“M-Bureaus: M-Banking´s Next Killer Application?” By Alice Liu and Michael Mithika, Published by USAID, April 2009, Available At: http://collab2.cgap.org//gm/document-1.9.34524/17.pdf

In this paper, the authors explore the possibility of using mobile phone payment transaction history to determine credit information for customers at the bottom of the pyramid. Kenya is used as the case study due to its successful mobile-payment (m-payment) system. The authors had worked on the assumption that most clients who make m-payments do not have access to banking services, but this assumption was proven to be false. In fact, a study by the Financial Sector Deepening Kenya (FSD Kenya), an independent trust, found that 70 percent of those who make m-payments use multiple banking services. However, this leaves 30 percent who do not use bank services and whose credit history may be determined through m-payments. Kenya´s M-PESA m-payment system, offered by the mobile phone company Safaricom, was launched in 2007 and registered 2 million customers within one year of operation. Currently, 6 million of the 39 million Kenyan population uses M-PESA. By February 2009, the cumulative value of money transfers made through M-PESA was USD 1.5 billion. Zain Kenya also launched its Zap m-payment platform in February 2009, leaving Kenyans with the choice of two m-payment platforms. Continue Reading »

“Can Microcredit Help to Cope with Aggregate Shocks? Evidence from Ecuador”, by Gunhild Berg and Jan Schrader, Published by Social Science Research Network, November 2008
Available at:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1346565 (28 pgs)

In this paper, Gunhild Berg and Jan Scrader seek to determine the effect of major environmental shocks on microlending in the area. Following major environmental shocks, borrowers typically seek loans from either formal credit institutions or from family and friends. In addition, they may turn to personal savings. The effect of the presence of microfinance insitutions on the ability of low income families to cope with shocks have not yet been previously documented. In this study, the authors observe ProCredit Ecuador´s monthly loan approvals and applications from January 2002 to August 2007 in the cities of Riobamba and Ambato, cities near Tungurahura, the country´s most active volcano. Following Tungurahura´s most severe eruption in 2006, 19,000 people were evacuated and 23,000 hectares of crops were destroyed. Volcanic activity may also disrupt trade. ProCredit Ecuador runs 25 branches in Ecuador and had granted 58,000 loans totalling USD 166 million within the country. The authors correlate ProCredit´s loan data, including borrowers´profiles, with the Instituto Geofisico Ecuador´s monthly reports on seismic activity and eruptions of Tungurahua to determinine the influence of environmental shocks on a microcredit bank´s activities. Continue Reading »

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), established by the government of India and the Small Industries Development Bank of India (SIDBI) intends to provide credit guarantee support to 57,500 MSEs in 2009. In 2008, CGTMSE approved about 53,700 MSEs for guarantee support, but ultimately, only 43,555 were covered. This year, CGTMSE has raised USD 451.5 million for guarantee payment to MSEs. In 2008, CGTMSE had raised USD 441.3 million, but was only able to guarantee loans worth USD 343.8 million for undisclosed reasons. CGTMSE is a fund that gives guarantee payments to lending institutions so that microentrepreneurs may obtain collateral-free loans. If a borrower defaults on a loan, CGTMSE compensates the lender up to 75, 80, or 85 percent of the loan depending on the loan amount and the profile of the borrower. The CEO of CGTMSE, OS Vinod, has stated in an interview, “What we are trying to tell the banks is — you don’t appraise the collateral but the project. If the project is good, then the second issue of collateral comes in and we will step in. So, banks have to move from collateral-based lending to project-based lending, which was not happening.” CGTMSE does not directly interact with borrowers and lenders must approve loans before seeking a guarantee from CGTMSE. The Indian government’s Ministry of Micro, Small & Medium Enterprises (MSME) created the Credit Guarantee Scheme (CGS) to improve credit access for MSEs. Together with SIDBI, the government instituted CGTMSE to implement this scheme. Continue Reading »

