MicroCapital » Christopher Maggio

MICROCAPITAL BRIEF: ACCESS Development Services of India Releases “State of the Sector Report 2010″ Questioning Role of Microfinance Institutions (MFIs) as Responsible Lenders

Christopher Maggio — Mon, 20 Dec 2010 09:25:37 +0000

ACCESS Development Services, a nonprofit offering consulting services to microfinance institutions (MFIs), has released its “State of the Sector Report 2010,” (not yet available online) which questions whether MFIs are responsible lenders, citing “supernormal” profits for Indian MFIs compared to Indian commercial banks. Furthermore, the report asserts that many MFIs are not passing on the benefits of increased lending volumes and lower operating costs to borrowers through lower interest rates. Specifically, of the 31 MFIs studied, only 5 reduced costs to borrowers through a reduction of operating costs resulting in lower portfolio yields. Fourteen MFIs instead increased profits through lower operating costs, thus increasing their portfolio yield. Twelve of the MFIs did not lower operating costs and increased interest rates charged to borrowers. ACCESS Development Services interprets these results as an indication that “responsible finance has a long road to travel before reaching customers.”

A differing opinion comes from Chandra Sekhar Ghosh, Chairman and Managing Director of Bandhan Financial Services Private Limited, an MFI based in Kolkata, India, who reportedly believes that MFIs can only reduce rates gradually, if at all, as they must plan for uncertainty in an industry that has much of it. Additionally, Subhankar Sengupta, Managing Director of Arohan Financial Services Private Limited, another MFI based in Kolkata, asserts that it is “impossible” for MFIs to raise lending rates if bank rates rise, thus making it risky for MFIs to lower them if it appears that the cost of funds will rise in the near future.

About ACCESS Development Services: ACCESS Development Services, which is based in India, is a not-for-profit organization that offers consulting services to microfinance institutions (MFIs) through various means. It offers capacity building and technical services on topics such as operational organization, portfolio management, and financial management. It also works to facilitate funding to 130 member MFIs through the ACCESS Microfinance Alliance (AmFA). Lastly, it organizes the Microfinance India Summit annually in order to provide the microfinance community the opportunity to meet and learn from each other, participate in discussions and debates on key issues and be exposed to the international experiences and innovations. ACCESS Development Services was founded in 2006.

About Bandhan Financial Services: Bandhan Financial Services Private Limited is a microfinance institution (MFI) based in Kolkata, India. It was founded in 2002. As of December 31, 2009, it operates in 14 states in India with 1,008 branches. It offers loans for microenterprises as well as for individuals to pay for health emergencies. According to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, Bandhan Financial Services reported a gross loan portfolio of USD 333 million, total assets of USD 424 million and 2.3 million active borrowers in 2009.

About Arohan Financial Services: Arohan Financial Services is a microfinance institution (MFI) based in Kolkata, India. It offers loans and life insurance primarily in urban areas of eastern India. It was founded in 2006. According to the MIX Market, the microfinance information clearinghouse, Arojan had USD 8.7 million in total assets, a USD 8.2 million gross loan portfolio and 86,273 borrowers as of 2009. In the same year it reported 3.53 percent return on assets (ROA) and 14.93 percent return on equity (ROE).

By Christopher Maggio, Research Associate

Live Mint article: “Responsible micro-lending has a long road to travel, says study”: http://www.livemint.com/2010/11/24222920/Responsible-microlending-has.html?atype=tp

MICROCAPITAL BRIEF: State of the Sector 2009, a Report by ACCESS Development Services, Studies Microfinance in India: http://www.microcapital.org/microcapital-brief-state-of-the-sector-2009-a-report-by-access-development-services-studies-microfinance-in-india/

MicroCapital Universe Profile: ACCESS Development Services: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=ACCESS+Development+Services

MicroCapital Universe: Bandhan Financial Services: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bandhan+Financial+Services+Private+Limited

Browse the MicroCapital Universe and add your entry to the wiki at: http://www.microcapital.org/microfinanceuniverse/

MICROCAPITAL BRIEF: 350 Microfinance Institutions (MFIs) Report to Microfinance Information Exchange (MIX) Social Performance Reporting Awards

Christopher Maggio — Mon, 13 Dec 2010 08:40:11 +0000

The Microfinance Information Exchange (MIX), the microfinance data clearinghouse, recently argued that microfinance institutions (MFIs) around the world have increased their commitment to transparency in social performance based on a surge in applications to the MIX’s 2010 Social Performance Reporting Awards, which acknowledge openness in reporting. The awards do not judge social performance itself. More than 350 MFIs submitted applications to the MIX in 2010, as compared with 200 in 2009. The greatest numerical growth came from institutions in Latin America, which increased their participation from 81 in 2009 to 157 applications in 2010, followed by Asia, which increased from 41 applications in 2009 to 90 in 2010.

