MicroCapital » Ipek Kuran

MICROCAPITAL STORY: General Electric Consumer Finance (GE Money), based in London, supports FINCA Village Banking, based in Washington DC, with USD 1.5 million Grant

Ipek Kuran — Mon, 28 Jul 2008 09:42:12 +0000

General Electric Consumer Finance (GE Money) has made a three-year commitment worth USD 1.5 million to support FINCA’s (Foundation for International Community Assistance) Village Banking Campaign. Founded in 1984, FINCA’s Village Banking aims to reach 1 million of the world’s lowest-income entrepreneurs by the end of 2010. During 2008, FINCA will use the first USD 500,000 installment of the funding to expand in Middle East, Africa, Eurasia and Asia.
Founded in 1984, FINCA pioneered the village banking methodology, which provides capital to low-income households through financial support groups. The self-help support group usually has 20-30 members, predominantly female head-of-households. Since individuals lack collateral, the group guarantees repayment. The groups meet once a week for training, motivation and mentoring. Loans start at USD 50 – 100 and are linked to savings such that the more a client saves the more she can borrow. The normal loan period is four months and is repaid in 16 weekly installments.

In February 2007, GE Money became FINCA’s corporate partner. GE Money and FINCA work together to develop philanthropy, marketing and branding, product development and delivery. GE Money’s funding helped launch FINCA Jordan, a microfinance program in the Middle East. GE Money’s support will also help establish new village banks in Malawi and Ukraine, while funding a feasibility study on establishing a new FINCA program in India. In addition, GE Money’s support will enable FINCA Mexico to launch an educational program to empower and educate FINCA clients to in health issues.

As part of its Corporate Citizenship, GE Money launched “Banking on Women” in 2008. The aim of the program is to provide financial educatioan and microfinance to women. The corporation has partnered with LET’S GO Foundation, a non-profit organization in Phillipines, to establish the Women Entrepreneurship Program. GE’s partnership with FINCA is part of the corporation’s effort to provide equal financial education and access around the world.

GE Money, a unit of General Electric Company, is a provider of retail, banking and credit services in 55 countries around the world. Based in London, UK, GE Money offers a range of financial products, including credit cards, personal loans, bank cards, auto loans and leases, mortgages, debt consolidation and home equity loans, and credit insurance. In 2007, General Electric reached full-year revenues of USD 163.4 billion, and earnings of USD 20.7 billion, while GE money reached USD 4.3 billion earnings and USD 211 billion assets.

As of 2006, FINCA has total assets of USD 251 million, operates through 100,000 village banks. Microcapital published an interview with FINCA’s founder, John Hatch, here.

By Ipek Kuran, Research Assistant

Additional Resources:

Press Release

GE Money Corporate Social Responsibility

FINCA financial report – 2008

FINCA village banking

John Hatch “village banking” speech – HAAS Berkeley

Microcapital Pioneers in Microfinance – John Hatch interview

FINCA Jordan

MICROCAPITAL STORY: HSBC Ammanah partners with Islamic Relief to Launch Microfinance Program in Pakistan

Ipek Kuran — Fri, 25 Jul 2008 05:05:23 +0000

HSBC Amanah, the global Islamic banking division of HSBC group, has partnered with Islamic Relief, an international development and relief organization, to offer Islamic Microfinance in Pakistan. Islamic microfinance, just like Islamic banking, will provide financial services to devout Muslims in accordance with the Shariah, the Islamic law. HSBC Amanah will provide both training and funding for Islamic Relief’s microfinance projects, starting in Rawalpindi, Pakistan.

Islamic Relief (IR) started working in Pakistan in 1992 and has its main office in Islamabad. The organization has implemented development projects in water and sanitation, health, education, income generation, disaster response and orphan support. In 2005 IR initiated Small Scale Enterprises for Women (SSEW) in Rawalpindi City, Pakistan. The aim of the project is to provide entreprise development services (EDS) to low-income groups.

IR works with Pak Swiss Small Scale Enterprise Promotion Programma (SSEP), supported by Swiss Agency for Development and Co-operation, that specializes in EDS. Working with the United Nations Development Program (UNDP ), the United Nations Children’s Fund (UNICEF), the International Labor Organization (ILO) and the International Union for Conservation of Nature (UICN) as well as the International financial institutions such as the World Bank and the Asian Development Bank, SDC provides yearly funding to Pakistan’s SSEP, Community Services Programme (CSP) and the Civil Society Human and Institutional Development Programme (CHIP) in the amount of USD 13.6 million.

