The grant is provided by the International Development Association (IDA), the World Bank’s concessionary lending arm. The funds will be sent through the Ministry of Finance and loaned to the Microfinance Investment Support Facility for Afghanistan (MISFA). MISFA will be the implementing agency that will use the project funds to on-lend to local MFIs. A significant part of the grant will be used to support legitimate economic opportunities in seven poppy growing provinces identified by the government.

MISFA was founded in 2003 by the Afghan government as the vehicle through which government and donors could channel funds to build up the lower end of the financial sector. MISFA aids MFIs in a variety of capacities including start-up, scaling up operations, building systems for transparent reporting and instilling a culture of accountability.

A major goal of this grant is to ensure the continuation of the ongoing Microfinance Support for Poverty Reduction Project, funded through the Afghanistan Reconstruction Trust Fund (ARTF). Since its establishment in 2003, the initiative has disbursed approximately USD 15 million in loans on average every month, added 10,000 to 15,000 clients per month, provided a total of over USD 100 million and created 600,000 jobs. Currently in Afghanistan, there are 15 MFIs with over 249 branches in 23 provinces, serving more than 410,000 clients. Seventy percent of these clients are women.

According to Stephen F. Rasmussen, World Bank Lead Financial Specialist, Project Team Leader and CGAP Advisor, microfinance has been “one of Afghanistan’s economic success stories of the past four years.” He said, “In a country where there is very little formal finance available for investment, the microfinance program has already demonstrated its ability to reduce poverty and create economic opportunities and employment for poor people right throughout Afghanistan.”

In addition to funds provided by government and donors, many of Afghanistan’s MFIs have begun increasing their funding diversification with financing from commercial sources.

Additional Resources:

Microfinance Gateway: “Microfinance in Afghanistan Gets US$30Mln Boost from World Bank.”

World Bank

World Bank: Press Release: “World Bank Grant Seeks To Ensure Sustainability For Microfinance In Afghanistan”:

World Bank: International Development Association (IDA)

World Bank: Afghanistan Expanding Microfinance Outreach and Improving Sustainability Project

Microfinance Investment Support Facility for Afghanistan (MISFA)

Afghanistan Reconstruction Trust Fund (ARTF)

The SCCI, established in 1982, is a trade association which seeks to aid, develop and protect the economic interests of Pakistan, particularly those engaged in industry, agriculture, commerce, trade, banking and insurance. The organization is comprised of approximately 6,000 members: industrialists, importers and exporters from various industries including sports, surgical, gloves, leather garments, badges, musical instruments, accessories and knives and cutlery.

In recent years, Sialkot, a city in the Punjab province of Pakistan located only a few miles from the disputed Kashmir region, has become a hub for exports and trade in Pakistan. Previously, SCCI introduced the Sialkot City Package, which aimed to improve conditions in the city through public-works projects such as improving roads. Additional efforts, such as renovations to Sialkot International Airport, have all functioned to accelerate the pace of trade and export volume of the city. Dr. Khawaja stated that the introduction of cargo service capabilities would further encourage the creation of small and medium size enterprises (SMEs) within the city. Further measures, such as modification of load-shedding would further encourage trade.

Currently, there are 20 microfinance providers in Pakistan which report to the Microfinance Information eXchange (MIX), over half of which are non-profit institutions. The largest microfinance institution (MFI) in Pakistan which reports to the MIX, Khushhali Bank, reaches 237,000 clients and has a gross loan portfolio of USD 35.4 million. As of May 2003, Asian Development Bank, a non-profit regional financial institution, estimated that less than 5 percent of poor Pakistani households had access to microfinance, stating: “The [microfinance] market remains grossly underserved, and its poverty reduction potential largely unrealized in the medium to long term.”

Additional Resources:

The News: “SCCI likely to begin microcredit scheme.”

Unique Pakistan: “Pakistans Sialkot Chamber of Commerce to Introduce Micro Credit Scheme.”

