It was recently reported in Malaysia’s ‘The Star’ online newspaper [1] that the government in the northern state of Perak on the Western Peninsula of Malaysia is to announce details of a ’micro-credit financing model’ to help eradicate poverty during the state assembly sitting currently scheduled for 28 October 2009. Senior state minister or ‘Mentri Besar’ Dr Zambry Abd Kadir said the model would be broadly based on the Grameen methodology [2]. Dr Zambry was quoted as saying that the proposed microfinance model for Perak would focus on giving ‘the hardcore poor’ some financial assistance to start up small businesses. He also added the microfinance technique employed will have similarities to the microfinance schemes offered by Amanah Ikhtiar Malaysia (AIM) [3], one of the more established microfinance institutions in Malaysia. Previous Microcapital.Org publications on AIM have been set out in the Bibliography section below [4]. It is not currently known how much funding will be provided to support the Perak microfinance programme. Continue Reading »

A recent article in India’s Economic Times entitled ‘The Reserve Bank of India may ask banks to hold securitised debt for six months’ [1] by Gaurav Pai noted that the Reserve Bank of India (RBI) [2] may ask Indian banks to retain originated debt on their loan books for six to seven months before selling or securitising those loans to other market players. A securitisation is a financing technique under which loans originated by a bank are sold to another market participant, usually a special purpose vehicle (SPV) for an agreed price. The SPV funds the purchase of the portfolio of loans from the originating bank by issuing debt instruments to investors. These debt instruments are often known as ‘asset backed securities’ as they are typically backed or collateralised by the portfolio of loans. Continue Reading »

A recent report by Deepti Chaudhury on the Live Mint online financial news portal entitled ‘Crime, inaccessibility impede spread of microfinance activity’ [1] discusses the challenges faced by some MFIs that operate in certain regions in India including Bangalore, Uttar Pradesh and the remote areas in Jammu and Kashmir. The report talks about an interview with a potential microfinance client in Uttar Pradesh’s Bahraich town. The potential client has been unable to secure access to microcredit facilities despite being young and having the means to repay simply because he lives in an area where ‘even the MFIs don’t want to go because widespread poverty has made forming self-help groups difficult’. In addition, most people in the area work in a livelihood or sector that cannot be expanded. Continue Reading »

In a recent article in India’s Business Standard online paper entitled ‘There is a tension between scale and soul in microfinance’ [1], reporter Sreelatha Menon interviews the CEO of Access Development Services (ADS) [2], Mr Vipin Sharma, on microfinance and the forthcoming event organized by on ADS later this month on responsible and social finance. Delhi-based ADS is a non-profit company that was established in March 2006 with a focus on ‘incubating emerging MFIs’ and helping them ‘upscale their operations, enhance their portfolio and meet the growing demand among poor communities’. ADS also seeks to facilitate on-lending fund flows from financial institutions through the ACCESS Microfinance Alliance platform [3]. Continue Reading »

It was recently reported on the Reuters news wire [1] that Omidyar
Network (Omidyar) [2], a social investment firm, has established a
new entity in India called Omidyar Network India Advisors which will be led by Mr Jayant Sinha. The Indian office will enable Omidyar to increase investments and partner more closely with India-based portfolio organizations. Mr Sinha expects Omidyar’s involvement in India to ’catalyze economic opportunity and social impact’ in the country through ’market-based approaches that have the potential to improve millions of lives’. Continue Reading »

It was recently reported in India’s Economic Times [1] that the central bank, the Reserve Bank of India (RBI) [2] may widen the scope of the ‘Business Correspondent’ model for Indian MFIs following receipt of preliminary feedback from some Indian banks. Under the Business Correspondent model, banks are entitled to engage intermediaries to disburse ’small value credits’, recover principal and interest payments, collect ’small value deposits’, sell microinsurance or pension products and receive or deliver ’small value remittances’ according to information on the RBI website [3]. The intermediaries engaged as Business Correspondents must be ‘well established’ and enjoy a good reputation locally. The idea is for Business Correspondents to improve an MFIs outreach without compromising the quality of services provided to microfinance clients. The RBI has now proposed to ‘unveil new norms for Business Correspondents’ in a way that would relax certain requirements and widen the geographical coverage of many MFIs. The RBI’s aim is to encourage more ‘banks with scattered branches particularly, private and foreign banks’ to adopt the Business Correspondent model. Examples of intermediaries that can be engaged as Business Correspondents include ‘NGOs, farmers’ clubs, cooperatives, community based organisations, IT enabled rural outlets of corporate entities, post offices [and] insurance agents’. Continue Reading »

