Grameen Foundation : Resource Center : Print Newsletter : Fall 2003 : Transforming Microfinance
Transforming Microfinance
Worldwide, more than 1.3 billion people live in extreme poverty, yet less than 10% of the families living in these conditions have access to microfinance - a proven pathway out of poverty. To meet this need, an increasing number of strong microfinance institutions (MFIs) have developed aggressive business plans and are poised to undertake massive expansion programs. In cases where remaining a non-profit organization makes it difficult, if not impossible, for them to access local capital markets to finance their expansion, transforming into a regulated financial institution is a creative solution.
Learning from the transformation processes of Grameen Bank of Bangladesh, and later the Center for Agriculture and Rural Development (CARD) in the Philippines and the Society for Helping and Awakening the Rural poor through Education (SHARE) in India, Grameen Foundation USA (GFUSA) is helping others, such as the Activists for Social Alternatives (ASA) and CASHPOR Financial and Technical Services (CFTS) in India and Fonkoze in Haiti, make similar transitions to dramatically enhance their ability to reduce poverty.
Grameen Bank
It all started with the Grameen (Rural) Bank, which began in 1976 as an action-research project by Dr. Muhammad Yunus, then an economics professor at Chittagong University in Bangladesh. Dr. Yunus gave his first microloans (totaling just $27) to forty-two people who used their money to start or expand tiny businesses. Gradually, Dr. Yunus expanded his project with the help of students and other faculty, and secured the support of the country's Central Bank in 1979. Under the Central Bank's sponsorship (and the often grudging support of local governmental banks) the Grameen Bank Project grew from 500 borrowers in 1979 to 28,000 by November 1982.
Hampered in his efforts to expand Grameen's outreach by the bureaucracy of the Central Bank, Dr. Yunus petitioned the government to make the Grameen Bank into an independent institution. In 1983, the Grameen Bank was officially born when the Parliament passed the Grameen Bank Ordinance. Since then it has grown into an institution in which its 2.8 million borrowers (95% of whom are women) control more than 90% of its shares.
A CARD borrower at work. The next chapter of the transformation story is set in the Philippines where, in 1986, CARD began its microfinance operations by providing loans and training to landless coconut workers. Initially, the borrower groups themselves determined the repayment schedule and saving was not mandatory, resulting in an extremely low repayment rate and negligible savings.
In 1989, CARD pilot-tested a locally tailored Grameen Bank microfinance model in San Pablo City. Small groups of female borrowers, all living in extreme poverty, were organized into centers, each with a revolving loan fund, or "center fund." Weekly meetings and repayment were implemented, and the results were extremely positive: 100% repayment and 98% attendance of meetings. Encouraged by its strong growth in the early 1990's, CARD began to dramatically scale-up its operations in 1995. It was also at this time that CARD staff began discussing its transformation from a non-governmental organization (NGO) to a specialized rural bank. They understood that making this change would allow CARD to seek commercial loans, as well as financial services and products from the government that would help facilitate its expansion. Two years later, CARD Bank was approved by the government.
As of June 2003, CARD Bank had expanded its outreach to more then 60,000 landless poor women through 42 branches. This represents a 550% increase since 1997. And while much of its capital was supplied by local sources, GFUSA played a catalytic role in its post-transformation growth by providing $200,000 to CARD in 2002. GFUSA is now poised to invest another $410,000 that will leverage $820,000 from the Land Bank of the Philippines toward CARD's expansion in 2004 and beyond.
SHARE, ASA and CFTS
After CARD, the next Grameen replicator to transform was SHARE, based in Andhra Pradesh, India. SHARE began providing microloans to poor women in 1992 and thereafter grew steadily in response to the overwhelming need for finance among the state's 16 million poor. In order to take advantage of opportunities to leverage commercial financing for expansion, SHARE became SHARE Microfin Limited, a community owned and managed financial institution, in early 2000. Since then, it has grown to include 93 branches and an active membership approaching 200,000 (from eight branches and an outreach of 9,375 in March 2000).
Following in SHARE's footsteps are ASA, based in Andhra Pradesh, and CFTS, based in in Tamil Nadu, which have also made the choice to transform. ASA, founded in 1986, and CFTS, begun in 1996, have demonstrated the capacity to significantly scale up their operations to reach more of India's poorest families, if the requisite capital can be secured. Indian banking laws require these institutions to have a minimum capitalization of $450,000 to become Non-Banking Finance Companies (NBFCs) and enjoy the increased access to commercial financing that this status allows. Building on significant investments in previous years, GFUSA provided both ASA and CFTS with half the amount needed to transform into NBFCs in 2002. Both have since obtained the remaining funds needed and are nearing completion of the transformation process.
Fonkoze
Most recently, GFUSA extended a $50,000 loan to Fonkoze, a Haitian MFI, to help it transform into Haiti's first commercial microfinance bank. This will provide access to new sources of capital, such as public savings, and permit Fonkoze to provide financial products that until now it has been unable to legally offer. Fonkoze's goal is to grow to serve 73,000 women (from a base of 15,000 currently) in Haiti, the Western Hemisphere's poorest nation. In recognition of the importance of its alliance with GFUSA, Bank Fonkoze will have a GFUSA representative on its Board of Directors from the moment it is established. Helping MFIs like these seek out creative ways to access financing for expansion is one of many strategic roles that GFUSA plays in the microfinance movement. By leveraging financial resources and legal expertise, GFUSA is enabling many organizations to accomplish the transformations necessary to achieve greater effectiveness and impact in the fight against poverty.
Grameen Foundation : Resource Center : Print Newsletter : Fall 2003 : Transforming Microfinance
Grameen Foundation uses microfinance and innovative technology to fight global poverty and bring opportunities to the world's poorest people. With tiny loans and financial services, we help the poor, mostly women, start businesses and escape poverty. Our global network of 55 microfinance institution (MFI) partners including our Growth Guarantee partners has touched more than 34 million people in 24 countries. In addition, we introduced and now sustain technology initiatives (Mifos and Village Phone) in Cameroon, Kenya, Rwanda, and Uganda, bringing our total country outreach to 28.
+1-202-628-3560 www.grameenfoundation.org
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