The Social Performance Reporting Awards bestow a “Certificate” to those MFIs that complete the Social Performance Standards Report, a “Silver Award” to those that also provide data on poverty measurement, and a “Gold Award” to those that additionally “have a social rating that includes auditing of the poverty tool used by the MFI.” In total for 2010, 173 MFIs that applied have received recognition, with 19 receiving Gold Awards, 32 receiving Silver Awards and 122 receiving Certificates. Additionally, 13 microfinance networks received certificates for having the majority of their affiliates report their social performance to the MIX, 5 of which were further recognized for the “strong social reporting of their affiliates.”

About Microfinance Information Exchange (MIX): Established in 2002, Microfinance Information Exchange (MIX) is a nonprofit organization with headquarters in Washington, DC, and regional offices in Peru, Morocco and India. It is a global, web-based, microfinance information platform. MIX provides detailed financial and social performance information from microfinance institutions (MFIs), as well as business information from market facilitators and donor organizations and investors in microfinance. As of 2010, MIX Market, the arm of MIX that reviews and analyzes MFI information, provides data on over 1,800 MFIs, over 100 investors and nearly 200 partners. MIX was founded by CGAP (Consultative Group to Assist the Poor) and is sponsored by Citi Foundation, Deutsche Bank Americas Foundation, International Fund for Agricultural Development (IFAD), the Bill & Melinda Gates Foundation and Omidyar Network.

By Christopher Maggio, Research Associate

[1] Microfinance Information Exchange Press Release: “Microfinance Institutions Responding to Call For Better Social Reporting”: http://www.themix.org/press-release/microfinance-institutions-responding-call-better-social-reporting

MICROCAPITAL.ORG STORY: The 2009 Social Performance Reporting Awards for Microfinance Are In: http://www.microcapital.org/microcapital-brief-microfinance-information-exchange-mix-seeks-nominations-for-social-performance-reporting-awards-2010/

MicroCapital’s Microfinance Universe profile: Microfinance Information Exchange (MIX): http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microfinance+Information+Exchange+(MIX)

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MICROCAPITAL BRIEF: World Microfinance Forum Geneva Hosts Debate on Corporate Governance as it Relates to Managing Crises in Microfinance

Christopher Maggio — Mon, 13 Dec 2010 08:24:14 +0000

The World Microfinance Forum Geneva recently hosted a debate on issues related to corporate governance and its importance in managing crises in microfinance. Carlos Danel, Founder and Executive Vice-President of Compartamos, a microfinance institution (MFI) in Mexico, argued that certain general governance principles from the financial industry, such as having a majority of independent board members, can be applied to the microfinance industry. Sajeev Viswanathan, CEO of Bhartiya Samruddhi Finance Limited (BSFL), the microfinance arm of India’s Basix Group, disagreed, putting forth that the microfinance industry is too “diverse and fast-changing” for general principles.

There was no consensus on specific governance principles that should apply to all MFIs, but the panel did agree that nonprofit MFIs transitioning to for-profit status must work within governance structures that are specific to individual transformation stages. These governance structures should also, perhaps, differ by region. The panel also agreed that governance often affects investors’ decisions and is the primary determining factor in due diligence cases. As a follow-up to these debates, the World Microfinance Forum Geneva will launch an online “Governance Platform” in March 2011 that microfinance practitioners, investors and other stakeholders can endorse as well as contribute ideas to.

About Compartamos Banco: Compartamos Banco is a microfinance bank based in Mexico that was founded in 1990. It offers both group and individual loans in rural and urban areas. Compartamos Banco provides small loans to low-income Mexican individuals and business owners, such as craft manufacturers, food vendors and other small businesses. It also offers voluntary savings, insurance, and loans specifically for home improvement. The company made its initial public offering (IPO) in 2007 on the New York and Mexican stock exchanges in a transaction worth USD 467 million, and, as of June 30, 2010, has a total loan portfolio of MXN 8.5 billion (the equivalent of USD 673 million).