After providing EDS, which includes identifying potential beneficiaries, forming the groups and giving financial training on credit and savings scheme, IR assesses credit needs and provides microcredit. The estimated number of beneficiaries is 75 families over the duration of SSEW. HSBC Amanah will assist IR in developing the required Shariah structure for giving microcredit. The financial details of the partnership have not been made public.

HSBC Amanah was established in 1998 to provide Islamic banking. The Global Shariah Advisory Board (GSAB) advises HSBC Amanah on compliance of its financial services with the Islamic law. GSAB comprises of representative scholars from all Regional Shariah Committees (RSC) of HSBC Amanah in addition to other Shariah scholars of international standing. Islamic banking is the prohibits all kinds of interest; “nominal” or “excessive,” simple or compound, fixed or floating.Other elements include the emphasis on equity financing, which requires partnership and profit sharing, as opposed to debt financing, the linking of finance to productivity, the desirability of profit sharing, and the prohibition of gambling. Islamic investment discourages speculation.

HSBC Amanah is a global division of the HSBC group. Headquartered in London, HSBC has operations in 77 countries, 20 of which are member of Organization of Islamic Conference (OIC). The group has 10,000 offices, with almost 110 million customers, in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. In 2007 the total of assets of the group amounted to USD 2,354 billion and the profit before tax was USD 24,212 million.

The HSBC Group is currently involved in microfinance activities in 7 countries;India, Mexico, Phillipines, Russia, Sri Lanka, China and USA. The group plans to expand its microfinance involvement to Argentina, Brazil and Turkey. In 2007 HSBC launched a rural bank in China. HSBC’s locally incorporated China unit, separate from the new rural bank, operates 40 outlets and employs around 4,000 people. Microcapital reported on HSBC’s microfinance involvement here and here.

Islamic Relief, founded in the UK in 1984, has offices in Afghanistan, Albania, Bangladesh, Bosnia, Chechnya, China, Egypt, Kosova, Indonesia, Mali, Pakistan, Palestine, Sudan, Ethiopia, Jordan, Kenya, India, Iraq, Somalia, and Yemen. By the end of 2007, Islamic Relief had total incoming resources of USD 78.4 million, the total value of humanitarian relief delivered was USD 33.4 million.

By Ipek Kuran, Research Assistant

Additional Resources:

HSBC Amanah

Islamic Relief

Islamic Relief financial report 2007

Institute of Islamic Banking and Insurance

Swiss Agency for Development and Co-operation

Islamic Microfinance Development: Challenges and Initiatives – Islamic Research and Training Institute – May 2008

Microcapital News Wire – Thursday, August 16, 2007 – HSBC First Foreign Bank to Launch China Rural Bank

Microcapital Story – Thursday, December 7, 2006 – Indian Microfinance Bank MDMSB Creates Partnership With International Bank HSBC

Microcapital Story – Wednesday, April 19, 2006 – HSBC Shows Interest in Expanding Microfinance Investment Activity

PAPER WRAP-UP: Transforming NGO MFIs: Critical Ownership Issues to Consider, by Kate Lauer

Ipek Kuran — Mon, 21 Jul 2008 18:21:22 +0000

Written by Kate Lauer, lawyer and a policy advisory consultant to Consultative Group to Assist the Poor (CGAP), published in June 2008 as Number 13 of Occasional Papers, a publication of CGAP, 28 pages, available at http://www.cgap.org/gm/document-1.9.4213/OccasionalPaper_13.pdf

This paper examines nonprofit microfinance institutions (NGO MFIs) that plan to transform into a regulated for-profit company, while focusing on the issue of ownership establishment and the challenges it presents. The issues discussed in what the author calls a “guidance paper for those who plan to carry out a transformation” may be summarized as follows; legal restrictions to NGO’s ownership of the transformed institution, limits concerning the transformation of assets and liabilities, limitations regarding NGO’s grant funding, and issuance of shares in the transformed institution. (page 1)

After redefining “transformation” solely as the “transfer by an ownerless NGO of all or a part of its microfinance business to a for-profit company” (page 2) Lauer explains the possible motives for transformation. Accordingly, majority of the transformations are triggered by legislative change; 7 of 11 transformations completed in 2007, were mandated by new legislation (page 17). Another popular motive is the desire to provide new services to clients, including savings and transfering services.

