The microfinance model was made famous by The Grameen Bank of Bangladesh, and involves a scheme where poor/low income individuals can get a small loan to finance the start of a small business, such as money for a sewing machine to make clothes, or for a mobile to act as a mini-telecom company.
The trick to making money on what seems the ultimate sub-prime clientel was two-fold:
- the loan was often made not to an individual, but to a group of 5 unrelated people in the same area who are jointly liable for each others loans. This means there is peer pressure to repay the loans.
- mostly the loans go to women. Women generally work harder and are more responsible than males when it comes to repaying money. They are also more likely to be in poverty and out of paid employment to start with.
You can find out more about microfinance here.
A great thing about microfinance is the way it can dramatically improve the lives of poor families, and empower women by giving them a business, confidence and (sometimes for the first time in their lives) their own money.
So, well done Samir Fancy, Mohammed Barwani, and Ajith Khimji for supporting this in Oman.
UAE firm to launch first microfinance unit in Oman
24 May 2009
The first microfinance project in Oman is to be launched by PlaNet Finance UAE to give financial assistance to entrepreneurs.
Microfinance schemes provide financial services to those on low income. In the GCC only Saudi Arabia and Bahrain currently have such organisations. Now a new joint stock company called Greenfield is being formed to create a microfinance institution (MFI) in the Sultanate of Oman.
"PlaNet Finance is in the process of registering the first MFI in Oman and the initiative is supported by business groups such as the Ajith Khimji Group and MB Holding and philanthropist Samir Fancy," Programme Manager Sawsen Ayari told Emirates Business.
"The headquarters of the Greenfield MFI will be in Muscat with branches planned in Salalah and other parts of Oman. The maiden MFI in Oman will provide financial and non-financial services to poor Omani entrepreneurs, especially female entrepreneurs. The project is being implemented with the support of the Omani Ministry of Social Development."
PlaNet Finance is a global organisation that works with MFIs, governments, banks, insurance companies and investment funds to ease poverty. The Oman venture is likely to be financed by business partners.
Donors have accepted the business plan and PlaNet Finance is currently working on the creation of a legal structure for a joint stock company, which will act as a microfinance institution.
Oman has a strong banking system but traditional finance reaches only medium and large enterprises - leaving poor people outside the banking system. The proposed size of a microfinance loan in Oman will be between $800 (Dh2,940) and $4,000. "PlaNet Finance was contacted by Bank Muscat and two Omani philanthropists to conduct a market survey in Oman," said Ayari. "The study shows about 66,000 households - 20 per cent of households in the country - depend on micro or small enterprises for their livelihoods.
"Out of these 42 per cent are willing to take out a microfinance loan, creating 27,720 potential microfinance clients in Oman.
The PlaNet Finance team plans to offer income-generating solidarity loans of between OR300 (Dh2,861) and OR1,500 to provide working capital. The loans will last for up to a year.
The initial investment needed for the MFI is $3.4m, and a $15m concessionary and commercial loan will have to be secured for between three and five years to finance portfolio growth.