Sialkot Chamber of Commerce & Industry (SCCI)

SCCI: Profile

Asian Development Bank

Asian Development Bank: News and Events: “ADB’s Perspective on Microfinance Sector In Pakistan.”

Microfinance Information eXchange (MIX)

Microfinance Information eXchange (MIX): Demand: Pakistan

African Alliance has been in Uganda since 1997, but Africa Alliance Uganda was formally established in 2002 after the passing of the Collective Investment Scheme Regulations. It currently offers asset management, corporate advisory and securities services to clients which include major corporations, the Ugandan government, NGOs and individuals.

In the past five years, the construction sector has experienced an average growth rate of 12.8 percent, more than double the national average for the same period. However, due to various problems in the sector, credit institutions view financing construction projects as risky. According to Renaissance Capital, Ltd., a local stock brokerage firm, Uganda’s construction sector is faced with significant barriers to entry due to high capital requirements. Consequently, most construction companies which are established suffer from low liquidity because the high capital investment demands leave them with little money for working capital purposes.

Locally-owned construction companies are also affected by high levels of inefficiency – often caused by antiquated equipment – and scarcity of resources, which leads to low output, decreased profit and reduced growth. Political uncertainty and lack of strong industry regulations also contribute to instability and poor quality. Incidents of collapsed buildings and the sale of substandard construction materials are common in the sector.

Compounding these difficulties is the fact that financing construction is a particularly complicated exercise for investors. As a result, construction companies and manufacturers of building materials are facing problems raising funds for their operations. This in turn restricts expansion of capacity, slows down projects and leads to low output of finished work.

According to Edith Tusuubira, country manager of Oikocredit, competition will help to bring down high interest rates among formal finance institutions just as it has among MFIs. Development finance institutions typically charge 14 percent interest for construction projects, while banks charge 19 percent. Average interest rates among MFIs, while still high, have fallen from 36 percent in 2005 to approximately 25 to 30 percent today.

Oikocredit is a development finance institution and one of the largest financiers of microfinance worldwide. As of December 2006, it had 11 regional and 18 country offices worldwide, and EUR 320 million (USD 472 million) in total assets.

Additional Resources:

NationMedia.com: “Financiers shy away from construction’s high risks.”

African Alliance

African Alliance: Uganda

Renaissance Capital, Ltd.

Oikocredit

Oikocredit: Facts and Figures

Bloomberg.com: Currency Calculator

Standard Chartered is a London-based international bank that operates in over 50 countries worldwide. In 2006, StanChart had USD 266 billion in total assets, USD 249 billion in total liabilities and USD 17 billion in total equity. StanChart Group has developed 35 alliances with MFIs across Asia and Africa. The group also made a Clinton Global Initiative pledge in 2006, promising to channel USD 500 million over five years to MFIs in Africa and Asia.

In addition to providing loans to farmers, the bank will team with leading cotton shirt maker Esquel Cotton Investment, Ltd. to provide training courses to teach farmers basic financial and operational business concepts. Because Esquel has established relationships with many of the cotton farmers, it is expected that the company will also act as a strategic partner to Standard Chartered. Esquel Group is one of the leading producers of cotton shirts, manufacturing for such brands as Tommy Hilfiger, Hugo Boss and Brooks Brothers.

Some industry analysts see this program launch as a way for the bank to gain experience to possibly establish a rural bank in the region in 2008. The recent enthusiasm from foreign banks entering China’s rural banking market is largely the result of the lifting of Chinese government restrictions on such entities. At the end of 2006, the China Banking Regulatory Commission lowered the registered capital threshold to CNY 3 million (USD 410, 800) for banks at the country level, and CNY 1 million (USD 136,900) for those at the village and town levels. CEO of Standard Chartered Bank (China), Katherine Tsang, supported these reforms and reiterated StanChart’s commitment to banking the poor: “Standard Chartered Bank fully supports the government’s policy of expediting the reform of the rural financial system and is committed to active involvement in rural finance projects.”

Additional Resources:

ChinaDaily.com: “Standard Chartered joins rural finance campaign.”

