
innovations
Financial
Sustainability
Outreach
To the poor
Outreach

Breadth- serving more of the poor


May be able to use loans more effectively
Depth- serving the poorest of the poor

May smooth their consumption

Quality- making services affordable

Lack of access

May improve welfare, but not necessarily life
out of poverty
Impact

The alleviation of poverty


Food security and economic growth
Enhance through complementary
services
Business or marketing services
 Training of borrowers

Financial Sustainability

Need lasting financial institutions

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Crucial indicator of MFI performance


Must have faith in permanence to entrust
savings
Will influence decision of being worthwhile in
LR
Forces MFIs to think about client demand

Induces to improve products, operations,
outreach, etc.
Public Investment
Failure of public development banks
 Justified from public policy
perspective only if:

Comparison of social costs with social
benefits
 Opportunity costs

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Subsidy dependence index
Material Conditions

Transaction costs and risks

Rural, sparse populations
• No market days

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Lack of infrastructure
High risk
• Seasonal cycles
• Not well-diversified
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Privatization of public development banks
No national credit bureau
No national pledge registry
Constraints on loans
Argentine Macroeconomy

Convertibility Plan of 1992
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Tequila Crisis of 1994-95
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Devaluation of Peso: Crisis of 2001
Fundación Emprender
Argentina’s only significant MFI
 Patterned after Bolivia’s PRODEM
 Small, urban
 Outreach: deep, small, low quality
 Almost self-sufficient
 Not worthwhile social investment

Possibility of
Microfinancing in rural
Argentina?
Needs improvement first