It was reported in an article on Pakistan’s online The News portal entitled ‘Women face hurdles to developing business’ [1] that successful women microentrepreneurs who have the support of microfinance loans seldom develop their ventures into small or medium-sized businesses ‘due not only to gender-specific impediments’ but also ‘to their inability to access institutions established to facilitate them’. The report was authored by senior commerce reporter, Mr Mansoor Ahmed, at The News, Lahore. This conclusion was based on a study conducted by The News which revealed that in cities such as Sialkot and Gujranwala, many male entrepreneurs who started their businesses at a micro level subsequently ‘graduated’ and developed their enterprises into medium or large ones. The News found that such ‘graduation’ rarely occurs in relation to women microentrepreneurs, subject to a small number of exceptional cases. Specific details of the study conducted by The News are not currently available in the public domain. Continue Reading »

In an article entitled ‘MFI’s bad loans may triple: Crisil’ on India’s Business Standard online news portal [1], it was stated that the percentage of bad assets of MFIS’ is expected to triple to 1.5 percent from 0.5 percent by March 2010, as compared to the levels of bad assets in March 2009.This was the conclusion of India-based credit rating agency, Crisil. The agency attributed the increased levels of deteriorating assets to the global economic crisis which has had an adverse impact on microborrowers’ ability to repay their loans. Nonetheless, Crisil’s managing director and CEO, Ms Roopa Kudva stated that the deterioration in asset quality was still not at the levels seen in 2007 and that MFIs’ asset quality was generally healthier than those of other participants in India’s financial sector. Continue Reading »

It was recently reported on the online news portal of The Philippine Star [1] that the Philippine central bank, Bangko Sentral ng Pilipinas (BSP) [2], is taking steps to allow rural banks and other community-based banks to sell simple microinsurance products. BSP officer-in-charge Mr Nestor Espenilla Jr informed members of the Rural Bankers Association of the Philippines [3] that a formula allowing rural banks to sell simple insurance products to cover mortgage redemption, the protection of farm equipment and services vehicles as well as health insurance would soon be presented to the Monetary Board [4] in the Philippines for approval.
At the moment, foreign and commercial banks can sell insurance products of their affiliates as long as they hold a minimum 5 percent stake in the insurance affiliate. Unlike such banks, rural financial institutions often lack the resources to invest in insurance companies. Continue Reading »

In a blog on the CGAP Microfinance Blog portal entitled ‘When MFIs fail, is their loan portfolio worth anything?’ [1], Senior Advisor to Research and Market Intelligence Team at CGAP, Mr Richard Rosenberg refers to Mr Daniel Rozas’s publication entitled ‘Throwing in the Towel: Lessons from MFI Liquidations’ [2]and makes some observations about the steps an MFI should take to maximise collections on a deteriorating loan portfolio. Mr Rosenberg notes that Mr Rozas’ article offers a ‘useful, timely, concise, and readable study of a half-dozen MFI failures, focusing on efforts by creditors and others to collect the loan portfolio of the defunct institutions’ but cautions that some of Mr Rozas’ recommendations may be difficult to implement in practice. Continue Reading »

A recent article entitled ‘Microfinancing China’ in the Wall Street Journal [1] by Mr Vikram Akula and Mr Tarun Khanna discuss the scope for microfinance in China and explores why the concept of microcredit has a ‘notably minimal footprint’ in a mammoth economy such as China. Mr. Akula is founder and chairperson of India-based MFI, SKS Microfinance [2]. Mr. Khanna, the author of the book ‘Billions of Entrepreneurs’ [3] is Jorge Paulo Lemann Professor at Harvard Business School and serves on SKS Microfinance’s board of directors. The view taken by Mr Akula and Mr Khanna is that ‘it will take hard work and reform to grow microfinance in China’ but that millions of poor people in the world’s third largest economy could derive benefits from microloans. Continue Reading »