Standard Chartered Bank (StanChart)

StanChart Group: Annual Report & Accounts 2006: Consolidated Balance Sheet

StanChart Group: Annual Report & Accounts 2006: Business Review – Sustainability

Microfinance Gateway: “Standard Chartered Bank Commits US$500Mln Towards Microfinance in Asia & Africa.”

Esquel Group

Bloomberg.com: Currency Calculator

Vikram Akula is founder and CEO of SKS Microfinance, one of the fastest-growing microfinance institutions (MFIs) in the world with nearly 300 percent growth in the past year. He was named one of TIME Magazine’s 100 Most Influential People of 2006. As of March 2007, SKS had USD 78.8 million in total assets, a gross loan portfolio of USD 63.2 million and a return on assets of 1.75 percent. Currently, SKS has 551 branches in South Asia and serves 1.2 million clients.

Mr. Akula argues that it is a misconception that MFI interest rates gouge the participants. Micro-enterprises earn disproportionately high returns on investments and, thus, are able to better absorb the cost. The reason for these disproportionately high returns, according to Mr. Akula, is that microenterprises: 1. Primarily use family labor; 2. Have low infrastructure costs (e.g. village groceries are often home-front stores); 3. Are in the informal sector of the economy where there are no taxes or legal fees; and 4. Operate where financial capital is a small percentage of the overall inputs, which are primarily labor.

These four characteristics of most micro-enterprises cause them to yield uncommonly high returns on investment, and thus, Mr. Akula argues that these businesses can hardly be considered victims of usurious lending practices. Mr. Akula also explains why such interest rates are necessarily high. Chief amongst these reasons is the high transaction cost of making a large number of tiny loans (as opposed to a small number of large loans) and the need for more intensive service in this sector (e.g. loan officers often have to travel to remote villages to give loans and collect repayment).

While Mr. Akula admits that in situations where near monopoly conditions exist, lenders have abused their position by charging exploitative interest rates, he does not believe that the problem would be alleviated by capping interest rates. Instead, Mr. Akula suggests allowing the market to create competition and lower prices.

Taking the counterpoint position, Chuck Waterfield is the developer of Microfin, the most widely used financial projection and planning software for MFIs. Mr. Waterfield has over 20 years experience in microfinance, having started MFIs in Haiti and Bolivia in the 1980s and 1990s and served as microfinance director for MEDA and CARE International. Currently, he works as an independent consultant whose clients include the Consultative Group to Assist the Poor (CGAP), the Small Enterprise Education and Promotion (SEEP) Network, ACCION International and Opportunity International.

Mr. Waterfield concedes that if priced fairly, microfinance services can offer benefits to both the lender and the entrepreneur. He argues, however, that the aggressive growth goals of for-profit banks in the microfinance sector will necessarily put these banks in a position of exploitative money lending.

Mr. Waterfield calls for regulation in microfinance lending to provide safeguards for entrepreneurs to defend the original principles on which microfinance was founded – to help the poor. To illustrate the potential consequences of not developing these regulatory mechanisms, he cites the example of pawn shops, which were originally started by churches to help their parishioners but devolved into more base establishments. Microfinance lending may tend in such a direction if there are not safeguards put in place to prevent exploitation of the poor, according to Mr. Waterfield.

For more information on this topic, please see the following sources:

CGAP Donor Brief No. 6: “Making Sense of Microcredit Interest Rates.”

BusinessWeek.com: “Online Extra: Yunus Blasts Compartamos.”

MicroCapital.org: “PBS Program ‘NOW’ Asks ‘Who’s Making Money from Microcredit?’”

PBS online: “Who’s Making Money from Microcredit?”

CGAP Donor Brief No. 18: “The Impact of Interest Rate Ceilings on Microfinance.”

CGAP Occasional Paper No. 9: “Interest Rate Ceilings and Microfinance: The Story So Far.” and CGAP Focus Note No. 33: “Competition and Microcredit Interest Rates.” Both available for download here.

Additional Resources:

BusinessWeek.com: “The Debate Room: Micro-finance Boosts the Poor.”