The ‘Alert 1 Manggarai Protection Card’, a microinsurance product which protects against flood, has been jointly launched by Indonesian insurance company Asuransi Wahana Tata (AWT) , German reinsurer Munich Re and the German government’s Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH. AWT is Munich Re’s local partner in Indonesia. A feasibility study has been conducted by Munich Re and GTZ and the product will now be available in 23 sub-districts in Jakarta. The product is literally a small card costingUSD 4.70 and guaranteeing a single payment of USD 23.90 . ‘Alert 1′ is the designation given to a flood if water rises to a minimum of 950 cm at Jakarta’ Manggarai Water Gate. The product was principally designed by Munich Re although most of the logistics, including marketing and sales, will be handled by AWT. Munich Re will act as the re-insurer of the product. GTZ conducted a great deal of background research, including household surveys in the 23 sub-districts and focus groups, and conducted a microinsurance awareness campaign consisting of training material and a brochure. The Promotion of Small Financial Institutions program, supported by GTZ in Indonesia, will be responsible for supporting the product in the field. AWT’s President Commissioner, Rudy Wanandi, comments, “With the right partners, a defined product and through our wide network within the region we are able to reach people and explain our innovative solutions. It will raise the insurance awareness of society and bring more economic stability and social security to people who live in exposed regions.” Currently, 3 percent of poor people have access to insurance products in the world’s 100 poorest countries. Continue Reading »

The White House has nominated the president and CEO of ACCION International, Ms. Maria Otero, to assume the position of Under Secretary of Democracy and Global Affairs in the US Department of State. Although the Senate Foreign Relations Committee has yet to approve the nomination, Ms. Otero has indicated that she will accept the position should her nomination be successful. Ms. Otero has been profiled in MicroCapital’s Who’s Who in Microfinance series in May 2007. Her position at ACCION International will be filled temporarily by Ms. Catherine Quense, Chief Administrative Officer and Chief Deputy, while a committee searches for Ms. Oteros successor. Ms. Diana Taylor, Vice Chair of the ACCION Board, comments, “Her nomination as Under Secretary comes as no surprise to those of us who know her and her deep commitment to social and economic justice, and we know that she now has an even more effective platform from which to help build better lives for the world’s citizens.” Ms. Otero was born and raised until the age of 12 in La Paz, Bolivia, whereupon she and her family moved to Washington DC. She holds a BA in Literature from the University of Maryland and an MA in International Relations from Johns Hopkins. She has been with ACCION since 1986 and became CEO in 2000. ACCION International is a microfinance organization founded in 1961 and consisting of 27 partner microfinance institutions (MFIs) in 20 countries. The position of Under Secretary of Democracy and Global Affairs was established under Section 161(b) of the Foreign Relations Authorization Act for Fiscal Years 1994 and 1995. In total, there are five Under Secretaries of State in the Department of State, headed by Secretary Hillary Rodham Clinton. Continue Reading »

The Islamic Development Bank (IDB) has extended a USD 10 million soft loan to the Development and Employment Fund  (DEF) in Jordan to develop microfinance in the country. The IDB consists of 56 countries that are all members of the Organization of the Islamic Conference and contribute to the bank’s capital.  In addition to facilitating trade among member countries, the IDB grants loans and provides funding for social and economic development projects in member countries. Because the financial operations of the IDB are intended to be consistent with Shariah law, the IDB also provides technical assistance and training in Shariah banking practices. For more information on the how Shariah law affects banking practices in general and microfinance in particular, see this MicroCapital Paper Wrap-Up. The IDB was founded at the Conference of Finance Ministers of Muslim Countries in Jeddah in December 1973 and commenced operations in October 1975. The DEF is a public government fund that commenced operations in 1991 with the objective of promoting independent employment and developing the small business sector. Initially under the government’s Industrial Development Bank, the DEF has been independently managed since 1992. Continue Reading »

Jesus Alberto Garcia, Venezuelan ambassador to Angola, stated in an interview with Radio Nacional de Angola that Banco de Desarrollo Económico y Social de Venezuela (BANDES), the state development bank of Venezuela, will open a branch in Angola. He added, “This is one of the main things President Chavez wants to do with Africa.” Branches of BANDES outside of Latin America and the Caribbean include Syria and the Republic of Mali. Mr. Garcia expects that the Angola branch may be open by next year. In 2005, BANDES became an independently managed institution under the supervision of the government’s Ministry of the People’s Empowerment in Economics and Finance and is currently 75 percent government owned. BANDES provides microcredit and funds development projects in Venezuela as well as abroad. Continue Reading »

