Serving the Rural Community with Affordable Financial Services

In every society, access to financial services for every citizen is a vital part of sustained economic development. More emphasis should be given to the roots of society: the rural sectors and working-class. But most of the time, it is very hard to identify financial institutions that provide these needed services, which could improve the livelihoods and reduce risk. Most commercial financial institutions do not provide the proper services needed to support these sectors, as it is not viable to provide cheap services to these communities. They are also unable to provide their services directly to the target group because of high transaction costs coupled with small transaction size and the higher perceived risk of financing clients without collateral.

Therefore, may countries today use alternative approaches instead. The goal is to bring all people into the country’s financial system so that they will have continuous and permanent access to affordable financial services.

There are several categories of financial providers

1) Formal Financial Institution: Professional entities such as licensed banks.
Problems: The small profits that can be earned may not compensate for the significant cost and effort involved in tailoring products and delivery systems, especially low-income people. Nevertheless, banks interested in this niche have successfully created a separate unit within the bank, or established a separate affiliated company before.

2) Informal Providers: Small member-managed entities that are not licensed.

3) Semi-Formal Institutions: NGO, small financial cooperatives, and community-based financial organizations

a) Cooperative Financial Institutions (Cooperative banks, credit unions to small village based cooperative entities)

b) Microfinance Non-Governmental Organizations

c) Community Based Financial Organizations (village savings, loan associations, savings and credit associations, self-help groups)

d) Traditional village-based providers (money lenders, small shops and input suppliers who provide goods on credit, and informal savings and credit groups)

The formal financial institutions approach focuses on building strong, stable financial systems that serve the entire population. This is the preferred approach when there are Labor banks, microfinance institutions, and financial cooperative/ credit union networks that are interested in broadening their outreach to the low-income society. The community-based institutions approach focuses on building strong informal or semi-formal community financial institutions, and then linking them with the formal financial sector.

The Purpose of Microfinance:

Microfinance is the provision of financial services, including savings, credit, insurance and payment services, to low income people. Typically, low-income people, especially those living in rural areas, have been unable to obtain quality services at a reasonable price from the formal financial sector. Microfinance is best supported through financial sector programs, however, in many countries where social funds operate there are no financial sector programs with a strong emphasis on access to finance issues, nor are there many viable microfinance institutions.

The Purpose of Social Funds:

Social funds are demand-driven mechanisms that channel resources to the poor and support subprojects that respond directly to the priority needs of the low-income population. They have been used in a growing number of countries to alleviate the social and economic effects of economic crises, cushion the impact of adjustment programs, generate short-term employment, and finance small-scale investments in poor communities. Access to micro-credit is not sufficient, the poor also need access to savings, insurance and payment services. Several wide-scale studies have been conducted on identifying lessons, best practices, and potential pitfalls; they include Panama, Yemen, and Eritrea.

Example Bosnia and Herzegovin:

The overall aim was to jumpstart the process of establishing a strong microfinance sector so as to help raise incomes, create jobs, and develop the smallest businesses. To provide access to credit to the economically disadvantaged, specifically low-income micro-entrepreneurs who had no access to credit from the commercial banking sector.

Problems in the past:

Government policy is oriented more towards creating employment and improving income in response to a crisis than toward long-term objectives. As such, social fund activities were not geared towards strengthening or reforming the microfinance sector, but rather towards using existing microfinance programs as channels for expanding employment. Further problems range from governments and donors using these organizations to channel cheap credit to rural populations to mismanagement of funds.

The Purpose of Credit Unions:

A credit union is a community based financial institution with representation from all socioeconomic levels. Main purposes are the economic, social, and political promotion of democracy and securing of financial stability, and to provide competitive and quality financial services responsive to the needs of its members to improve their livelihood. All credit unions operate within a common bond, such as employment- all members must work for the same group of employers or industry or in the same occupation. Credit unions are for service rather than for profits.

What is the right approach?

