Microfinance and Livelihoods

N.Srinivasan

At CAB, Pune – 17 March 2009

 Microfinance
• Small savings, credit and financial service
needs of small clients
• Delivered by Banks, Microfinance
institutions and special purpose projects
 Livelihoods
• Access to adequate incomes over a long
period of time
– through an enterprise or service activity
– regular, sustainable and gainful
Includes employment
 Financing of livelihoods
Not the first preference of banks
Perceived high risks
Small volumes and high geographical spread
Lack of collateral
High costs of delivery
Unfamiliarity with the variety of activities
 MF and livelihoods
• Microfinance as a client friendly model
• High expectations of livelihood finance
• MFIs also have same reservations as that
of banks
• Quest for sustainability leads to loan
products not suited to livelihoods ?
 Typical loan products in MF
• Lump sum loans repayable in weekly or
monthly installments – regardless of cash
flow of client
• Small, uniform loan size – not matching
funds needs of activity
• Short duration (typically one year) not
sufficient to make investments in livelihood
assets
• High rate of interest
• Loan as the focus – not the livelihood
 Examples
Financing of a cow
One year loan
Repayable in 52 weekly installments

Garments vendor
One year loan
Repayable in 12 monthly installments
 The variety
• Vegetable and fruit vending
• River sand mining
• Crop cultivation
• Goat rearing
• Crab fattening
• Road side / village cafes
• Leasing of trees for annual crops
• Itinerant garment and utensils vending
• Cycle, motor servicing
• Migration ??
 Elements of livelihood finance for
MFIs
• Contextual
• Analysis of market demand with
availability of linkages as a key criterion
• Adequacy of amounts
• Period of loan to match the need
• Repayment installments and intervals to
match cashflows
• Client sustainability as the focus
 Institutional concerns and
responses
• High Risks – if it is too risky do not finance
• Large amounts – reducing the loan size is not a
good idea
• Short maturity – Client would suffer and
eventually the MFI
• High interest rates – kill the golden goose?

Do not offer an incomplete and inadequate product

– risks of such a product are much higher
 Institutional readiness
• Understand the local livelihoods framework
• Familiarise staff
• Train staff in financing of livelihoods
• Develop products for the local context and
livelihoods therein
• Develop a long term vision for the client as
well the institution
• Invest in capacity building of clients – or find
external resources for it.
Are you really financing
livelihoods?
Think again and act differently
Thank you