Lauer argues that in most transformations, the NGO has retained, or wanted to retain, control over the transformed institution. She then explains the legal restrictions that may have interfered with the NGO’s initial intent of being the controlling shareholder. There are six restrictions listed, including the maximum ownership limitation set by the operating country’s legislature that limits the percentage of shares an individual or an entity may own in a regulated financial institution.

Since establishing ownership of the transformed institution involves a capital contribution, often comprised of the NGO’s loan portfolio and other assets, issues may rise if the transfer of the loan portfolio and other assets is restricted by law. Lauer further argues that a loan portfolio may not be used to satisfy the initial capital requirment since in many countries, local law does not permit the transfer of a loan portfolio in exchange for shares (page 6). Related is the issue of transferring liabilities. Lauer advises that an NGO MFI with outstanding borrowings should review whether these liabilities will be assigned to and assumed by the new company or stay with the NGO.

Lauer emphasizes the difference between the governance of an NGO and a company by stating that “a company is controlled by owners who have an incentive to protect their private financial interests,while an NGO has no owners and depends on the social motivation of its governing body.” (page 10) She further argues that with the transformation, the NGO has to adjust to new measurements of accountability and accomodate new shareholder’s interests.

To conclude, Lauer offers insight on how to protect the NGO’s original mission once the transformation occurs. She calls on NGOs to familiriaze themselves with legal and financial considerations that may affect the NGO’s selection of outside investors: “There has been significant upside to some transformations because they are permitted to offer additional services, access commercial capital, and work toward better governance. Some of this upside can be traced specifically to the introduction of outside owners, who may bring financial expertise, important connections to providers of capital, and the potential to contribute to effective governance. There are also risks, including in particular the possibility of mission drift,” meaning a departure from core values. (page 16)

The cases provided by Lauer are; Bolivian Prodem transforming into Prodem FFP in 1999, in Mexico the 2001 transformation of Asociacion Programa in Mexico Compartamos into Compartomas, a limited liability finance company, Compartomas. As an example for client ownership, Lauer gives the case of Indian SHARE transforming into SHARE Microfin Limited. In 2000, “99 % of SHARE’s paid-up capital of USD 1.2 million was contributed by over 26,000 poor women clients via the conversion of their compulsory savings into shares.” (page 11)

By Ipek Kuran, Research Assistant

Additional Sources:

CGAP

Prodem FFP

Compartamos

SHARE Microfin Limited

MICROCAPITAL STORY: Hapinoy, the Sari Sari Store Chain of Philippines, Partners with Microfinance Institutions to Provide Women Franchise Opportunities

Ipek Kuran — Wed, 16 Jul 2008 16:33:24 +0000

A partnership of big players seeks to franchise independently owned groceries throughout the Philippines. Founded in 2006, Hapinoy targets to open and/or convert 40,000 sari-sari stores by the end of 2008, by providing especially women borrowers a Hapinoy franchise.

The word sari-sari is roughly translated to English as “various kinds.” Sari-sari stores which sell single-packaged goods, are usually privately owned and operated inside the owner’s house. To start a sari-sari business costs around USD 1,540 and there are about 700,000 sari-sari stores in Philippines. Founded through a partnership between Smart Communications, Inc. (SMART), Philippines’ wireless service provider, and Microventures, Inc., a social business enterprise, Hapinoy stores are branded sari-sari stores owned and run by microentrepreneurs. Supported by the Microfinance Council of the Phillipines, Hapinoy is in partnership with four microfinance institutions (MFIs); the Center for Agriculture and Rural Development, Inc. (CARD), the largest microfinancing institution in the Philippines, Lamac Multipurpose Cooperative (LMPC), Taytay Sa Kauswagan, Inc (TSKI ) and Kasagana-Ka Development Center, Inc (Kasagana Ka).

Hapinoy works with the borrowers of partner MFIs who are known to have better repayment rates. This group usually includes nanays, the work-at-home mothers. In partnership with manufacturers, such as Unilever and Nestle, Hapinoy provides a direct link to production resulting in higher margins for the Hapinoy store owners on the goods sold. The company makes money by getting a percentage off the merchandise. The financial details as to how much Hapinoy receives are not disclosed.

