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Kevin Dix
Anthony Michael
 Giving
small loans to
• Lack collateral, steady
 Why
• Promotes productive
• Encourages
First modern microcredit
Lent own money to poor
basket weavers in Bangladesh
• Successful model
Grameen Today
• Collects $1.5 million weekly
• 97% of borrowers women
Won Nobel Peace Prize in 2006
• 97% of loans paid back
 Higher than any other
banking system
 Despite
positive economic trends, still
vast poverty
 Address material & non-material poverty
 Empower People
• Confidence, self-esteem, & financial means to
play larger role in their development
 Involves
poor in Economic development
 Microcredit
can meet financial needs of
households and microenterprises
• Especially poor
 Supply side
• Loosen constraints on capital
• Investment opportunities
• Consumption smoothing
• Emergency liquidity needs
 Demand side
• Support savings of the poor
 Key
Principles for an African Model:
1. Pool resources through group organization
 Pool together human and material resources
 Strength in numbers
 Promote networking, information dissemination
 Reduce administrative costs
 Group trust, support, pressure
Prioritize local knowledge (tradition)
and participatory planning
Increased sustainability
Traditional methods should NOT be replaced
Rather built upon
Advance African private sector
Microcredit should lead to microenterprise
Formalize the informal sector
Prioritize operational efficiency
Must be efficient, financially viable institutions
Key principles that lead to efficiency:
Target poorest of poor
Charge interest rates that cover operational costs
Target women
 Poverty
depends on the poor
gaining access to
productive &
financial resources
 Allow individuals to
move beyond poverty
 Challenges
facing Burkina Faso:
• 44.8% on less than $1/day
• Droughts, poorly diversified agriculture
• Inadequate road network
• Limited energy resources
• Landlocked
• HDI: 183 of 187 countries
Evaluate West African Economic and Monetary Union
countries’ microfinance institutions (MFIs)
• Outreach
• Sustainability
Analyzed data from a random sample of 6 MFIs in
Burkina Faso
• Federation des Caisses Populaires (FCPB)
• Union des Coopératives d’Epargne et de Crédit du Bam
Promotion du Développement Industriel et Agricole (PRODIA)
Fonds d’Appui aix Activités des Femmes (FAARF)
Association pour le Développement de la Région de Kaya
Association ‘Etre comme les Autres’ (ECLA)
Offer different types of micro credit
• Short term individual or group credit
 Average loan amount between 7 and 500 USD
 6-12 months
• Medium or Long term individual credit
 Average loan amount between 400-4000 USD
 >12 months
Average nominal growth rate was 25.3% per year
17.625 billion CFAF = 25.18 million USD
 Sustainable interest rates
• Large transaction costs
• Administrative costs
• Loan losses
• Financial costs
• Desired capitalization rate
• Investment income
Highest repayment rates associated with group loans
Maintain high repayments from individuals by giving
a strong sense of ownership
Subsidy dependence index
• Each MFI would have to raise their interest rates by this %
in order to eliminate subsidy dependence
 Burkina Government
• Subsidizes the microfinance institutions to cover
their loses
• Continues to subsidize them because they have
direct benefits & positive externalities
 NGOs
• Several of these provide the microfinance
• Rapid growth for the NGOs in microfinance
• Ideal goals to reach all of their targeted poor
population and be self sustainable
Private sector
Beneficial to poor and small entrepreneurs
Increase productivity
Increase wages
Decreased informal lending
• Rural
 Larger transaction costs to provide financial services
 Better targets than urban
 Larger potential benefit
• Urban
 Lower poverty rates compared to rural
 Target the peri-urban more
 More entrepreneurs
 Higher demand for financial services
“Biography of Dr. Muhammad Yunus.” Grameen Bank. N.p., n.d.
Web. 18 Nov. 2013
Congo, Youssoufou. “Performance in Microfinance Institutions in
Burkina Faso.” World Institute for Development Economic Research
(2002): 1-20. Web. 15 Nov. 2013
United Nations. UN Economic Commission for Africa. Microfinance
in Africa: Combining the Best Practices of Traditional and Modern
Microfinance Approaches towards Poverty Eradication. New York:
United Nations, 2000. Web.
United Nations. UN Office of the Special Adviser on Africa.
Microfinance in Africa: Overview and Suggestions for Action by
Stakeholders. New York: United Nations, September 2011. Web.
Valadez R, Buskirk B. From Microcredit to Microfinance: a business
perspective. Journal of Finance & Accountancy [serial online].
March 2011;6:1-17. Available from: Business Source Complete,
Ipswich, MA. Accessed November 18, 2013.