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Wednesday, December 23, 2009

MICROCAPITAL BRIEF: FINA Bank Rwanda (FBR) and KfW Development Bank (KfW) To Invest RWF 490.4m ($860,000) In Rwanda’s Microfinance Sector

FINA Bank Rwanda (FBR) and KfW Entwicklungsbank (KfW) have signed a financial agreement worth RWF 490.4 million (USD 860,000) to develop Rwanda’s Micro, Small and Medium Enterprises (MSMEs). The funds will be used for apprenticeship and training programs for both FBR’s staff as well as the microbusinesses to whom FBR lends money.  FBR’s Managing Director, Steve Caley stated that, “this gives [FBR] confidence that the funds will be well spent because by this [program] we know that the loans are given to trained people.”  This approach also includes the establishment of a specialized microfinance department within FBR. Continue Reading »
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Tuesday, December 22, 2009

MICROCAPITAL BRIEF: World Bank and Central Bank of Azerbaijan (CBA) Present Consumer Protection Plan for Microfinance and Traditional Financial Service Consumers

The World Bank and the Central Bank of Azerbaijan (CBA) recently presented a plan titled, “The Protection of Rights and Financial Literacy of Financial Service Consumers in Azerbaijan.”  According to the Azerbaijan Microfinance Association (AMFA), which is a trade association representing Azerbaijani non-bank credit organizations, approximately 1,200 consumers provided feedback towards the development of the consumer protection plan.  Mr. Alim Guliyev, CBA First Deputy CEO, states that the plan is based on two developments in the financial services sector, i.e., the introduction of financial sector legislation and regulation as well as the rise in the financial literacy of the population.  CBA will be the coordinating body between different areas of the financial services sector, including banking, insurance and investment services. In connection with these developments, CBA will create a special unit and hotline dedicated to responding to consumer complaints regarding business practices. Mr. Guliyev comments that the “[P]rotection of the consumers’ rights is especially important in the conditions of financial crisis.” Continue Reading »

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Tuesday, December 22, 2009

MICROCAPITAL BRIEF: Traditional Moneylenders Gain as Microfinance Industry Grows in India

Since its founding in the 1990s by non profit organizations, the Indian microfinance industry has nearly doubled in value by delivering USD 2.5 billion in loans through early 2009. In connection to this rapid growth, government reports have shown an increased market share of traditional moneylenders, which include pawn brokers, gold merchants and other private moneylenders.  The traditional Indian moneylending industry charges annual interest rates as high as 120 percent, according to CGAP (Consultative Group to Assist the Poor). A Reserve Bank of India (RBI) survey indicated that in recent years, “traditional moneylenders’ share of total rural Indian household debt grew to 29.6% from 17.5%.”  Some academic researchers believe that moneylenders are keeping afloat many microfinance borrowers by acting as stopgaps so that micofinance borrowers can repay prior microloans. The concern is that these borrowers are just digging themselves deeper into debt. However, Padmaja Reddy, managing director of Spandana Foundation, a microlender in India, states that the boom in traditional moneylending represents an increase in “overall demand for credit” and an indication of the untapped market demand for microfinance. Continue Reading »

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Tuesday, December 22, 2009

MICROCAPITAL BRIEF: State Bank of Pakistan (SBP) Prioritizes the Development of the Microfinance Sector

In his opening comments at a conference titled, “Economic Empowerment for the Base of the Pyramid,” Governor Salim Raza of the State Bank of Pakistan (SBP) recently emphasized the critical role of microfinance banks (MFBs) in the creation of economic opportunities for the underserved segments of the population.  SBP has made the development of the nation’s microfinance sector a strategic priority by taking comprehensive measures to remove regulatory bottlenecks for MFBs, such as the recent development of prudential regulations that provide guidance and oversight for MFBs to develop sources of public funding from public depositors, international financial institutions and private investors.  SBP has recently relaxed the criteria for borrowers as well as increased the ceiling on lending limits to PKR 150,000 (USD 1,780) for general purpose loans and PKR 500,000 (USD 5,934) for housing loans.  Earlier this year, SBP launched the Microfinance Credit Guarantee Facility (MFCG), which is worth GBP 10 million (USD 16.2 million) as a source of funds for microfinance banks and microfinance institutions.  In order to reduce the risks associated with microfinance operations and increase investor confidence in the sector, SBP plans to establish a microfinance exclusive credit information bureau. Continue Reading »

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Tuesday, December 22, 2009

MICROCAPITAL BRIEF: United Nations Development Program (UNDP) Commits $4m To Build Inclusive Financial Sector in Rwanda