About Bhartiya Samruddhi Finance Ltd. (BSFL): Bhartiya Samruddhi Finance Ltd. (BSFL) is a regulated non-banking finance company (NBFC) based in Hyderabad, India, that was founded in 1997. It is part of the BASIX Group, which provides financial services, agricultural/business development services and institutional development services to rural poor households. According to the Microfinance Information Exchange (MIX), BSFL reported a gross loan portfolio of USD 223.2 million, total assets of USD 302.6 million and 1.1 million active borrowers as of March 31, 2010.

By Christopher Maggio, Research Associate

[1] World Microfinance Forum Geneva press release: “The Future Risks and Opportunities in Investible Microfinance: Debate on Corporate Governance in Microfinance, 14th October, Geneva”: http://www.microfinancegateway.org/gm/document-1.9.48410/World_Microfinance_Forum.pdf

MicroCapital’s Microfinance Universe profile: Compartamos Banco: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Compartamos+Banco

MicroCapital Universe: Bhartiya Samruddhi Finance Ltd: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Bhartiya+Samruddhi+Finance+Ltd+(BSFL)

Browse the MicroCapital Universe and add your entry to the wiki at: http://www.microcapital.org/microfinanceuniverse/

MICROCAPITAL BRIEF: Microfinance Center for Central and Eastern Europe and the New Independent States (MFC) Implements “Debt Management” Training in Poland

Christopher Maggio — Mon, 13 Dec 2010 08:16:20 +0000

The Microfinance Center (MFC) for Central and Eastern Europe and the New Independent States, an international network of approximately 100 microfinance institutions (MFIs), and the Polish Partnership for Financial Education, which is a program of MFC’s Partnership for Financial Education for Vulnerable Adults (FEVA), have introduced a training module for low-income families in Poland entitled “Debt Management.” The training module is based on materials developed by Microfinance Opportunities, a microenterprise research center based in the United States, and Freedom from Hunger, a nonprofit international development organization also based in the United States. As of November 22, 2010, 40 trainers from community organizations have trained approximately 600 low-income households on the subject of debt management. Of these participants, 85 percent have said that the debt management training was useful to them. The Polish Rural Development Foundation, a member of the Polish Partnership for Financial Education, is aiming to reach 2,000 households in the coming year.

By Christopher Maggio, Research Associate

[1] International Association of social finance organisations article: “Struggling against growing indebtedness in Poland”: http://www.inaise.org/en/node/701

Microfinance Center (MFC): http://www.mfc.org.pl/

Partnership for Financial Education for Vulnerable Adults: http://fevagroup.org/

Browse the MicroCapital Universe and add your entry to the wiki at: http://www.microcapital.org/microfinanceuniverse/

MICROCAPITAL BRIEF: Institute for Financial Management Research Mezzanine Finance Private Limited (IFMR Mezz) Provides $221k in Subordinated Debt to Saija Finance Private Limited

Christopher Maggio — Mon, 13 Dec 2010 08:06:58 +0000

The Institute for Financial Management Research (IFMR) Mezzanine Finance Private Limited (IFMR Mezz), a microfinance investment arm of the nonprofit IFMR, has provided funds worth INR 10 million (approximately USD 221,000) to Saija Finance Private Limited, a non-banking finance company providing microfinance services in northern India, in the form of unsecured, subordinated debt. The debt is characterized as Tier: II capital, also known as “quasi equity,” meaning that IFMR Mezz will not be repaid first should Saija face financial difficulties resulting in its closure. IFMR Mezz views this investment as an alternative to both traditional debt capital, which can be difficult for any microfinance institution (MFI) to attract, and equity capital, which is generally only made available to larger MFIs and would dilute the equity stakes of pre-existing shareholders. The investment has a tenor 7.5 years with quarterly interest payments and a bullet, or complete, principal repayment due at the end of the term. Saija reports 2,860 borrowers and a gross portfolio equivalent to USD 256,597 as of 2010.

About the Institute for Financial Management and Research (IFMR): Institute for Financial Management and Research (IFMR) is a non-profit organization established in 1970 by ICICI, the House of Kotharis, and other major industrial groups. It is based in Chennai, India. The institute focuses on three main areas, including academic programs, research and innovation, as well as executive training and consulting. Its affiliated research centers include: Centre for Micro Finance (CMF), Centre for Development Finance (CDF), Small Enterprice Finance Centre (SEFC), Centre for Insurance & Risk Management (CIRM), Center for Advanced Financial Studies (CAFS), Centre for Innovative Financial Design (CIFD) and Jameel Poverty Action Lab (J-PAL).

About IFMR Mezzanine Finance: IFMR Mezzanine Finance Private Limited is a non-banking finance subsidiary of IFMR Trust. Registered with the Reserve Bank of India, IFMR Mezzanine Finance focusses exclusively on subordinate funding for microfinance institutions, including managing co-investments.