CreSud SpA, a socially responsible Italian private investment company, has reported three microfinance investments in the past three months to the CGAP Microfinance Dealbook, a monthly report on microfinance capital market transactions. In February 2009, CreSud SpA granted a loan of USD 250,000 to Comixmul of Honduras. In March 2009, CreSud SpA loaned USD 250,000 to Unidad Microfinanza Arariwa (UMF Arariwa) of Peru. In April 2009, CreSud SpA closed an equity investment of USD 400,000 in Proempresa Edpyme of Peru. CreSud SpA invests in companies with a minimum portfolio of USD 500,000 and three years of operational history. As of 2006, 88 percent of CreSud SpA’s investments were in Latin America and the Caribbean. Continue Reading »

Written by Xavier Gine and Dean Yang. Published by the Journal of Development Economics, Volume 89, Pgs 1-11, 2009. Available at: http://siteresources.worldbank.org/INTFR/Resources/GineYang-InsuranceMalawi.pdf (35 pgs)

In “Insurance, Credit and Technology Adoption: Field Experimental Evidence From Malawi,” Xavier Gine and Dean Yang determine whether farmers who are insured against production risk have a greater demand for loans in order to invest in new hybrid seed technology than farmers who are uninsured against the failure of the hybrid seeds. This study examines maize and groundnut farmers in Malawi , where the major source of crop failure is the level of rainfall. All the farmers were offered loans to purchase high-yield hybrid maize seeds or improved groundnut seeds. Farmers in 16 areas were also required to purchase weather insurance that would forgive the loan should there be insufficient rainfall. The uninsured loan did contain an implicit limited liability constraint that allowed the lender to seize a portion of the yield rather than the collateral presented by the borrower in case of low yield. 33 percent of farmers offered the uninsured loan accepted the loan. The farmers who were required to buy insurance were 39.4 percent less likely to accept a loan to purchase hybrid seeds. Continue Reading »

For the month of April, the Netherlands-based Oikocredit Ecumenical Development Cooperative Society, a microfinance funding source, reported four loans to the CGAP Microfinance Dealbook, a monthly report on microfinance capital market transactions. Oikocredit granted a one-year USD 75,000 loan to the Kitunda SACCO in Tanzania, a four-year loan of USD 91,000 to Intellekt of Russia, a three-year loan of USD 2 million to the First Microfinance Bank of Tajikistan (FMFB), and a three-year USD 132,000 loan to PMRCA Perelik in Bulgaria. Oikocredit provides loans to about 500 microfinance institutions in 70 countries around the world. Between January and March 2009, Oikocredit provided USD 19.2 million in new loans in 69 countries. The organization currently funds 758 projects of which 501 are microfinance projects, the rest involving other types of social service. Through microfinance alone, Oikocredit claims to reach 16.8 million people. Oikocredit distributes its funding as follows: 40 percent in Latin America, 14 percent in Africa, 27 percent in Asia, 18 percent in Central and Eastern Europe, and 1 percent elsewhere. In November, MicroCapital reported that USAID and Oikocredit would partner together to contribute USD 36.2 million to microfinance institutions (MFIs) over the next ten years. Continue Reading »

In April, Bank Danamon, Indonesia’s fifth largest lender, completed a USD 362 million stock offering, the largest ever bank stock offering in Indonesia. Citigroup Global Markets Singapore and Morgan Stanley Asia were joint standby purchasers on the deal. Danamon has a very active microfinance division called Danamon Simpan Pinjam (DSP). Although Danamon experienced 30.2 percent drop in year over year first-quarter net profit in 2009, its Capital Adequacy Rating (CAR) increased to 22 percent from 15.4 percent due to the stock offering. In an interview with The Asian Banker, Danamon’s President Director and former Citigroup executive, Sebastian Paredes, stated, “After this capitalisation, Bank Danamon is probably going to be one of the highest capitalised banks in the world.” Continue Reading »

