Details of the plan were not readily available. It is unclear whether the support will come in the form of loans, equity or grants. It was also not made clear whether the money will be earmarked for government institutions or independently operated MFIs. A total amount of capital was also not specified.

NAPEP is a country-wide poverty eradication program implemented by the federal government. Initiatives of the program include lending physical capital, improving technological infrastructure and providing medical services.

By Greg Casey, Research Assistant

Additional Resources:

Daily Triumph: Our Pact with Poverty

Daily Triumph: KNSG empowers micro-finance banks

National Poverty Eradication Program: Home

The Nation: Kano’s micro finance bank to empower youths

The goal of market maker’s is to produce liquidity, the ease of buying or selling, for a given security. Increased liquidity in Financiera Independencia’s securities will improve the firm’s attractiveness to investors who become confident that they will not have to pay premiums to trade the companies stock. Market makers also keep records of their transactions, creating improved transparency for the company’s stock. These functions will help the MFIs stock become more comparable to other publicly traded companies.

Founded in 1993, Financiera Independencia had total assets of almost USD 345m, a debt to equity ratio of 72 percent and a return of equity of 29 percent at the end of 2007. It also had a gross loan portfolio of USD 307m, which included 833,902 active borrowers as of the same date. All financial data was taken from MIX Market, the microfinance information exchange. To learn about the MFI’s recent management change, please read this previous MicroCapital story. The success of for-profit MFIs such as Financiera Independencia could be greatly affected by the formation of Grameen Carso, an MFI run by the Grameen Trust, which aims to undercut the interest set by commercial institutions.

By Greg Casey, Research Assistant

Additional Resources:

Market Watch: Financiera Independencia Appoints Market Maker

MIX Market: Financiera Independencia

Financiera Independencia: Home

Credit Suisse: Mexico

MicroCapital Story, September 22, 2008: Financiera Independencia’s (FINDEP) Managerial Change brings Investment Experience to its Microfinance Lending Services

MicroCapital Story, October 10, 2008: Mexican Billionaire Carlos Slim Donates $5m and Guarantees $40m for a New Mexican Microfinance Institution, Grameen Carso, Run by the Grameen Trust of Bangladesh

In the IPO, the government sold 64 million shares valued at TZS 38.4bn (USD 31m) to individuals and 16 million shares valued at TZS 9.6bn (USD 7.8m) to corporations. Five percent of the shares were supposed to be intended for the NMB workers, which would imply that they received 4.21 million shares valued at TZS 2.53b (USD 2m). These numbers conflict with earlier reports indicating the government planned to sell a total of 105 million shares valued at TZS 63b (USD 55m). No information explaining the discrepancy was available on the NMB website, nor the Tanzanian Government’s Consolidated Holding Corporation (CHC) website. To learn more about the IPO, please read this previous MicroCapital story.

The government has also announced how the oversold shares will be distributed. Individuals applied for 280 million shares valued at TZS 168bn (USD 138m). Each applicant will receive all requested shares up to 5,700 shares and 1.04 percent of any additional shares. Corporations applied for 94.8 million shares valued at TZS 56bn (USD 46m). Each corporate applicant will receive all shares applied for up to 200,000 shares and 4.6 percent of any additional shares. Since most applicants requested a relatively small number of shares, 88 percent of individuals and 78 percent of companies will receive their full order. The government had been expected to announce this earlier but delayed the process, blaming the recent worker’s strike.

Prior to the IPO, National Microfinance Bank was owned by the Government of Tanzania (51 percent), Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (RABO Bank) (34.9 percent), National Investment Corporation LTD (NICO) (6.6 percent), Exim Bank Tanzania (5.8 percent), and the Tanzania Chambers of Commerce Industries and Agriculture (TCCIA) (1.7 percent). Information regarding current holders of IPO shares was not readily available. Financial data was not available on the NMB website and the company is not listed on MIX Market, the Microfinance Information eXchange. To learn more about the privatization of NMB, please read this previous MicroCapital story.

