Microfinance Institutions
Microfinance institutions vary in size and scope. They often start as small NGOs with credit activities being only a part of their focus, and eventually mature into full-fledged regulated banks. This typical life cycle gradually pushes them into full commercialization. Today, there are a few dozen banks and financial institutions with balance sheets over 100 millions U.S. dollars, profitable and regulated; a few hundred microfinance organization with balance sheets over 5 million dollars, commercially sustainable and with higher growth rates (>30% on average); and a few thousand micro-credit programs with balance sheets of less than 5 million dollars, largely donor driven. In recent surveys, the number one growth impediment to microfinance institutions remained access to capital. Today their supply is generally sought to cover 10 to 15% of the potential demand.
Micro- and Small Enterprises
There are 4 billion people who live with less than $4 a day, about 2.7 billion with less than $2 and 1.1 billion with less than $1 a day. There are at least 500 million economically active poor or micro-entrepreneurs worldwide, the vast majority of which lack access to capital to sustain and grow their professional activities. The average financing need worldwide is of $500 per micro-entrepreneur, suggesting a potential market demand of 250 billion dollar.
Microfinance services bring three essential features to a micro-enterprise and its owners: security, growth and empowerment. Economically active poor evolve in cash flows of survival and economics of emergency; they cannot afford to save, and the slightest shock on their revenues, whether due to exogenous factors (hurricanes, earthquakes, strikes, social strife, etc.) or endogenous factors (sickness, weddings, funerals, migration, etc.), might ruin their cash flow and sustainability. If existent, their often only alternative is to finance themselves with local loan sharks, charging up to 10% a day, as is the case in some place in Bolivia or the Philippines. On the contrary, access to adequate financial services works as a security buffer for them, offering liquidity in times of trouble. Similarly, access to capital allows them to invest in the future, buy fixed assets or hire new staff. In the end, contact with their micro-banker works to integrate them back into cycles of opportunities and increase their self-esteem, independence and social networking.
source: Symbiotics SA Information, Consulting & Services