It was recently report in in Malaysia’s Bernama press portal [1] that Professor Sukor Kasim of Universiti Sains Malaysia’s (USM) [2], a tertiary educational institution in Malaysia, will be appointed adviser and consultant to the Perak state government in its bid to narrow income disparities in the state. Perak is a state in the northern half of Western Peninsula Malaysia. Professor Kasim was co-founder of Malaysia’s earliest microfinance NGO, Amanah Ihktiar Malaysia (AIM) [3] in 1986. AIM’s operations were modelled after Grameen Bank [4]. Continue Reading »

The International Banking Systems publication (IBS), an online journal that provides information on banking systems and operations, have produced a detailed supplement on the role of technological systems in microfinance [1]. An article within the supplement entitled ’Analysis: Microfinance Stakeholders - Guiding hands’ [2] explores how major stakeholders shape the market for microfinance information systems (MIS). The thrust of the article is that there is an important difference between the microfinance and commercial banking sectors when it comes to information systems and that MFIs depend heavily on key stakeholders such as the Bill and Melinda Gates Foundation [3], CGAP [4], the IFC [5] and GTZ [6] for guidance and direction in making technology decisions. The conclusion arrived at is that ‘directly or indirectly, it is these stakeholders that influence purchasing decisions by MFIs, on the business case for investment, the process of selection, and which products to choose’ in respect of MIS. Continue Reading »

The International Banking Systems publication (IBS), an online journal that provides information on banking systems and operations, have produced a detailed supplement on the role of technological systems in microfinance [1]. An article within the supplement entitled ‘Technology for Microfinance - Trends driving the technology’ [2], the authors discuss the growing importance of risk management systems in MFIs. These systems are significant as they allow MFIs to address critical issues such as over-indebtedness, a problem which has become acute for some MFIs in the current financial turmoil, and report to their investors promptly. Continue Reading »

  A recent article on the ‘Knowledge@Wharton’ online portal entitled ‘Microinsurance: A safety net with too many holes’ [1] contains a detailed discussion of existing challenges facing the microinsurance market. The article notes that there has been some recent innovation in the microinsurance sector, a market that has experienced relatively slow growth compared to the microfinance sector in general. The authors note that innovation is to be welcomed and a Bangladeshi pilot microinsurance programme is cited as an example. Continue Reading »

In a recent posting entitled ‘More transparency, please!’ on the CGAP Microfinance Blog [1] by Mr Christoph Kneiding, a Market Intelligence Officer for CGAP, attention is drawn to the important issue of transparent pricing for microlending products. Whilst jurisdictions such as the United States have legislation such as the Truth in Lending Act of 1968 which obliges lenders to disclose the annual percentage rate (APR) to prospective borrowers for all products, many countries - particularly those with a significant MFI community - do not have a regulatory framework under which transparent loan pricing can be effectively supervised and enforced. Continue Reading »

It was recently reported on the Vietnamese Business News online portal [1]  that the Vietnamese Government has decided to set up a Working Committee on Micro-Finance. The Working Committee will be chaired by the Governor of the State Bank of Vietnam (SBV) [2], Mr Nguyen Van Giau. The Working Committee is responsible for studying and making recommendations to the Vietnamese Prime Minister on the directives and measures necessary to develop microfinance operations in the country. It will also assist the Prime Minister in guiding and coordinating the relevant ministries, ministerial agencies and government agencies. Continue Reading »

In a recent blog entry entitled ‘Is 95% a good collection rate?’ [1] CGAP Senior Advisor Mr Richard Rosenberg discusses the misconceptions about collection rates in the microfinance world. His blog has attracted significant comment and queries, some of which are referred to below. According to Mr Rosenberg, MFIs that report collection rates of over 90 percent or 95 percent in some cases are typically viewed positively by the press and by other market participants. He cautions that the situation may not be as promising or straightforward as it sounds and that ‘for most MFIs a collection rate of 95 percent would be unsustainable’. One should not equate a 95 percent collection rate with ‘losing just 5 percent of [our] portfolio a year to loan default’ as the reality is often more complicated. In an extreme scenario, he adds that ‘if an MFI makes 3-month loans repayable weekly, and collects 95 cents of every dollar it lends, it will lose almost 40 percent of its loan portfolio in a year’. This is a scenario he explains in some detail in his blog and is summarised below. Continue Reading »