Greg Casey, Research Assistant

Additional Resources:

Daily News Online: “Govt to return 170bn/- to applicants: NMB shares oversubscribed”

The Citizen: “NMB adviser postpones allotment of shares to Oct 17”

MicroCapital Story, September 12, 2008: Worker’s Strike at Tanzania’s National Microfinance Bank (NMB)

MicroCapital Story, August 18, 2008: Tanzanian Government Will Bar Kenya and Uganda from Participating in National Microfinance Bank Initial Public Offering Worth USD 55m

Microfinance Gateway: “Tanzania Bars Kenya, Uganda from Participating in MFI IPO”

Business Daily: “Tanzania bars foreigners from its hottest public share sale”

National Microfinance Bank: Home

NMB: Shareholder Information

NMB: History

National Investments Company Ltd: Home

Daily News: Sale of NMB shares start Aug. 18

Reuters: “UPDATE 2-Tanzania to float 21 pct in NMBank for $54 mln”

The Citizen: “NMB’s Initial Public Offer set for August”

Oanda.com: FX Converter

Stanbic Bank: Home

MicroCapital Story, January 4, 2007: Tanzanian National Microfinance Bank to Be Listed on Dar es Salaam Stock Exchange by June 2007

MicroCapital Story, October 6, 2005: Tanzanian Microfinance Bank Begins Rapid Privatization as Government Sells 49%

The organization is expressly designed to offer lower interest rates than MFIs currently operating in Mexico. This is particularly significant because Mexico’s microfinance sector is dominated by for-profit institutions. This highlights an ongoing debate in microfinance between those that advocate commercializing microfinance and those who believe that for-profit corporations do not fulfill the social goals of microfinance. Those in favor of profit maximization believe that market forces will make MFIs behave in a more efficient manner and allow them to more easily access international financial markets, increasing their number of active borrowers more quickly than non-profit institutions. Those opposing commercialization believe that earning profit from the poor is immoral and that for-profit institutions will shift away from helping the poor in order to maximize revenues.

One Mexican MFI in particular, Banco Compartamos, has been the center of much controversy because of its high interest rates. Once a non-governmental organization (NGO), the company transitioned to a corporation and raised USD 467m in an initial public offering (IPO). Many people have criticized the company and accused it of exploiting, rather than helping, the poor of Mexico. Muhammad Yunus, himself, has been especially vocal in his criticisms of the organization.

Mr. Slim, who has an estimated net worth of approximately USD 60b, made his fortune investing in Mexican industry with a heavy focus on communications. Among other assets, he owns Grupo Carso, a major Mexican conglomerate, which includes American Movil, a prominent wireless communications company. Fundacion Carlos Slim is one of Slim’s charitable ventures. While specific financial information on the foundation was not readily available, more information can be found on Mr. Slim’s website.

Muhammad Yunus, who won the 2006 Nobel Prize along with the Grameen Bank, is also the author of “Creating a World Without Poverty: Social Business and the Future of Capitalism” and “Banker to the Poor.” He is widely considered to be the founder of microfinance.

The Grameen Trust is a member of the Grameen Family of organizations, a group dedicated to poverty alleviation. One of the Trust’s main functions is to build new MFIs. It continues to own some of these and transfers others to local operators. Through the Grameen Bank Replication Program, the organization also provides financial and technical assistance to operating MFIs. It also facilitates discussion between new and experienced MFI operators and between MFI operators and members of the Trust.

The Grameen Bank, founded by Muhammad Yunus in 1976, is used as a model for other MFIs around the world. According to MIX Market, Grameen had total assets of almost USD 941m (in local currency), a debt to equity ratio of 996 percent and a return on equity of -2.21 percent as of December 31, 2007. Valued at the same date, the bank had a gross loan portfolio of USD 532m (in local currency), which included 6,707,000 active borrowers.