A recent press release from Intellectual Capital Advisory Services (Intellecap) reports that Bhartiya Samruddhi Finance Ltd (BSFL), a microfinance institution (MFI) based in Hyderabad, India, has received USD 9.87 million in Series-B funding from several investors including Lok Capital LLC, Aavishkaar Goodwell India Microfinance Development Company and Small Industries Development Bank of India (SIDBI). Intellecap, a finance consultancy firm, was BSFL’s advisor on the deal. BSFL’s old investors, including IFC, Shorecap International Ltd, and ICICI Bank, commenced their exit by making a secondary sale of USD 4 million to the new investors. According to Aavishkaar Goodwell, USD 500 million in private equity over the next five years is necessary to facilitate the growth of MFIs in India. BSFL was set up in 1997 by Bhartiya Samruddhi Investments and Consulting Services (BASICS), the holding company of the BASIX group. BASICS currently owns 49.5 percent of BSFL, with investors holding the remaining amount. According to Mr. Vijay Mahajan, the Chairman and CEO of BSFL, “This is a big milestone for us as investors have reposed faith in the BASIX integrated livelihood promotion model over cookie-cutter micro-credit. We are all set to now address our goal of reaching 10 million poor households by 2014.” Donald Peck, the co-founder of Lok Capital, remarked, “We are delighted to be able to support the further growth of BSFL as it embarks on the next stage of roll-out of its unique agriculture and skills focused business models.” Continue Reading »

The Microfinance Money Market Association of Nigeria (MMMAN) was inaugurated in Lagos in March 2009. MicroCapital previously reported on the announcement of the proposed interbank money market in September 2008. The MMMAN was developed by the Financial Derivatives Company (FDC), an asset management company, and the Kakawa Discount House to allow microfinance banks (MFBs) to borrow and invest excess liquidity amongst one another. Financial Vanguard reports that five MFBs, the Integrated MFB, Mic MFB, Accion MFB, Susu MFB and Gapbridge MFB, have officially joined MMMAN. These MFBs have also been trading amongst one another since October to pilot the system. Mr. Jaiyeola Laoye, Managing Director and CEO of Kakawa, said at the inauguration, “The market is for short and medium term liquidity and would help [the MFBs] carry out their functions more effectively.” Also speaking at the inauguration, FDC’s Managing Director Bismarck Rewane, added “Most times, banks get closed down when they are faced with liquidity problems than when they encounter solvency challenges.” The MMMAN is designed to bring stability to the microfinance industry by providing further sources of liquidity to MFBs and to mobilize liquid funds between MFBs at competitive rates. Continue Reading »

In an interview with Business News Americas (BN Americas), the Association of Financial Entities Specialized in Microfinance (ASOFIN)‘s Executive Secretary, Fernando Prado Guachalla, remarks, “Fortunately, we haven’t felt the [financial] crisis in the microfinance sector in Bolivia.” ASOFIN, established in 1999, is an association of eight microfinance institutions (MFIs) regulated by the Superintendence of Banks and Financial Entities (SBEF) in Bolivia. BN Americas reports that members of ASOFIN expanded their loans 42 percent overall in 2008 while maintaining an average interest rate of 19.5 percent. However, Mr. Prado discloses that loan growth rates might slow to 20 to 30 percent because “It’s not adequate at this time to maintain annual growth rates of 40 percent.” Mr. Prado is ASOFIN’s highest ranking official and a Bolivian economist with 28 years of experience. He served as Chief of Party on USAID’s SEFIR project in Bolivia and was Director of the Microfinance Corporación Andina de Fomento (CAF), a Latin American bank. Continue Reading »

The Andhra Pradesh Mahila Abhivruddhi Society (APMAS) was founded by Mr. CS Reddy (p5) in 2001 to provide technical support and consultancy services to Self-Help Groups (SHGs) in the Indian state of Andhra Pradesh. APMAS uses its connections to large transnational organizations, banks, and government policy makers to link each SHG to a range of resources. By monitoring and molding the operations of SHGs, APMAS attempts to systematize SHGs so that larger organizations can follow professional protocols in working with these small groups. Continue Reading »

Written by Nobuhiko Fuwa, Seiro Ito, Kensuke Kubo, Takashi Kurosaki, and Yasuyuki Sawada, and released January 2009 as Discussion Paper No. 183 by the Institute for Developing Economies (IDE), 23 pages, full text available at: http://www.microfinancegateway.org/files/56716_file_ARRIDE_Discussion_No.183_kubo.pdf

In “How Does Credit Access Affect Children’s Time Allocation? Evidence From Rural India”, the authors seek to quantitatively analyze the effect of credit access on the amount of time allocated by children to leisure, work, and school. This preliminary discussion paper was published by the Institute of Developing Economies (IDE), a semigovernmental research organization that merged with the Japanese External Trade Organization in 1998. This study was conducted in the Kurnool district of Andhra Pradesh, where the child labor rate is unusually high at 54.2 percent. Continue Reading »