BusinessWeek.com: “The Ugly Side of Microlending.”

SKS Microfinance

SKS: Resources- SKS News: “Vikram Akula, SKS Microfinance Founder & CEO, named to TIME Magazine’s Top 100 List of Most Influential People.”

Microfinance Information eXchange (MIX): SKS (SKS Microfinance Private Limited)

School of International and Public Affairs (SIPA), Columbia University: SIPA Faculty: Chuck Waterfield

Microfin

Microfin: What Is Microfin?

Consultative Group to Assist the Poor (CGAP)

Small Enterprise Education and Promotion (SEEP) Network

ACCION International

Opportunity International

Helios EB is a limited partnership managed by Helios Investors, LP and advised by Helios Investment Partners, LLP. Helios Investment Partners is an investment firm making private equity investments in sub-Saharan Africa. Its primary focus is in West Africa, with a secondary focus on Central and Southern Africa. It specializes in large buyout or growth investments, as well as new business formations where there is clear potential for achieving meaningful scale in the medium term.

A fund such as Helios EB is set up to invest in a number of companies on behalf of its partners for a limited period of time – typically 10 years. Upon the termination of this period the fund is harvested and the money shared among the investors. Among the notable investors in Helios EB are investment firms owned by the US government – including the Overseas Private Investment Corporation, the UK government – including the CDC Group, the World Bank – International Finance Corporation, as well as funds owned by American billionaire George Soros.

Equity Bank was originally founded in 1984 in central Kenya primarily to serve small scale tea and coffee farmers. Originally a building society, Equity Bank formally became a bank only very recently in 2004. The bank has a current customer base of 1.8 million and, as of December 2006, USD 287.5 million in total assets. Last year, the bank earned significant credibility when it announced that it had earned KES 1 billion (USD 16 million). In addition to its own capital, Equity is also disbursing a KES 7 billion (USD 112 million) UN fund to advance women entrepreneurs in Kenya.

Mr. Mwangi attributes the bank’s recent success to its departure from traditional banking practices in Kenya. Whereas most financial institutions would deem ordinary Kenyans too big a credit risk to serve, Equity Bank has built a reputation serving precisely these populations. The bank’s practices have earned it international acclaim, including an award of excellence at the recent G8 summit and favorable rankings on the United Nations Development Fund list: third-best microfinance institution in the world and best microfinance bank in Africa. Mr. Mwangi stated that this recognition by international leaders, as well as the popularity of the bank among Kenyans, are the primary factors that led the bank to its decision to expand regionally. 

Additional Resources:

Africa News: “Kenya: Equity Bank goes regional.”

All Africa: “Kenya: NSE Okays Listing of Kenol, Equity Bank Shares.”

Equity Bank 

Helios EB  

Standard Chartered 

Barclays

Kenya Commercial Bank

Microfinance Information eXchange (MIX): Equity Bank (Equity Bank)

International Finance Corporation (IFC): IFC Projects: Helios Investors LP

Bloomberg.com: Currency Calculator

Developing World Markets (DWM), a fund manager and investment bank, will provide USD 3 million of the USD 7.2 million. The EBRD will provide the remaining USD 4.2 million.

The two banks to receive the funds are Agroinvestbank and Bank Eskhata. Agroinvestbank, a commercial bank based in Dushanbe, will receive USD 6 million. The bank has over USD 105 million in total assets, a return on assets of 5.35 percent, 57 branches and approximately 7,000 active borrowers throughout Tajikistan. About 21 to 30 percent of its operations are comprised by microfinance. A USD 1.2 million loan will go to Bank Eskhata, a private bank based in Khujand. As of December 2006, it had USD 26.3 million in total assets, a return on assets of 9 percent and over 2,000 active borrowers. Between 51 and 60 percent of its operations constitute microfinance.

Agroinvestbank and Bank Eskhata have previously worked closely with the EBRD under the Tajik Micro and Small Enterprise Finance Framework. Through this framework, predecessor of the current Tajik Agricultural Finance Framework, the EBRD has provided credit lines in the country since late 2003. As of September 2007, four partner banks had disbursed over 27,000 loans worth a total of over USD 104 million to micro and small companies in Tajikistan.