The United Nations Development Program (UNDP), through the United Nations Capital Development Fund (UNCDF) has committed USD 4 million to building an inclusive financial sector in Rwanda. The funds will continue the implementation of Rwanda’s National Microfinance Strategy from 2009 through 2014. Rwandan Minister of Finance, John Rwangombwa, noted that, “the support given by UNDP/UNCDF is aligned to Financial Sector Development Programmes and the National Monetary Fund Policy Implementation Strategy to contribute to the refinancing and sustainable management of Microfinance Institutions.” Minister Rwangombwa stated that the projects aims to improve productivity and enhance the market access of microenterprises. Continue Reading »

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Monday, December 21, 2009

MICROCAPITAL BRIEF: SmartAid for Microfinance Index 2009 Publishes Results

CGAP (Consultative Group to Assist the Poor) has announced its SmartAid for Microfinance Index 2009 results. The SmartAid for Microfinance Index is an index created by CGAP to measure and rate the performance of funders in microfinance. A group of eleven funders, which include development finance institutions and multilateral agencies, participated in the 2009 SmartAid Index and together represent more than fifty percent of all cross-border funding in microfinance. The 2009 SmartAid Index results show that funders scored best on “strategic clarity,” followed by “appropriate instruments” while they scored the lowest in the category of “accountability for results”. Barbara Gahwiler, member of SmartAid team, states, “This means that funding can continue regardless of performance. Without knowing the performance of its microfinance portfolio, an agency cannot manage it effectively, and important lessons from past experience are lost. What’s more, the industry still has a long way to go to develop indicators for tracking the performance of support to the market.” Continue Reading »

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Monday, December 21, 2009

KNOW A MICROFINANCE REGULATOR: National Banking and Securities Commission (Comision Nacional Bancaria Y De Valores) of Mexico and Superintendency of Banking, Insurance and Private Pension Funds (Superintendencia de Banca Seguros y AFP) of Peru

The following regulators are profiled in this brief:

Mexico-National Banking and Securities Commission (Comision Nacional Bancaria Y De Valores CNBV), located at: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=National+Banking+and+Securities+Commission+%28CNBV%29

Peru-Superintendency of Banking, Insurance and Private Pension Funds (Superintendencia de Banca Seguros y AFP SBS), located at: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Superintendency+of+Banking%2C+Insurance+and+Private+Pension+Funds+%28SBS%29 Continue Reading »

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Monday, December 21, 2009

MICROCAPITAL BRIEF: Reserve Bank of India (RBI) Asks Banks For Plans on Financial Inclusion and Criticizes Microfinance Institution Interest Rates

Governor D. Subbarao of the Reserve Bank of India (RBI), which is India’s central bank, stated that all banks will be required to formulate and get RBI approval for “financial inclusion plans” by March 2010.  The effort is a part of a wider discussion on whether “financial inclusion” is actually working to integrate poor people into India’s formal financial sector.  Governor Subbarao stated that while RBI is “committed” to allowing banks to lead the effort by creating appropriate “financial inclusion plans,” this commitment “is not irrevocable.” At this point, RBI’s participation is limited to approving bank drafted plans and providing support for sharing information, such as best practices and regulatory incentives.  Governor Subbarao also acknowledged the role of microfinance institutions (MFIs) in serving India’s unbanked population, however, he criticized the practice of lending at rates of twenty-four percent to thirty percent.  Governor Subbarao stated, “Compared to the informal sector, perhaps the rates are lower, but there are questions about whether these rates are affordable. The rate of interest charged should not be out of alignment with the cost of funds, transaction costs, risk costs and a certain margin. In any case, there is a need for transparency….” Continue Reading »

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Friday, December 18, 2009

MICROCAPITAL BRIEF: Bangko Sentral ng Pilipinas (BSP) And Philippine Deposit Insurance Corp (PDIC) Create Fund to Strengthen Rural Banks That Offer Microfinance Loans

Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, and the Philippine Deposit Insurance Corp (PDIC), the national deposit insurer, have created the Strengthening Program for Rural Banks (SPRB), which will raise PHP 5 billion (USD 108 million) in funding to encourage mergers and consolidations of ailing banks in the rural banking sector.  In the Philippines, rural banks are the primary source of microloans in the countryside. SPRB was created in response to the spate of failures and closures experienced by the rural banking sector including, in the first quarter of 2009 alone, the closure of 19 rural banks by the BSP that were then placed under the receivership of the PDIC.  PDIC president Jose Nograles states that an estimated fifteen percent of rural banks are thought to be weak or distressed. BSP Governor Amando Tetangco Jr. notes that of the 179 rural banks that were placed under the BSP’s “prompt and corrective action” program, 103 rural banks were found to be undercapitalized.  Under the SPRB scheme, investors will be able to tap these funds in order to acquire ailing rural banks and inject fresh capital into these banks. Continue Reading »
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Monday, December 14, 2009

