| In every society, access to financial services for | | | | institutions.The Purpose of Social Funds:Social funds |
| every citizen is a vital part of sustained economic | | | | are demand-driven mechanisms that channel |
| development. More emphasis should be given to the | | | | resources to the poor and support subprojects that |
| roots of society: the rural sectors and working-class. | | | | respond directly to the priority needs of the |
| But most of the time, it is very hard to identify | | | | low-income population. They have been used in a |
| financial institutions that provide these needed | | | | growing number of countries to alleviate the social |
| services, which could improve the livelihoods and | | | | and economic effects of economic crises, cushion the |
| reduce risk. Most commercial financial institutions do | | | | impact of adjustment programs, generate short-term |
| not provide the proper services needed to support | | | | employment, and finance small-scale investments in |
| these sectors, as it is not viable to provide cheap | | | | poor communities. Access to micro-credit is not |
| services to these communities. They are also unable | | | | sufficient, the poor also need access to savings, |
| to provide their services directly to the target group | | | | insurance and payment services. Several wide-scale |
| because of high transaction costs coupled with small | | | | studies have been conducted on identifying lessons, |
| transaction size and the higher perceived risk of | | | | best practices, and potential pitfalls; they include |
| financing clients without collateral.Therefore, may | | | | Panama, Yemen, and Eritrea.Example Bosnia and |
| countries today use alternative approaches instead. | | | | Herzegovin:The overall aim was to jumpstart the |
| The goal is to bring all people into the country's | | | | process of establishing a strong microfinance sector |
| financial system so that they will have continuous and | | | | so as to help raise incomes, create jobs, and develop |
| permanent access to affordable financial | | | | the smallest businesses. To provide access to credit |
| services.There are several categories of financial | | | | to the economically disadvantaged, specifically |
| providers1) Formal Financial Institution: Professional | | | | low-income micro-entrepreneurs who had no access |
| entities such as licensed banks. | | | | to credit from the commercial banking |
| Problems: The small profits that can be earned may | | | | sector.Problems in the past:Government policy is |
| not compensate for the significant cost and effort | | | | oriented more towards creating employment and |
| involved in tailoring products and delivery systems, | | | | improving income in response to a crisis than toward |
| especially low-income people. Nevertheless, banks | | | | long-term objectives. As such, social fund activities |
| interested in this niche have successfully created a | | | | were not geared towards strengthening or reforming |
| separate unit within the bank, or established a | | | | the microfinance sector, but rather towards using |
| separate affiliated company before.2) Informal | | | | existing microfinance programs as channels for |
| Providers: Small member-managed entities that are | | | | expanding employment. Further problems range from |
| not licensed.3) Semi-Formal Institutions: NGO, small | | | | governments and donors using these organizations to |
| financial cooperatives, and community-based financial | | | | channel cheap credit to rural populations to |
| organizationsa) Cooperative Financial Institutions | | | | mismanagement of funds.The Purpose of Credit |
| (Cooperative banks, credit unions to small village | | | | Unions:A credit union is a community based financial |
| based cooperative entities)b) Microfinance | | | | institution with representation from all socioeconomic |
| Non-Governmental Organizationsc) Community Based | | | | levels. Main purposes are the economic, social, and |
| Financial Organizations (village savings, loan | | | | political promotion of democracy and securing of |
| associations, savings and credit associations, self-help | | | | financial stability, and to provide competitive and |
| groups)d) Traditional village-based providers (money | | | | quality financial services responsive to the needs of |
| lenders, small shops and input suppliers who provide | | | | its members to improve their livelihood. All credit |
| goods on credit, and informal savings and credit | | | | unions operate within a common bond, such as |
| groups)The formal financial institutions approach | | | | employment- all members must work for the same |
| focuses on building strong, stable financial systems | | | | group of employers or industry or in the same |
| that serve the entire population. This is the preferred | | | | occupation. Credit unions are for service rather than |
| approach when there are Labor banks, microfinance | | | | for profits.What is the right approach?Consulting with |
| institutions, and financial cooperative/ credit union | | | | communities to identify the demand for and supply |
| networks that are interested in broadening their | | | | of financial services among the working-class and |
| outreach to the low-income society. The | | | | rural areas to be covered. What financial services are |
| community-based institutions approach focuses on | | | | provided, by whom, and how? What are the gaps in |
| building strong informal or semi-formal community | | | | coverage, in terms of types of customers served, |
| financial institutions, and then linking them with the | | | | types of services provided, and geographical reach? |
| formal financial sector.The Purpose of | | | | Consider ownership structure, governance and |
| Microfinance:Microfinance is the provision of financial | | | | management structure, financial products, customer |
| services, including savings, credit, insurance and | | | | base, ability to cover costs and existing relationships |
| payment services, to low income people. Typically, | | | | with professional financial services intermediariesPeter |
| low-income people, especially those living in rural | | | | Kopitz is currently living in Bangkok, Thailand after |
| areas, have been unable to obtain quality services at | | | | graduating with Honors from the University Of |
| a reasonable price from the formal financial sector. | | | | Chicago Graduate School Of Business with a Masters |
| Microfinance is best supported through financial | | | | Degree in Business Administration. He is actively |
| sector programs, however, in many countries where | | | | involved in researching economic and political |
| social funds operate there are no financial sector | | | | development in Thailand, focusing primarily on |
| programs with a strong emphasis on access to | | | | property development, security analysis and |
| finance issues, nor are there many viable microfinance | | | | investment banking. |