Governor of the National Bank of Tajikistan, Murodali Alimardon, explained that the loans are important in large part because of the technical assistance the EBRD provides alongside the finance. Under the TAFF framework, training and education will be provided to farmers to avoid the use of harmful environmental practices, improve labor standards and help implement best farming practices.

The EBRD is also investing in Tajikistan’s agricultural sector via the Tajik Agricultural Finance Facility. The USD 35 million initiative, which is the first of its kind in the region, aims to diversify and restructure the agricultural sector by funding loans to small, private farms.

Through its micro and small enterprises programs the EBRD has supported over one million small enterprises throughout Eastern Europe, Russia, central Asia and the Caucasus. The EBRD is the largest single investor in this region and mobilizes significant foreign direct investment beyond its own contributions. Founded in 1991, the bank is owned by 61 countries and two intergovernmental institutions. As of December 2006, the EBRD had 112 active microfinance investments and EUR 493.5 million (USD 651.2 million) allocated to microfinance investments. 

Additional Resources:

European Bank for Reconstruction and Development (EBRD)

EBRD: December 12, 2007 Press Release

EBRD: About the EBRD

Developing World Markets

Agroinvestbank  

Bank Eskhata

Microfinance Information eXchange (MIX): Agroinvestbank (OJSC Agroinestbank)

MIX: Bank Eskhata (Bank Eskhata)

MIX: EBRD (European Bank for Reconstruction and Development (Group for Small Business))

Deposit insurance provides a mechanism whereby, in the event that an insured MFI fails, depositors do not lose the entirety of their money. The move by NDIC to cover MFIs is expected to increase investor interest in the sector by strengthening the financial safety net and promoting stability. 

In the past, it was legally impossible to insure MFIs this way because of differing regulatory and supervisory standards for microfinance banks versus other financial institutions. However, due to legislation passed in 2006, the NDIC now has the authority to extend its full services and capabilities to MFIs. In addition to insuring deposit liabilities, the NDIC aims to supervise and provide financial assistance to MFIs, as well as to check the distress syndrome in the industry.

NDIC, in conjunction with the Central Bank of Nigeria (CBN), plans to carry out massive capacity building and certification of the operators and regulators of the microfinance industry, according to Mr. Ogunleye. He revealed that the Financial Institutions Training Centre (FITC) and West African Institute for Financial and Economic Management (WAIFEM) have already been contacted to perform the training. 

The Nigerian Government has previously attempted to alleviate poverty at the grassroots level with various initiatives, but none has achieved lasting or far-reaching success. Recently, policies and projects revolved around community banks (CBs), but these institutions have experienced widespread failure. Between 1992 and 1996, 351 CBs out of a total of 1,368 operating in the country had collapsed, leaving 1,017 in the system. A decade later, in 2006, there were only 534 CBs in operation that were successfully licensed by the CBN. As a result, the CBN has set a deadline of December 31, 2007, for CBs to either convert to MFIs or close shop. Over 407 have converted so far, and spokesman for CBN Mr. Samuel Oni said the organization is optimistic that the target of 500 CBs will be surpassed before the deadline expires.

Currently, only eight microfinance providers in Nigeria report to the Microfinance Information eXchange (MIX). They report a total gross loan portfolio of USD 12 million and 250,000 active borrowers. 

Additional Resources:

Nigerian Tribune: “NDIC: Extending frontiers to microfinance, mortgage institutions.” By Odidison Omankhanlen. December 10, 2007.

Nigerian Deposit Insurance Corporation

MicroCapital.org: “Nigeria: Central Bank “Expects” Contributions from Local Governors to Fund Deposit Insurance for Microfinance Institution Customers.” December 10, 2007.

MicroCapital.org: “Nigeria: Central Bank Predicts 450 of 700 Microfinance Institutions Will Survive Into the New Year.” December 5, 2007. 