MICROCAPITAL BRIEF: Central Bank of Bosnia and Herzegovina (CBBH) And KfW Hosted Conference on Responsible Finance

The Central Bank of Bosnia and Herzegovina (CBBH) and KfW Entwicklungsbank (KfW) recently co-hosted a conference about the importance of responsible business practices in the financial sector, including the microfinance sector, of Bosnia and Herzegovina. In his opening remarks, Governor Kemal Kozaric, governor of CBBH, stated: “The global financial crisis has proven that the principle of responsible finance has not been sufficiently developed with banks and with clients. It has now become evident that the liquidity risk of banks in Bosnia and Herzegovina is rather low, and that the main problem is the quality of loans.”  The Governor’s remarks were framed in light of the fact that the nation’s financial sector had experienced tremendous growth over the past years, which has resulted in greater access to financial services even by the nation’s poor. Despite this growth, Sylvia Wisniwski, Chief Operating Officer of the European Fund for Southeast Europe (EFSE), emphasized in her presentation that, “Responsible lending principles must be adhered to during the entire lending cycle, starting with a prudent assessment of the creditworthiness of individual clients and continuing with a fair and transparent lending relationship.”  The conference included presentations on responsible management of foreign currency reserves by the central bank, the role of stakeholders in responsible finance, and the role of the Association of Microfinance in Bosnia and Herzegovina. Continue Reading »

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Wednesday, December 9, 2009

MICROFINANCE PAPER WRAP UP: CGAP Financial Access 2009: Measuring Access To Financial Services Around The World

Written by CGAP (Consultative Group to Assist the Poor), Published by the World Bank Group in September 2009, 92 pages, available at: http://www.cgap.org/p/site/c/template.rc/1.9.38735/

According to this report, a common indicator for access to savings services is to measure the number of savings accounts actually owned by the poor.  Microenterprises with access to savings accounts invest more in their businesses, consume more and are less prone to sell off business assets to pay for medical emergencies.  Policies that promote savings account ownership among microfinance institutions (MFIs), cooperatives and state-owned financial institutions, like postal banking networks, have the potential to reach many poor clients in developing countries.  However, regulators in developing countries must also adapt traditional bank policies in order to maximize savings account ownership among the poor. Continue Reading »

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Tuesday, December 8, 2009

KNOW A MICROFINANCE REGULATOR: Regulators of Microfinance in Bangladesh, India, Brazil, Bolivia, Egypt And Kenya

The following regulators are profiled in this brief:

Bangledesh – Microcredit Regulatory Authority (MRA), located at: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microcredit+Regulatory+Authority+%28MRA%29

India – National Bank of Agriculature and Rural Development (NABARD), located at: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=National+Bank+of+Agriculature+and+Rural+Development+%28NABARD%29

Brazil – Central Bank of Brazil (BCB), located at: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Brazil+%28BCB%29

Bolivia – Superindendent of Banks and Financial Entities (SBEF), located at: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Superindendent+of+Banks+and+Financial+Entities+%28SBEF%29

Egypt – Central Bank of Egypt (CBE), located at: http://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Egypt+%28CBE%29

Kenya – Central Bank of Kenya (CBK), located at: http://docs.google.com/Doc?docid=0Adr0wzXJKlP0ZGZiN3dwYnFfMzlocDhnZHZmNQ&hl=en Continue Reading »

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Tuesday, December 8, 2009

MICROCAPITAL BRIEF: Philippines’ Department of Finance (DOF) Lukewarm On Lowering Income Rate Tax For Microfinance Institutions

As part of proposed legislation which targets the development of microfinance institutions (MFIs), the Microenterprise Development Institution Bill contains a provision which would replace all local and national government taxes on MFIs with a single 2% gross income tax. The reduced income tax provision would be available to only accredited MFIs and therefore would exclude other entities that operate in the microfinance sector, including thrift banks, rural banks and cooperatives. Fiscal authorities, such as the Department of Finance (DOF), have reacted with ambivalence towards the proposed income tax reduction as it would result in varying tax regimes for different industries, cause administrative burdens for the Bureau of Internal Revenue and likely cause other entities that operate in the microfinance sector to jockey for the same tax treatment. Continue Reading »

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Tuesday, December 8, 2009

MICROCAPITAL BRIEF: Central Bank Of Nigeria (CBN) Issues Guidelines On Operation Of The Microcredit Fund