An essential part of the work Hapinoy does is to provide training for the store owners. Training and capacity development include retail concepts such as inventory management, store efficiency and branding. Through the support of SMART, stores install internet kiosks to provide online access. Growing from the first year target of 8,000 Hapinoy stores, Hapinoy targets to reach 100,000 stores by the end of 2009. Currently there are Hapinoy stores in six communities; Laguna, Caloocan, Batangas, Quezon, Iloilo and Cebu.

By Ipek Kuran, Research Assistant

Additional Resources:

Hapinoy

SMART – press release

PSFK article

How Feasible are Sari Sari Stores – 13 December 2007

The sari-sari store: informal retailing in the Philippines – Journal of Small Business Management – October 1, 1997

MICROCAPITAL STORY: Central Bank of Liberia Grants License to AccessBank Liberia Limited, a Commercial Microfinance Bank

Ipek Kuran — Thu, 10 Jul 2008 14:08:29 +0000

Central Bank of Liberia (CBL) has granted provisional license to AccessBank Liberia Limited (ABL), a microfinance bank established in 2008, to operate as a commercial entity. AccessBank Liberia will open with an initial paid-in capital of USD 6 million, the minimum capital required by the CBL of banks operating in Liberia. AccessBank will focus on microfinance lending while also provide short and medium-term lending to small and medium enterprises.The shareholders of ABL include International Finance Corporation (IFC), a member of the World Bank Group, with 18%, European Investment Bank (EIB), long-term lending bank of the European Union, with 15% and African Development Bank (AfDB) with 15%. The primary sponsor of ABL is Access Microfinance Holding AG, a commercial microfinance holding company, that holds 52% of the share.

AccessHolding is managed by LFS Financial Systems GmbH (LFS ), a Berlin-based management and consultancy firm specialising in financial sector projects in developing and transitional countries. The group has invested in four microfinance banks as of 2007; AccessBanque Madagascar, Microfinance Bank of Azerbaijan, Socremo Banco de Microfinancas, and AccessBank Tanzania. Microcapital reported on AccessBank Tanzania here.

ABL had an initial shareholder capital of USD 4 million, which AccessHolding increased to USD 6 million to start up the licensing phase. The Bank is expected to attract about 81,000 voluntary depositors and mobilize resources of almost US$ 23 million with an average deposit amount of USD 300 to USD 1,000 per saver. In five years, ABL is projected to have expanded to 12 branches, with a workforce of about 400 people, an active client base of around 27,000, and total assets of USD 38 million.

According to a 2004 United Nations Capital Development Fund (UNCDF ) report on microfinance development in Liberia, the demand for credit from micro and small enterprises ranges between 62,000 and 82,000 customers with a combined loan volume ranging from USD 14 to 19 million. The supply reaches less than 8,200 customers with a combined loan portfolio of less than USD 250,000. Liberty Finance, a non-governmental organization providing microfinance, is the only microfinance institution in Liberia that is registered in Mix Market, a web-based, microfinance information platform.

Central Bank of Liberia was established in 1999. At the end of December 2007 the bank’s total assets amounted to USD 1.4 billion and total liabilities amounted to USD 1.2 billion, while owner’s equity totaled USD 222 million.

By Ipek Kuran, Research Assistant

Additional Resources:

CBL Press Release

Microcapital Story – April 28,2008

CBL annual report – 2007

Mix Market – Liberia

MICROCAPITAL STORY: ACE INA Foundation, Based in Philadelphia, Makes Three-Year USD 720,000 Grant to Freedom From Hunger’s Credit with Education program in Mexico

Ipek Kuran — Mon, 30 Jun 2008 06:36:53 +0000

ACE INA Foundation, the philanthropic arm of Bermuda-based casual insurance company ACE Limited, announced that it will be making a three-year USD 720,000 grant to US based international development organization Freedom from Hunger (FFH). Established in 1946, FFH works in developing countries to provide self-help programs against hunger and poverty. The organization’s work is specifically targeted to those who live on USD 1 per day or less. FFH will use the ACE grant to bring microfinance and financial education to nearly 3 million Mexican women, through its Credit with Education program.

