Microcredit in Burkina Faso

Report
Kevin Dix
Anthony Michael
 Giving
small loans to
impoverished
borrowers
• Lack collateral, steady
employment
 Why
Microcredit?
• Promotes productive
investments
• Encourages
entrepreneurs
“CREDIT IS A FUNDAMENTAL
HUMAN RIGHT”
FOUNDED GRAMEEN BANK


First modern microcredit
institution
Lent own money to poor
basket weavers in Bangladesh
(mid-1970s)
• 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
2.
Prioritize local knowledge (tradition)
and participatory planning


Increased sustainability
Traditional methods should NOT be replaced

3.
Rather built upon
Advance African private sector


Microcredit should lead to microenterprise
development
Formalize the informal sector
Prioritize operational efficiency
4.
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
eradication
depends on the poor
gaining access to
economically
productive &
financial resources
 Allow individuals to
move beyond poverty
cycle
 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
•
•
•
•
(URCBam)
Promotion du Développement Industriel et Agricole (PRODIA)
Fonds d’Appui aix Activités des Femmes (FAARF)
Association pour le Développement de la Région de Kaya
(ADRK)
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

Conclusions
 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
services
• 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/Urban
• 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.

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