Micro Finance or Savings and Credit Program decision tree ~ Non ...

It really very important to closely and deeply examine the development perspective in which the project intends to operate before deciding to in traduce savings and credit interventions and activities. There are some conditions that must have to be met for a micro finance or savings and credit program to make it appropriate and viable. Again, the sufficient demand for services must have to be existed, the environment requires to be conducive and the needs for additional or improved services has to be demonstrated.??
The micro finance or savings and credit decision tree is an tool that require analysis with a view to assist the development organizations programmers so that they can take decision or determine whether micro finance or savings and credit intervention or program would be viable in the development perspective. The decision tree will lead the NGO programmers through a sequential or logical examination of the questions to be considered before taking decision to implement the micro finance or savings and credit program.
???? Steps of micro finance or savings and credit decision tree to be followed:
Step one: Assessing the economic environment
Step two: Assessing the needs and demands for financial services
Step three: Assessing the existing market environment
Step four: Assessing the related government policy and procedures
Step five: Assessing the existing informal micro finance or savings and credit programs savings mechanisms and sources of credit
Step six: Assessing the formal savings mechanism and sources of credit
???? Description of each step
Step one: Assessing the economic environment

Is the economic environment really conducive to the stability and growth of small economic or income generating activities and to the viability of a micro finance or savings and credit program?
Real and successful assistance to small income generating or economic activities particularly the financial assistance depend on the? presence of a stable economic environment. In highly inflationary and recessionary economic environment the income generating or small? economic activities will suffer and there is few options that they can do. Again, when the income generating and economic activities are stable and there is possibility of growing the income generating or small activities can benefit as per the prediction. The stability is necessary but not always sufficient condition for the program health.
The only indicator of economic instability can affect the design of financial interventions like inflation.
A savings mobilization intervention must have to give the guarantee of positive and sufficient returns from income generating or small activities.
The credit or micro finance program would have to provide loan at the interest rate that have to exceed the inflation rate to make it viable. Otherwise, the actual value of credit fund cannot be maintained.?

Step two: Assessing the needs and demands for financial services
Are there a sufficient or enough income generating or economic activities operating in the targeted geographical area to rationalize a saving and credit or micro finance program?

To make the micro finance or savings and credit program viable it is necessary to have sufficient clients though there no hard and first rule what will constitute enough. But it is true that the more people will get the support the more broader will be the impact of the program.
A specific target group is necessary to select as a starting point for project design. Along with that the focus on the real need of target group is a strengths of the program. If it a limited target group require for the programmers and this group still have access to the services to be provided by the savings and credit or micro finance program. But it true that the potential clients have to give the access to the program.
If there are not enough existing small economic activities , it will not be possible to invest required volume of money which is very important indicator for income generating or? savings and credit program, otherwise, the income generating or small activities type program will not be feasible.

Step three: Assessing the existing market environment
Do adequate marketing facilities exist and do small economic activities have adequate access to these markets?
The individual income generating activities and small economic activity owners are capable to analyze the marketing feasibility. Will it be possible to market the products of small economic activities? If not the program will not? be feasible. So, market assessment before introducing the program is essential. The market analysis will require analyze the demand analysis, supply analysis, demand supply analysis and gap analysis.
If adequate marketing facilities are not available or if small income generating and economic activities cannot get access to existing markets then financial intervention will not be appropriate and it will not help as the saving and credit and micro finance services will not create market or help the market to expand.?
In areas where marketing are really a great constrained,? any financial programs designed to support the development of income generating or small economic activities may contribute to market saturation. However, if the existing local markets are not capable of expanding to absorb increased production, or if small economic or income generating activities? do not have the means to transport their products to larger, more distant markets, financial services that stimulate production will have the effect of decreasing individual small economic activities potential market share. Overall production of goods or services will have increased but overall demand will not.
If it is identified that the financial interventions are not really appropriate because adequate markets do not exist or because small economic activities lack access to existing markets, alternative project may have to be considered.?

Step four: Assessing the related government policy and procedures
Is the policy environment conducive to the growth and stability of income generating and small economic activities and to the viability of the savings and credit program?
It may have the government policies and which inhibit the ability of small economic activities to function and flourish. Such policies may be reflected in the absence of adequate barriers to imports or the preferential fiscal treatment of large enterprises that have the effect of creating unfair competition for small enterprises and micro enterprises. Further, the tax and other regulation such as the registration and functioning the small enterprises may prohibit their growth or prevent new entrants to the sector.
The government policies may also impact the viability of a savings and credit program. For example, the imposing the interest rate may be negative in real terms.

Step five: Assessing the existing informal micro finance or savings and credit programs savings mechanisms and sources of credit
Is the informal savings mechanisms and /or sources of credit provide support for the development of small economic activities under acceptable condition and on a sustainable basis?
It is reality that in absence of formal financial services the poor individuals , small scale businesses and poor communities develop informal mechanisms to address their need for financial services. It is true that the survival of this individuals and their income generating activities depend on their ability to meet their financial needs at some level by developing and participating in a wide variety of savings and credit arrangements.
It is very important to thoroughly examine all existing informal savings and credit mechanisms available to targeted participants.? The programmers should understand how these mechanisms function, assess how they respond to target group needs, and analyze their limitations in being able to support the growth of small economic activities . The Prorgrammers should only continue to step 6 of the decision tree if it is determined that existing informal romancing mechanisms are not able to support the development of small economic activities under acceptable conditions on a sustainable basis.

Step six: Assessing the formal savings mechanism and sources of credit
Are the participants able to access financial services through either financial or non-financial institutions, and are these services appropriate for the development of small economic activities?
The formal financial institution includes development financial institutions, commercial banks, and credit unions. Generally there is big gap between the financial needs of the poor and resources available from the formal financial sector. However, it is important to know what services are available through formal financial sector institutions.
But the poor are not the part of formal bank due to various constraints like collateral and mortgage.

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