Central Bank of Nigeria

Microfinance Information eXchange: “Advanced Search: Nigeria”

Bloomberg.com: Currency Calculator

GHAMFIN is an informal network of institutions and individuals operating in the Ghanaian microfinance industry which evolved from a research program sponsored by the World Bank. The network’s objectives include establishing performance indicators to enable self-regulation of the industry, developing an information base in the country, promoting best practices among members, enhancing integration between the formal and informal sectors and collaborating with the government, donors and other networks to source research and development.

SPEED Ghana is a networking institution and support program for the development of micro, small and medium enterprises (MSMEs). SPEED Ghana also supports intermediaries such as business development and microfinance service providers to deliver market-oriented technical and financial services.

Executive secretary of GHAMFIN, Dr. David Andah, explained that the initiative will teach financial literacy and how to acquire the right information from financial institutions at various stages of the borrowing and investment cycle. It will educate them about their rights and responsibilities as consumers. The goal is to enable clients to responsibly handle matters relating to their financial well-being.

The campaign will utilize communication methods such as drama, posters, stickers and road shows in order to disseminate information.

Parallel to client education, the campaign will also promote client-oriented practices among financial institutions. The program will cover such topics as quality of service, respectful treatment of clients, accuracy and transparency of information and appropriate pricing.

Currently, seven Ghanaian microfinance providers report to the Microfinance Information eXchange (MIX). These institutions report a total gross loan portfolio of USD 53.5 million and roughly 146,000 borrowers.

However, according to a paper produced at the Woodrow Wilson School of Public and International Affairs in 2004, the number of potential clients of formal microfinance institutions in Ghana is estimated to be 3 million (pg 5). The same paper reported that there were 117 rural banks, 10 savings and loan providers, 253 credit unions, 50 NGOs and over 4,000 informal traders and money lenders in the country serving 2.8 million clients (pg 8) with various financial services.

Additional Resources:

Daily Guide: “Consumer Protection Campaign Introduced.”

Ghana Microfinance Institutions Network (GHAMIN)

GHAMFIN: “Mission Statement.”

SPEED Ghana

Consultative Group to Assist the Poor (CGAP)

Small Enterprise and Education Promotion Network (SEEP)

“Ghana: Microfinance Investment Environment Profile.” By Amit Jha, Neeraj Negi and Rekha Warriar.

Microfinance Information eXchange (MIX)

MISFA was established in 2003 as the vehicle through which the Afghan Government and various donors would channel technical assistance and funding to MFIs and, thus, help to build the financial sector. It operates under the Ministry for Rural Rehabilitation and Development. Key donors to MISFA include the Consultative Group to Assist the Poor (CGAP), the Canadian International Development Agency (CIDA), the UK Department for International Development (DFID), the US Agency for International Development (USAID) and the World Bank.

The study surveyed 1,019 households across five regions of Afghanistan. It concluded that the microfinance program has “empowered beneficiaries both socially and economically and has created substantial employment opportunities.” The study highlights the following findings:

•        70 percent of program beneficiaries are women

•       40 percent of clients live in rural areas

•       Over 80 percent of loans were used to establish or expand businesses

•        64 percent of women clients and 74 percent of men clients generated employment for themselves

•       47 percent of urban clients and 39 percent of rural clients generated employment for others

•        Based on the survey, MISFA estimates that clients have created 659,000 new jobs

•        44 percent of women clients reported having absolute control over their money

•       72 percent of borrowers reported an increase in their economic situation

 Additional Resources:

The Microfinance Gateway: “MISFA Afghanistan Releases Findings of Baseline / Impact Study.”

MISFA Newsletter: “Microfinance Times.” November 2007, pg. 4.

Microfinance Investment Support Facility for Afghanistan (MISFA)

MISFA: “The Vision for Microfinance in Afghanistan.”

Consultative Group to Assist the Poor (CGAP)

Canadian International Development Agency (CIDA)

Department for International Development (DFID)

US Agency for International Development (USAID)

World Bank