According to a World Bank report on rural poverty in Mexico, although only one quarter of Mexico’s population lives in the rural areas, they compose 60.7 % of the country’s extreme poor and 46.1 % of the moderately poor. It is estimated that 24 million people live in extreme poverty, and that there are 17 million microenterprises. Compartamos Banco, on which Microcapital reported several times, is the largest microfinance bank in Mexico and has increased its client base tenfold since 2001. There are 40 microfinance organizations (MFIs) in Mexico that are listed in Mix Market Information Exchange, an information platform on microfinance.

In 2005 FFH established Alcance Mexico (translated as Reach Mexico), an independent organization that provides training to MFIs and community service organizations based in Mexico. With the ACE fund, FFH will simultaneously give microcredits to Mexican women and train the local MFIs to establish Credit with Education. Implemented in 50 organizations around 16 countries, Credit with Education program provides groups of 25 women with group loans that are then divided among the women according to their business plans. The women themselves perform the loan analysis, each reviewing the other’s plans for starting or growing a business. The loan cycle lasts sixteen weeks and at time of repayment, the local staff of FFH train women on issues such as health and nutrition, business practices. According to the FFH, 90% of Credit with Education participants in Ghana, reported increased income since joining the program.

According to FFH financial report of 2007, Credit with Education program has reached 540,000 women around the world and each dollar donated to FFH mobilizes USD 27.95 in loan funds. Individuals donated USD 2,795,537 to the organization’s annual fund that attracted USD 3,583,682 in corporate and foundation gifts and in total supported USD 7,356,000 unrestricted operating revenue.

ACE Limited, a component of the S&P 500 stock index, was established in 1985 by a consortium of 34 Fortune 500 companies to provide excess liability coverage. The Company, with assets worth USD 72 billion, operates in more than 140 countries. The ACE INA Foundation supports U.S.-based philanthropy and is associated with organizations such as American Red Cross and Philadelphia Academies, Inc.

By Ipek Kuran, Research Assistant

Additional Resources:

Financial Times article – April 30, 2007

World Bank Mexico Report

Mix Market – Freedom from Hunger

MICROCAPITAL STORY: Ecobank Completes its Takeover of Kenya’s East African Building Society (EABS) Bank

Ipek Kuran — Thu, 26 Jun 2008 05:05:34 +0000

Ecobank Transnational Incorporated (ETI), a Pan African bank based in Togo, acquired a 75 percent stake in Kenya’s East African Building Society (EABS) Bank. The transnational changed the bank’s name to Ecobank Kenya Limited and appointed businessman Peter Kanyago as the new chairman. The Pandit family, founders and the single largest shareholders of EABS, will retain 25 percent representation in Ecobank Kenya Limited. Although the value of the deal was not disclosed, it was estimated to total USD 18,6 million (KES 1.3 billion).

Ecobank offers wholesale, retail, commercial and investment banking services to individual and corporate customers both public and private. Ecobank plans to expand its services to the East African region with the acquisition of EABS. The Bank’s Kenya representative, Michael Monari, explained their preference over a Kenyan bank by calling the country as the ‘financial hub‘ of the region. According to a 2006 working paper by the Namibian Economic Policy Research Unit (NEPRU), in 2005, the banking sector in Kenya comprised of 46 financial institutions. The asset portfolio of the banking sector expanded by USD 1,5 billion to USD 9,9 billion in 2005 from USD 8,4 billion in 2004. EABS, with group assets totaling USD 155,1 million (KES 10 billion), is one of the smaller banks in Kenya.

In its first year Ecobank plans to double EABS branch network, which currently has 8 branches. The banks also seeks to utilize its Accra based Ecobank International Technology & Shared Services Centre. Opened in 2008, the center is worth USD 40 million and provides web based, electronic banking services. Ecobank Kenya Limited’s objective is to become one of the top three banks in Kenya and also to list on the Nairobi Stock Exchange, enabling Kenyans to own a share the bank.

Established in 1985, Ecobank has offices in 22 countries, around West and Central Africa. At the end of 2007, Ecobank’s assets totalled USD 6,5 million and the bank had a shareholder’s equity of USD 513 million. MicroCapital featured Ecobank in an August 2007 Who’s Who in Microfinance article. In 2007, Ecobank, in collaboration with ACCION, a private nonprofit microfinance organization, launched one of the largest microfinance banks in Nigeria, ACCION Microfinance Bank (AMfB) Ltd. The partnership plans to launch microfinance operations in 20 African countries, including Kenya, in the next 5 years.