Consulting with communities to identify the demand for and supply of financial services among the working-class and rural areas to be covered. What financial services are provided, by whom, and how? What are the gaps in coverage, in terms of types of customers served, types of services provided, and geographical reach? Consider ownership structure, governance and management structure, financial products, customer base, ability to cover costs and existing relationships with professional financial services intermediaries

Get a Financial Boost by Starting a Home Based Online Business

In a deeply disturbed global financial set-up, there are too many ripple effects that are threatening to shake up the economic make of millions of households all over the world. Jobs are being swallowed from under the noses of potential aspirants. Mass layoffs have become the norm of the season. The retained employees are facing a backlash of massive wage cuts and stunted perks. In such an atmosphere a home business not only gives you the opportunity to conjure up a reliable money making system but also the benefit of doing it with minimal resources. Here’s why a home business is your best bet against a troublesome financial market.

A home based business requires a humble start-up capital along with very modest resources to sustain it (this of course depends on the kind of business you are in). In a liquidity crisis, where it is virtually impossible to raise money from the market or avail high interest loans from commercial financial institutions, a home business is your best bet to establish a long term profitable venture. You don’t have to pay for exorbitant commercial premises, there are no gigantic electricity and other maintenance bills piling up at the end of each month and you don’t have to shell out precious dollars for exclusive business attire while meeting your clients. The idea of spending on fanciful business lunches and outings is also completely eliminated.

A home business helps you to effectively leverage your time and money for earning passive income. In network marketing for example you can work towards building a strong team initially, with minimum resources, and their performance may augment your income drastically without you personally having to do any work. This is the true power of leveraging to generate residual income. You may work for a few hours every day but produce results that stunningly overpower the hours you put in; because there are ten others who are working with you to help you make money. Thus you may work for 10 hours a week but earn income worth 1000 hours. The idea is to spend minimum time to make maximum income.

You can create multiple sources of income with a home business. You can branch out periodically and expand your avenues. For example if you have started a local dating service where teenagers can come and register, you can also move into party organising and wedding management. Thus you can broaden your money making streams in a rigid economy.

Large Commercial Institution and Small Local Banks and Credit Repair

Are you looking to select the best bank for you and your family? Well, you are not alone. Many people try to weigh the pros & cons with regards to determining whether or not to bank at a large commercial financial institution or at a smaller local bank. The purpose of my editorial is to give you some insight on which type of financial institution is the very best for you. I’ve been fortunate to be a part of each type of organizations. Below are the benefits & negative aspects of giant banks & small banks:

Big financial institution advantages:

– You have a bigger product line to select from. You can choose between more than one different checking and savings accounts. Multiple different loan products starting from house loans, automobile loans, student loans, business loans, and credit cards.
– Easier access to accounts
– Better online options (state-of-the-art technology)
– More branches
– FDIC protection

Big bank disadvantages:

– More people to deal with
– Having to care for the “1(800)” numbers
– Lack of relationship banking aspect
– More “product pushing” from financial institution employees
– Potential of dealing with fees

Small financial institution advantages:

– Personable service
– Your bankers recognize you & your financial situation, which makes banking easier.
– Stronger personal & skilled relationship with bank.
– Not having to jump through hoops to get solutions to service-related questions.
– Dealing with the same people for a very long time. Bankers at smaller banks have longer tenure with their company.

Small financial institution disadvantages:

– Lack of product knowledge as a result of the restricted product line smaller financial institution possesses.
– Everyone is aware of your financial situation. This could be a positive or a negative.
– Fewer branches
– Website accessibility issues. Smaller banks lack the budget to put money into cutting-edge technology.
– Fewer choices for other forms of investments

So, you must ask yourself: what do you value most? If credit repair is one of your goals right now, in my opinion would consider the best bank for you is a small local bank. Let’s say you wish to have to waive a bank fee or you had been overdue on a loan payment. You have a better likelihood to get the fees waived at a smaller financial institution as a result of the personal relationship you have with the banker. That is why I would select a smaller community bank compare to the massive mega banks.