By Greg Casey, Research Assistant

Additional Resources:

CarlosSlim.com: Social Activity

Associated Press: “Slim and Yunus to offer credit to Mexico’s poor”

Reuters: “Mexico’s Slim links with credit guru to help poor”

MicroCapital Story, August 1, 2008: Nobel Laureate Muhammad Yunus Speaks Out Against For-Profit Microfinance from Asia-Pacific Microcredit Summit

MicroCapital Story, May 1, 2007: Breaking the Mould: Mexican Banco Compartamos Drags Microfinance into a Controversial New Era Despite the Kicking and Screaming

MicroCapital Story, April 7, 2008: New York Times Reports on Controversial Microfinance Giant Banco Compartamos of Mexico

MicroCapital Story, February 28, 2008: Banco Compartamos, Mexico’s Largest Microfinance Bank, Reports 33.7 Percent Increase in Net Income in 2007

MIX Market: Grameen Bank

MIX Market: Demand in Mexico

MIX Market: Banco Compartamos

Grameen Foundation Press Release: “Grameen Companies Launch New Microfinance and Healthcare Initiatives”

Forbes: “The World’s Billionaires – #2 Carlos Slim Helu & Family

Fortune: “Carlos Slim, the richest man in the world”

Grameen Trust: Home

GT: Replication Program

Grameen Info: Home

Comat provides a number of technological services that incorporate India’s rural poor. For instance, they participate in “software development, hardware procurement, systems integration, and kiosk deployment and operations” related to rural kiosks, which allow villagers to access technological services. They also work with government to provide the technical backing for policies and programs designed to assist the poor. Comat is a for-profit business that also focuses on achieving positive social goals. Financial data was not available on the company’s website.

The Unitus Equity Fund (UEF) is a fund administered by Elevar Equity, a “strategic affiliate” of Unitus, inc. According to a Unitus press release, the fund stopped raising new capital in 2006 and had USD 23.4m under management at that time. The fund’s website lists six current equity investments. Each of the recipient companies is involved in actual microfinance lending. At least one, MokshaYug Access Pvt. Ltd, also performs technical functions and supply chain management. This is the fund’s first investment in a company that does not perform lending services. According the MIX Market, the Microfinance Information eXchange, UEF had 8 equity investments totaling USD 9.4m as of 12/31/2005.

Unitus also recently launched the Unitus Equity Fund II (UEF II), which was founded in May with a combined USD 40m investment from Omidyar and Legatum. According to a previous MicroCapital story, the new fund will expand on its predecessor by “investing in companies that ‘offer products and services that enable the world’s poor to create opportunities for themselves and their communities,’” breaking away from a pure focus on MFIs. The new fund is not yet listed on MIX Market, the Microfinance Information eXchange, nor does it maintain its own online presence.

The Omidyar Network is a philanthropic investment organization created by Pierre Omidyar, the founder and e-bay, and his wife, Pam. The organization has invested over USD 150m in microfinance-related organizations. According to the company’s website, they “are working to enable the microfinance sector to access private capital markets.” According to MIX Market, the company works with a wide range of investment types, including private equity, loans and debt securities as well as grants and technical assistance. They have made investments in technology firms, research institutes, microfinance funds and other important players in the microfinance market, spanning many countries. To view all microfinance related investments, please see the company’s website. In addition to their recent investment in UEF II, Omidyar also provided a USD 9m grant to Unitus. MicroCapital has reported extensively on Omidyar’s previous investments.

By Greg Casey, Research Assistant

Additional Resources:

Business Standard: “Comat raises Rs 60 crore from Omidyar and Unitus

MIX Market: Omidyar Network

MIX Market: Unitus

Omidyar Network: Home

Omidyar: Portfolio – Access to Finance

MicroCapital Story, May 12, 2008: Indian Microfinance Institution Grama Vidiyal Microfinance (GV) Plans Expansion and Receives USD 3.5 Million from Unitus Equity Fund and Vinod Khosla

MicroCapital Story, May 19, 2008: Investment Group Legatum and Omidyar Network Invest $40m in Unitus Equity Fund II

MicroCapital Story, April 29, 2008: MICROCAPITAL STORY: Omidyar Network Granting $9m to Microfinance Non-Profit Unitus

Unitus Equity Fund: Portfolio

Unitus Press Release: “Unitus Equity Fund Closes Largest Private Global Equity Fund Targeting Microfinance”

Comat: Home

Comat: “GoRural – Rural Telecentres/Kiosks”

Unitus: Home

MokshaYug Access Pvt. Ltd: Home

Oanda.com: FX Converter

Meanwhile, Bimalendu Chakrabarti, chairman of New India Assurance, contended that strict government regulations have prevented the creativity necessary for insurance companies to expand into microinsurance in a profitable manner. After praising the removal of government pricing control, Mr. Chakrabarti expressed the need for increased “flexibility on the wording terms and conditions” for private companies when creating policies.