About Saija Private Limited: Saija Finance Private Limited is a Non Banking Finance Company that provides microfinance services to the poor in Northern India. Founded in April 2008, it aims to cater specifically to the states of Bihar, Jharkhand, Delhi, Rajasthan, Chhattisgarh and parts of Uttar Pradesh and Madhya Pradesh. Saija claims to have 2860 borrowers, total loans disbursed equivalent to USD 1.2 million, a gross portfolio equivalent to USD 256,597 and total assets of INR 11 million (equivalent to USD 240,000).

By Christopher Maggio, Research Associate

MicroCapital Universe: Institute for Financial Management and Research (IFMR): http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Institute+for+Financial+Management+and+Research+(IFMR)

MicroCapital Universe. Saiji Private Limited: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Saija+Finance+Private+Limited

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MICROCAPITAL BRIEF: Microfinance Center (MFC) for Central and Eastern Europe and the New Independent States Concludes Meeting on Financial Education Program (FEP) for Low-Income Households in Uzbekistan

Christopher Maggio — Mon, 13 Dec 2010 08:01:19 +0000

The Microfinance Center (MFC) for Central and Eastern Europe and the New Independent States, an international network of approximately 100 microfinance institutions (MFIs), has concluded the second meeting of a policy working group for its Financial Education Program (FEP) for Low-Income Households in Uzbekistan. FEP aims to increase local capacity to spread financial literacy, adapt financial literacy tools to better service Uzbekistan and develop a national strategy to increase financial literacy. The program uses the “Plan Your Future” training module intended to promote “planning, saving, borrowing and effective use of financial services.” The first workshops for the program began in April 2010 and the program has a goal of training 800 low-income people, establishing 25 local “financial advisory points,” and reaching 10,000 households with a “social campaign.” MFC plans to disseminate the results of FEP at a conference planned for May 2011. The project is funded by the European Commission, the executive body of the European Union.

By Christopher Maggio, Research Assistant

[1] UzReport NewsWire article “Financial Education Program (FEP) for Low-Income Households in Uzbekistan”: http://newswire.uzreport.com/cgi-bin/view_relis.cgi?lan=e&id=1890

[2] MFC Overview of Financial Education Program for Low-Income Households in Uzbekistan: http://www.mfc.org.pl/finedu.html#uzbekistan

Browse the MicroCapital Universe and add your entry to the wiki at: http://www.microcapital.org/microfinanceuniverse/

MICROCAPITAL BRIEF: Intellecap Publishes White Paper Analyzing Events Leading Up to Andhra Pradesh Microfinance Lending Crisis and State, Media Responses to the Crisis

Christopher Maggio — Mon, 13 Dec 2010 08:00:41 +0000

Intellecap, a social-sector advisory firm with offices in India and the US, has released a white paper analyzing the events leading up to the ongoing microfinance lending crisis in Andhra Pradesh, a state on the southeastern coast of India. In light of accusations against microfinance institutions (MFIs) of transgressions such as usurious interest rates and coercive collection practices, the paper cites “harmful” effects of the media response and suggests that the “state government [may be] unhappy that its programs (and perhaps the individual influences of some members of government) are being undercut by the MFIs.”

The paper also analyzes the recent ordinance of the state government of Andhra Pradesh that aims to regulate lending with the express intention of protecting “the women Self Help Groups (SHGs) from exploitation by the MFIs.” It is the opinion of the authors that the ordinance may inadvertently lead to the shutdown of the microfinance industry. The authors offer several examples in support of this opinion. For instance, while MFIs must register with the State within a time limit, the State has no time limit by which it must complete the registration. Additionally, the Registering Authority may cancel an MFI registration at any time, which the authors believe could lead to abuse by said organization. Regarding the media, the authors point to the highly publicized suicides in Andhra Pradesh and the media’s willingness to correlate microfinance debt with said suicides without an in-depth investigation. Lastly, the authors believe that, separate from their opinions about the reactions of the State and media, the “microfinance industry must establish stronger ethical practices, reporting and compliance rules and encourage transparency.”