The Central Bank of Nigeria (CBN) recently presented guidelines to state governments on how they may access the monies held by its Microcredit Fund. Established in 2008, the Microcredit Fund, a national government fund which was originally funded with contributions from state governments, holds NGN 50 billion (USD 333.94 million) and is ready to be operationalized. The Microcredit Fund represents the national government’s effort to securely distribute state monies in order to develop the microfinance sector. The general scheme implements several layers of bureaucracy in order to ensure a secure channel by which microenterprises may ultimately access monies from the Microcredit Fund and perhaps is a reflection of the recent turmoil in the nation’s microfinance sector.[2] State governments must first set up a separate account with a commercial bank which is intended to hold the monies received from the Microcredit Fund. The account is then used by state governments in partnership with local banks to disburse loans to microenterprises that fit within the parameters of the Microcredit Fund’s objectives. Once disbursed, it is the responsibility of state governments to establish a mechanism to monitor and supervise the repayment of the loans and, out of the repaid proceeds, pay back to the Microcredit Fund a percentage of the returns. These guidelines are meant to responsibly develop the microfinance sector and ensure compliance by state governments and commercial banks with existing microfinance regulations. Continue Reading »

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Tuesday, December 8, 2009

MICROCAPITAL BRIEF: Nepal Rastra Bank Recognizes Local Microfinance Bank With National Development Bank Status

The Nepal Rastra Bank, which is the nation’s central bank, recently recognized Nirdhan Utthan Bank Limited, a local microfinance bank, with the “National Level Microfinance Development Bank” designation.  After Nirdhan Uttahan Bank reached minimum capital requirements of NPR 100 million (USD 1.34 million) in paid-in equity, it became the first microfinance bank in the country to be recognized with this designation.  The designation means that Nirdhan Uttahan Bank has official sanction to open branches in all seventy-five districts of Nepal.  Additionally, with the “development bank” designation, NUBL may obtain different sources of funding for its operations, can reach a broader swath of clients and can accept collateral for its larger loan products. Continue Reading »

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Monday, December 7, 2009

MICROCAPITAL BRIEF: Asian Development Bank (ADB) Provides Loan To Strengthen Regulatory Environment Of Cambodia’s Financial Sector, Microfinance Institutions To Accept Deposits

The National Bank of Cambodia (NBC) recently received a USD 10 million loan from the Asian Development Bank (ADB) in order to stregthen the legal and regulatory environment surrounding the country’s financial sector.  Samiuela Tukuafu, a Senior Financial Sector Specialist with the ADB, states that the funds will be used to “improve the legal and regulatory environment, to boost sector capacity, to improve disclosure standards and financial transparency, and to build up infrastructure.” In part, the reforms target the development of the microfinance sector by permitting microfinance institutions to take deposits from the public and receive credit from domestic commercial banks. However, the reforms go beyond the microfinance sector with additional reforms targeting the development of bank supervision capacity and the establishment a commercial dispute resolution mechanism. Continue Reading »

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Friday, December 4, 2009

MICROCAPITAL BRIEF: Microfinance Banks Want In On Central Bank Of Nigeria’s Proposed Bailout Of Commercial Banks

Commentators are arguing that the Central Bank of Nigeria’s (CBN’s) proposed bank bailout program extend to distressed microfinance banks. The Central Bank of Nigeria is considering the establishment of an asset management company that would buy certain distressed loans from commercial banks at a discount with the goal of providing greater liquidity in the banking sector.  This program would not extend in its current iteration to microfinance banks because only loans with identifiable collateral are eligible.  Mr. Akin Oladeji, Managing Director of a local investment bank, opposes the call to bailout distressed microfinance banks because they operate in the informal sector and therefore are not fully integrated into Nigeria’s financial markets.  Rather, he states that a separate government agency should be created to supervise and provide assistance to ailing microfinance banks. Continue Reading »

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Thursday, December 3, 2009

MICROCAPITAL BRIEF: Indonesian Microfinance Program Kredit Usaha Rakyat May Offer New Paradigm

President Yudhoyono recently announced his intention to expand the reach of the Kredit Usaha Rakyat (KUR) program.  The expansion will increase disbursement of micro-loans by as much as IDR 100 trillion (USD 10 billion) over the next five years. The goal of the KUR program is to encourage commercial banks to expand their services into the microfinance sector by providing government guarantees.  Under the KUR program, the government provides funds to guarantee loans disbursed by certain banks to microfinance sector, thereby, sharing in the loss should the loans turn bad. Critics point out that under the KUR program, micro-loans will be subject to the rigors of commercial regulation, which includes collateral requirements from borrowers.  Critics argue that by subjecting micro-borrowers to these commercial standards, the KUR program effectively precludes millions of rural farmers from obtaining micro-loans due to their lack of eligible collateral. Continue Reading »

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