The Confederation of Indian Industry (CII) is a non-profit organization that promotes pro-business policies in India. The organization serves as a broad trade association for over 7500 organizations, including small and medium sized enterprises (SMEs). The group also works with multinational corporations (MNCs) and has branch offices in eight other countries. The recent conference was focused on the Indian insurance industry.

By Greg Casey, Research Assistant

Additional Resources:

The Economic Times: “Cover cos fail to insure lower sections of society, feels govt”

Confederation of Indian Industry: About Us

New India Assurance: Home

According to Dinesh Rai, Secretary to the Ministry of Micro, Small and Medium Enterprises, there are almost 42 million small and medium sized enterprises currently operating in India. She also stated that they account for 40 percent of the total exports and 45 percent of the country’s total manufacturing output. So far, quantitative classifications for ‘small’ and ‘medium’ have been made clear.

It does not appear that there will be any interest rate restrictions on such loans. RBI Deputy Governor K J Udeshi contended that research indicates that small and micro-entrepreneurs are more worried about the availability and timeliness of credit than the cost. She also acknowledged that high costs were the natural result of door-to-door services and small loan amounts. Further details were not available. To learn more about the affect of RBI regulations on microfinance institutions (MFIs), please read this previous MicroCapital story.

By Greg Casey, Research Assistant

Additional Resources:

Economic Times: “RBI plans to increase regulatory means”

Economic Times: “Govt wants 10 pc of banks’ priority sector credit to SMEs”

MicroCapital Story, September 3, 2008: Rising Interest Rates and New Reserve Bank of India Capital Adequacy Requirements Put Pressure on Indian MFIs

Reserve Bank of India: Home

The goal of the ZERO platform is to enable banking services without forcing users to travel to a physical branch location, which take a considerable amount of time in some rural areas. It also allows banks anf MFIs to reach rural areas without having to set up costly branches. The hub of the platform is the local Customer Service Point (CSP), which acts as the local outpost of the affiliated financial institutions. From this point, customers use biometric identification, voice commands and smart cards to process many different transactions. Some of these services, such as transfers between accounts, do not require interaction with third parties. Others, however, enable transactions between customers and local microfinance institutions or area merchants.

The Zero Microfinance and Savings Support Foundation (ZMF) is a nonprofit organization that is closely affiliated with ALW. This organization “creates the last mile operations network in villages.” In other words, it will help the banks perform the services enabled by the ZERO platform technology. Specifically the group will enroll customers, provide support and training to the CSP and collect cash on behalf of participating banks.

To provide these services, ALW has partnered with many different organizations. The company has close ties to the State Bank of India (SBI), which it works with on many levels. The company also works with Nokia, though the exact nature of their relationship was not immediately obvious from the company’s website.

The ZERO platform is not the first major undertaking by ALW. The company has completed at least two previous projects, which it sold to investors. MCHQ, which is now called mChek, is a mobile payment solution developed by ALW and sold in 2006. Go-Mumbai is an automatic fair collection mechanism, which employs smart cards. It is used in buses and railway stations. This technology was also sold in 2006, although ALW retains the right to use the technology in some contexts.

Both ALW and ZMF were founded by Anurag Gupta, who is also the current chief technical officer (CTO). The company’s chief executive officer is Sonjoy Mohanty who has previously worked for Kerala Ayurveda Limited, Bharti Airtel, Infotel Business, Escotel, Caltex and Asian Paints. He holds an MBA from IIM, Lucknow and an MA in Business Economics from Delhi University.

ALW recently finished a round of funding in which it raised a total of USD 6.3 million from the Bellwether Microfinance Fund, Legatum Ventures and the India Financial Inclusion Fund. Legatum also invested USD 2m in ALW in an earlier round of funding which also included Enam Financial. Further financial data was not available on the ALW website.