By Christopher Maggio, Research Associate

[1] Intellecap white paper entitled “Indian Microfinance Crisis of 2010: Turf War or a Battle of Intentions?”
http://intellecap.com/assets/82/Intellecap_Microfinance_White_Paper_Oct_2010_.pdf

[2] Andhra Pradesh Microfinance Ordinance 2010
http://indiamicrofinance.com/wp-content/uploads/2010/10/Andhra-MFI-Ordinance.pdf

MICROCAPITAL BRIEF: Microfinance Information Exchange (MIX) Assesses Potential Impact of Recent Microfinance Regulation in India’s Andhra Pradesh State
http://www.microcapital.org/microcapital-brief-microfinance-information-exchange-mix-assesses-potential-impact-of-recent-microfinance-regulation-in-india%E2%80%99s-andhra-pradesh-state/

MICROCAPITAL BRIEF: Series of Suicides Related to Microloan Repayment Rock India, Raises Questions of Whether Interest Rates Charged by Microfinance Institutions (MFIs) are Too High
http://www.microcapital.org/microcapital-brief-series-of-suicides-related-to-microloan-repayment-rock-india-raises-questions-of-whether-interest-rates-charged-by-microfinance-institutions-mfis-are-too-high/

Browse the MicroCapital Universe and add your entry to the wiki at: http://www.microcapital.org/microfinanceuniverse/

MICROCAPITAL BRIEF: Munich Re Foundation, Microinsurance Network Publishes Proceedings of 6th International Microinsurance Conference in Manila, Philippines

Christopher Maggio — Sat, 11 Dec 2010 07:31:33 +0000

The proceedings of the 6th International Microinsurance Conference that took place on November 9-11, 2010, in Manila, Philippines, have been published by its organizers, the Munich Re Foundation, a nonprofit founded by German reinsurer Munich Re, and the Microinsurance Network, a for-profit organization that promotes the development of microinsurance products through information sharing and stakeholder organization. The conference featured approximately 80 practitioners, academics and industry leaders as well as representatives of regulatory bodies from approximately 15 countries who discussed research and case studies in areas such as pricing, weather index insurance and the determinants of microinsurance adoption. Among the findings were that the rate of microinsurance adoption is very sensitive to price and that effective weather index insurance should be based on multiple data sources, including local knowledge. The Munich Re Foundation has published the details and results of the conference at:

http://www.munichre-foundation.org/NR/rdonlyres/1F14880F-A1E2-4546-8A53-A52022551F08/0/MIC2010_Summaries.pdf

About Munich Re: Munich Re is a reinsurance company established in 1880 in Munich, Germany. It provides insurance advisory services, reinsurance, primary insurance and health insurance. Its assets are managed by Munich Ergo Asset Management (MEAG). As of 2009, Munich Re has an investment portfolio of EUR 182 billion (USD 256 billion), return on equity (ROE) of 11.8 percent and return on assets (ROA) of 4.3 percent.

About the Microinsurance Network: The Microinsurance Network was first established in 2002 as the CGAP Working Group on Microinsurance. The organization aims to promote the development of good-value insurance products for low-income populations by providing a platform for information sharing and stakeholder coordination. It has 52 member organizations. There is no financial information available on the organization.

By Christopher Maggio, Research Associate

[1] Munich Re Press Release: “Microinsurance sees growth opportunities worldwide: 6th International Microinsurance Conference concluded on 11 November in Manila”
http://www.munichre-foundation.org/StiftungsWebsite/Projects/Microinsurance/2010Microinsurance

Summaries: 6th International Microinsurance Conference
http://www.munichre-foundation.org/NR/rdonlyres/1F14880F-A1E2-4546-8A53-A52022551F08/0/MIC2010_Summaries.pdf

MicroCapital’s Microfinance Universe profile: Munich Re
http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Munich+Re

MicroCapital’s Microfinance Universe profile: Microinsurance Network http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=The+Microinsurance+Network

Browse the MicroCapital Universe and add your entry to the wiki at: http://www.microcapital.org/microfinanceuniverse/

MICROCAPITAL BRIEF: International Finance Corporation (IFC) Provides $15m Equity Investment to Lok II, an $80m Microfinance Fund that will Invest in Microfinance Institutions (MFIs) in India

Christopher Maggio — Thu, 06 May 2010 05:33:14 +0000

The International Finance Corporation (IFC), the investment arm of the World Bank, recently announced that it will provide an equity investment of USD 15 million in Lok II, a venture capital fund investing primarily in microfinance. Lok II is sponsored by the Lok Foundation, a non-profit corporation based in New York. The investment will comprise approximately 19 percent of the fund’s total size, USD 80 million. The fund will be based in Mauritius and invest primarily in Indian microfinance institutions (MFIs). No other investors have been specified. The fund is advised by Lok Advisory Services (LAS), a wholly-owned subsidiary of the Lok Foundation that is located in India. Lok II follows Lok Capital LLC, a USD 22 million fund that was founded in 2006 by Lok Capital Group, an organization consisting of the funds as well as the Lok Foundation.

