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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
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News | Raghuram Rajan Moderates Panel on Contraints to Building Inclusive Financial Sectors Launch Panel Discusses Expanding Access To Microfinance In December 2003, Secretary General
Kofi Annan welcomed the resolution on the International Year of Microcredit
by saying, “Together, we can and must build inclusive financial sectors
that help people improve their lives." Thus it was fitting to have a panel
on understanding the constraints to inclusive financial sectors on the official
launch day at UN headquarters. Rene Azokli opened the discussion by emphasizing the need to understand the history and the evolution of microfinance in order to comprehend the constraints. He explained that initially people could only refer to usurers to get money, an option that required very high interest rates. Then little by little, some funds emerged and led to the development of cooperatives and the development of microcredit services. Today, these institutions have had to expand their services and now face several constraints. From his point of view, the major constraints are the administrative costs to manage the microcredit programs, the high interest rates necessary to provide loans, the necessity for MFIs to borrow money from commercial banks, the lack of tools to manage loans, the need for additional training of loan officers, the weak regulatory environment and the difficulty to mobilize resources. He also cited the obstacle of a misperception that microfinance is charity. He mentioned more traditional bank involvement and a more efficient management information system as part of the solution. Leonor Melo de Velasco began her presentation by stating that building inclusive financial sectors would result in financial services for the majority of people, sustainable economic development, and increased employment. She noted that in Latin America, microbusinesses make up 80 per cent of the business sector but that only 15 per cent of the population had access to credit. Some low-scale microcredit projects in Chile, Haiti, Venezuela and Colombia had proven profitable, stirring the interest of larger institutions in the business. Based on her experience, the obvious constraints are the high costs of transactions and the lack of an effective regulatory framework. In order to address these constraints and develop access to microfinance, she sees a necessity to reduce the costs of financial services, develop a more secure “banking culture”, create efficient and sustainable financial services that respond to the needs of the clients, and cultivate distribution channels for better delivery of these services. Diederik Laman Trip highlights two central considerations for expanding financial services for poor and low-income people: scaling up availability through better distribution channels so microfinance could reach hundreds of millions more people, and increasing in awareness. He believes that sharing ING’s “know-how” is the most appropriate way to contribute. He spoke of the partnership of ING with Oikocredit in India and explained that for four to six weeks, ING provided Oikocredit with 40 young managers to help and share their knowledge in several areas such as information technology, accounting and distribution. Regarding awareness, Diederik Laman Trip noted that many in Europe and specifically in the Netherlands, too often associated to charity. He sees the International Year of Microcredit as being a very well timed opportunity to connect microfinance with the private sector. He added that the events taking place during the Year, the public debates and the media interest, are great chances to shape public perception of microfinance. He concluded by thanking Princess Maxima, another member of the Advisors Group, for her commitment. Stanley Fischer stated that there were six major obstacles: the costs, the risks, the regulatory framework, the technology, the image and the access to capital. He explained that the costs of transactions are not proportional to the size of the loans and that the costs of servicing deposits and savings are high adding that the low density of some populations made the costs all the more higher. He noted that the existing regulatory framework was too complicated and that there was a need for simplification. He also point out that it is difficult to deploy the technology that may enhance microfinance in some settings. Stan Fischer pointed out that people too often consider microfinance as a charitable activity. Regarding access, he believes that the shortage of capital is not really the issue but that the true problem is getting capital to more people. He concluded by echoing the statements of the other panelists underscoring the importance of building partnerships in intelligent ways with existing institutions. Charles Konan Banny reflected Rene
Azokli’s comments by reiterating the need to understand the genesis of
microfinance. He explained that with the disappearance of the Development Banks,
some forms of local financial services also disappeared. The microfinance institutions
slowly began to flourish. Based on his experience as Governor of the BCEAO,
the major constraints to building inclusive financial sectors include the lack
of financial resources, the low level of professionalism in managing some MFIs
and the high costs of basic services. He believes the solutions should focus
on providing better information on the sector and better support through training
and equipment. Konan Banny concluded by saying that the BCEAO sees these actions
as essential for the development of microfinance and has developed, for period
2004-2008, a regional programme to provide increased support to microfinance
to achieve these goals.
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