By Greg Casey, Research Assistant

Additional Resources:

A Little World: Home

ALW: Vision

ALW: Zero

ALW: ZMF

ALW: Partners

ALW: Track Record

ALW: Management

MicroCapital Story, September 18, 2008: A Little World (ALW) of India Closes Series of Financing Totaling $6.3m from Investors including the Bellwether Microfinance Fund, the India Financial Inclusion Fund and Legatum Ventures

MicroCapital Story, October 9, 2007: Indian Financial Inclusion Firm, A.Little.World, Offers Mobile Microfinance Banking and Draws Big Investors: Enam Financial and Legatum Capital

mChek: Home

It is important to note that these credit ratings differ from the performance ratings issued by other agencies such as MicroRate, M-CRIL, PlaNet Rating, and Microfinanza. Performance ratings include a broader analysis of the company’s operations and not just the likelihood that they will default on credit obligations. To learn about the recent involvement of Standard & Poor’s in microfinance, please read this previous MicroCapital story.

The Fitch Ratings system consists of two main subsections: the individual rating, which measures the firms stand-alone ability to repay debts, and the support rating, which measures the potential support a firm could receive if it were in danger of defaulting on a credit obligation. In the Fitch Rating system, MFIs tend to receive low grades (D or below).

Individual Rating

One prominent reason for low ratings is the operating environment for MFIs, which exist almost exclusively in developing countries. Fitch Ratings established a sovereign credit ceiling for many countries, which sets a maximum rating for institutions operating within the country. This limit is established using factors such as political risk and governance issues within a country and developing countries often receive low grades. MFIs also run into problems in their operating environment because they are often subject to interest rate caps and other intrusive measures from the government. Such actions are developed to protect borrowers, but they also limit the ability of MFIs to collect income and repay debts. The vulnerability of many developing areas to natural disasters and a lack of available insurance options for MFIs also combine to weigh on credit ratings. The last major factor in operating environment is the level of competition. In some areas, commercial banks can “downscale” and compete with MFIs, driving down interest rates and hampering their ability to repay loans.

Risk Management is another important factor in individual ratings assessments. Within Risk management, credit risk, market risk, operational risk and reputation risk come into play. According to Fitch, credit risk is the “main risk facing MFIs” becomes their revenue depends on the repayment of loans to low-income borrowers. While microfinance loans are considered to have high asset-quality (meaning that recovery from loans is high), they still face considerable problems from a lack of diversification and fluctuations in local currency. A sudden devaluation of local currency versus borrowed currency would require the MFIs to use the interest rates from more loans to repay debts to other financial institutions. Also, by definition, a true MFI only interacts with a specific portion of the population, the poor, and has relatively few products, mostly credit. This means that their source of revenue is not highly diversified. Thus, if something were to happen to this population, the ability of the MFIs to repay debts would be severely compromised. Such occurrences would include, a political or cultural uprising; a shift in trade terms, which would promote or discourage certain types of industry, or any changes to the informal economy, where many borrowers are employed.

Operational risk derives from the unique lending procedures of MFIs, which rely heavily on the personal relationship between borrowers and loan officers. Considering this fact, risks associates with identifying good candidates for employment, properly motivating loan officers, retaining good loan officers with attractive benefits and being able to find enough talented employees become increasingly important.

The concept of “double bottom-line” goals also creates additional risks for microfinance institutions. Many funders of MFIs are socially motivated investors or international financial institutions with development related motives. Thus, if an MFI is seen as drifting away from the goal of helping the poor, donors might pull funding despite increased profitability. Possible sources of reputation damage include raising interest rates, over indebtedness and immoral loan recovery procedures. Fitch labels this type of risk as “reputational risk.”

Market risks, which stem from fluctuations in the economy in which MFIs operate, have relatively small effects over the institutions. Microfinance Institutions are usually fairly removed from the overall economy and do not hold stocks or other securities that are directly affected by movements in the economy. Market risk does come into play, however, when discussing the movements of interest rates and currencies, which affect the borrowing costs of MFIs.

The ability of an MFI, or any other company, to generate earnings has a direct effect on the availability of funds to repay debt. MFIs tend to generate high margins on loans because the interest rates paid by customers are high. Their stream of income is also spread across many individuals, limiting the total negative effect of default froma single borrower. While these factors help MFIs in this section of the rating criteria, the firms face problems in other areas. For example, revenue for MFIs comes almost exclusively from providing loans, creating a lack of diversification in income streams.