By Christopher Maggio, Research Assistant

About
International Finance Corporation (IFC)

Description
A member of the World Bank Group, the International Finance Corporation (IFC) uses loan and debt securities, equity investments and guarantees with the intent of alleviating poverty. It invests in financial institutions and other companies in emerging markets as well as providing technical assistance. The IFC has 182 member countries that “collectively determine its policies, and approve investments.” In fiscal year 2009, its new investments totaled USD 14.5 billion.

About
Lok II

Description
Lok II is a venture capital fund that is based in Mauritius and invests primarily in Indian microfinance institutions (MIFs). It was founded in 2010 and is sponsored by the Lok Foundation, a non-profit corporation based in New York. The International Finance Corporation (IFC), the investment arm of the World Bank, has committed USD 15 million in equity to the fund, 20 percent of the fund’s total size of USD 80 million. As of May 3, 2010, no other investors have been specified.

About
Lok Capital LLC

Description
Lok Capital LLC is a limited-life limited-liability company based in Mauritius that provides equity and equity-linked investments to microfinance institutions (MFIs) in India. The fund was launched in 2006 with USD 22 million. Investors include ACCION International, Commonwealth Development Corporation (CDC), Developpement International Desjardins, Netherlands Development Finance Company (FMO), International Finance Corporation (IFC), KfW, and responsAbility. The average investment size ranges from USD 500,000 to USD 3 million. The Lok Foundation was created along with Lok Capital LLC to provide specialized technical assistance to Indian MFIs.

Additional Resources
VC Circle article entitled ‘IFC To Invest $15M In MFI Fund Lok II’: http://www.vccircle.com/500/news/ifc-to-invest-15m-in-mfi-fund-lok-ii

MicroCapital’s Microfinance Universe: International Finance Corporation (IFC)

MicroCapital’s Microfinance Universe: Lok II

MicroCapital’s Microfinance Universe: Lok Capital LLC

MICROFINANCE PAPER WRAP-UP: Outlook for Remittance Flows 2010-2011, by Dilip Ratha, Sanket Mohapatra, and Ani Silwal

Christopher Maggio — Tue, 04 May 2010 17:50:43 +0000

Written by Dilip Ratha, Sanket Mohapatra, and Ani Silwal, published by The Migration and Remittances Team of the World Bank’s Development Prospects Group (DECPG) in April 2010, 18 pages, available at: http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1110315015165/MigrationAndDevelopmentBrief12.pdf

The Migration and Remittances Team of the World Bank’s Development Prospects Group (DECPG), an organization providing information and analysis on global economic trends, has published a paper entitled “Outlook for Remittance Flows 2010-2011.” The paper discusses recent trends in remittances, provides statistics from 2008 and 2009, and provides estimates related to remittances over the next few years. Some of the highlights are as follows:

Remittances have decreased from USD 336 billion in 2008 to USD 316 billion in 2009 (6 percent). This was the first decrease since the 1980s. However, remittances were more resilient during the financial crisis relative to other flows such as private debt, equity and foreign direct investment. Eastern Europe and Central Asia saw the largest decrease in remittances, 21 percent from 2008 to 2009. South Asia saw the highest increase (5 percent) in remittances from 2008 to 2009, though this is modest compared to earlier rapid growth. India and China by far received the largest amount of remittances in 2009, with approximately USD 49 billion and USD 48 billion, respectively. The authors predict that remittances worldwide will increase by 6.2 percent in 2010 and 7.1 percent in 2011. These estimates are lower than they would have otherwise been due to high unemployment rates and low demand for high-skilled foreign workers in Organisation for Economic Co-operation and Development (OECD) countries.

The study also covers some general trends related to remittances. For example, countries such as El Salvador, Ethiopia, Nepal, the Philippines, Rwanda and Sri Lanka have issued or are considering issuing diaspora bonds, debt instruments issued by a country to raise funds from its diaspora population. Many banks and operators across the world are cutting remittance fees. The corridor from the United Arab Emirates to South Asia, for instance, often costs less than USD 1 per transaction. Another important trend is the introduction of mobile money transfer technologies, which have become vital to the remittance market in places such as Africa, South Asia and the Philippines. Lastly, many microfinance institutions (MFIs) are looking to provide remittance services.

By Christopher Maggio, Research Assistant