Other factors in the Individual Rating area are similar to those of other financial institutions. These include assets, management capabilities and corporate governance.

Support Rating

The Support Rating judges the willingness and ability of countries, international institutions or other sources to provide support if an MFI or bank is in danger of defaulting on credit obligations. Fitch sees the chances of countries supporting an MFI to be low because the institutions generally control very little money, implying that a failure would not have a meaningful impact on the overall economy. They do maintain, however, that it is possible that countries would step in to assist larger MFIs in an attempt to further the development goals of the institution.

This information was taken from a criteria report entitled “Microfinance Institutions – Factors in Risk Assessment,” which is available on the Fitch Ratings website. It can be found by searching for ‘microfinance’ on the company’s homepage. The document was made available on June 12, 2008. To learn more about Fitch’s analysis of the microfinance sector, please read this previous MicroCapital story.

By Greg Casey, Research Assistant

Additional Resources:

MicroCapital Story, February 18, 2008: IDB Makes Donation to Billion Dollar Standard & Poor’s

Fitch Ratings: “Microfinance Institutions — Factors in Risk Assessment” (available here)

MicroCapital Story, August 19, 2008: “‘The Microfinance Sector: Its Success Could be its Biggest Risk’, Fitch Ratings”

Fitch Ratings: Home

Planet Rating: Homepage

MicroRate: Homepage

M-CRIL: Homepage

CRISIL: Homepage

Microfinanza: Homepage

]]> http://www.microcapital.org/microcapital-story-examination-of-fitch-rating-standards-for-microfinance-institutions/feed/ 1 http://www.microcapital.org/microcapital-story-work-resumes-at-national-microfinance-bank-nmb-in-tanzania-after-high-court-ruling-ends-strike/?utm_source=rss&utm_medium=rss&utm_campaign=microcapital-story-work-resumes-at-national-microfinance-bank-nmb-in-tanzania-after-high-court-ruling-ends-strike http://www.microcapital.org/microcapital-story-work-resumes-at-national-microfinance-bank-nmb-in-tanzania-after-high-court-ruling-ends-strike/#comments Fri, 26 Sep 2008 05:30:00 +0000 Greg Casey http://www.microcapital.org/?p=2497 The High Court of Tanzania ruled against the striking workers of National Microfinance Bank (NMB) in a recent decision. The strike, which lasted one day, was in response to the failure of workers to receive their lump sum benefit payments after the first round of NMB privatization in 2005. NMB claims that they cannot give the payments to workers because the government still has not transferred the money to the bank. Despite the resumption of duties, customers complained of poor service and several ATM machines ran out of money.

National Microfinance Bank has over one million customers, 120 branches and 100 ATMs in Tanzania. The company does not provide financial data on its website, nor does it report information to MIX Market, the Microfinance Information eXchange. Before its recent IPO, NMB shareholders included the Government of Tanzania (51 percent), Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (RABO Bank) (34.9 percent), National Investment Corporation LTD (NICO) (6.6 percent), Exim Bank Tanzania (5.8 percent), and the Tanzania Chambers of Commerce Industries and Agriculture (TCCIA) (1.7 percent). To learn more about the strike, please read this previous MicroCapital story.

By Greg Casey, Research Assistant

Daily News Online: “Business resumes at NMB”

Additional Resources:

Reuters: “UPDATE 1-Tanzania’s Microfinance bank workers strike”

Daily News Online: “TUICO leaders summoned for NMB strike”

MicroCapital Story: August 18, 2008: “MICROCAPITAL STORY: Tanzanian Government Will Bar Kenya and Uganda from Participating in National Microfinance Bank Initial Public Offering Worth USD 55m”

MicroCapital Story, January 4, 2007: “Tanzanian National Microfinance Bank to Be Listed on Dar es Salaam Stock Exchange by June 2007”

MicroCapital Story, October 6, 2005: “Tanzanian Microfinance Bank Begins Rapid Privatization as Government Sells 49%”

National Microfinance Bank: Home

NMB: Shareholder Information

MIX Market: Tanzania

Rabobank Group: Home

National Investments Company Ltd: Home