By Ipek Kuran, Research Assistant

Additional Resources:

Ecobank Transnational Incorporated

East African Building Society Bank

Microcapital News Wire – June 23, 2008

Press Release – EABS

Microcapital Story – June 3, 2008

NEPRU working paper – 2006

Microcapital Who’s Who – Ecobank

The Standard Article – May 24, 2008

ACCION Microfinance Bank (AMfB) Ltd

MICROCAPITAL STORY: Annexum, Real Estate Investor Based in Netherlands, Launches Dutch Microfund

Ipek Kuran — Wed, 25 Jun 2008 10:44:24 +0000

Dutch real estate investment company Annexum launched Dutch Microfund, a microfinance investment fund specifically targeted at the private and institutional investors. Dutch Microfund offers private investors the opportunity to invest in microfinance institutions (MFIs) directly or indirectly, through partners and mandates. The investment options are loan, equity and collateralized debt obligations (CDO). The average expected return is 7%-9% given a minimum investment of USD 1,561 (Euros 1000).

Huib Boissevain is one of the founding partners of Annexum. He was formerly an executive board member of Dutch real estate investment company VastNed Group that consists of two publicly traded subsidiaries; VastNed Offices/Industrial and VastNed Retail. Boissevain, in a recent press release, stated that they have been inspired by the work of management theorist C.K Prahalad. In his book, The fortune at the bottom of the pyramid, Prahalad advises that the poor should be seen as creative entrepreneurs, rather than as victims. Boissevain expects to attract clients who are willing to gain both socially and financially from their investments. Annexum added Dutch Microfund to its range of real estate funds based on the data that 97% of the loans are paid back. The only publicly available information on Dutch Microfund is the self-issued press release at its launch.

Real estate specialist Annexum, founded in 2000, has structured funds primarily in Netherlands. The company has also spread to France, Belgium and Germany; managing assets USD 1.015 billion (Euros 650 million) on behalf of its clients. Worldwide, real estate investments keep up the pace. According to 2007 Merryill Lynch World Wealth Report, global real estate investment totaled USD 900 billion in 2006, while High Net Worth Individuals (HNWI) around the world increased their allocation to real estate from 16% to 24% of their portfolios.

By Ipek Kuran, Research Assistant

Annexum

Dutch Microfund

World Wealth Report 2007

MICROCAPITAL STORY: Mercy Corps Buys a Commercial Bank in Bali to Service the Microfinance Sector in Indonesia

Ipek Kuran — Mon, 23 Jun 2008 05:06:49 +0000

Mercy Corps, a global relief organization, announced the creation of a ‘bank of banks’ (BoB), a commercial bank that will partner with other microfinance institutions (MFIs), in Indonesia. The MAXIS (Maximizing Financial Access and Innovation at Scale) program, developed by Mercy Corps to build BoB and provide technical asistance, received USD 19.4 million from Bill & Melinda Gates Foundation‘s Financial Services for the Poor initiative. The total capital supporting the creation of Indonesia’s first microfinance wholesale bank adds up to approximately USD 33 million, with funding from investors such as International Finance Corporation (IFC), a member of the World Bank Group, and the Hivos-Triodos Fund, a joint initiative of the Humanist Institute for Development Cooperation (Hivos) and Triodos Bank, based in Netherlands.

Mercy Corps has a record of micro credit lending around the world; as of May 2008 Mercy Corps have built a network of dozen MFIs that distributed 1,171,816 loans worth USD 1.09 billion. In 2001 Mercy Corps co-founded XacBank, a community development bank and microfinance institution. The first commercial bank of Mongolia with a social mission, XacBank is the second largest micro institution in Mongolia with a total loan portfolio of USD 85,208,598. The organization has worked in Indonesia’s microfinance sector since 1997. Mercy Corps in Aceh, an economic recovery program started after the 2004 tsunami and earthquake, is one of the programs doing microfinance work in Indonesia. Working with 200 Acehnese villages, Mercy Corps re-opened or created more than 400 small businesses through its Financial Access program (FinAp).

The largest microfinance institution in Indonesia is The Bank Rakyat Indonesia (BRI), a state owned commercial bank that provides rural credit since 1970. The Unit Desa system of BRI, formed by transforming 3,600 rural, state owned branches into self-sustaining microfinance intermediaries, reach more than 15 million poor and low-income households with deposit services. As of 2006, BRI units have 30.9 million savings accounts and 3.46 million active borrowers. BRI offers non-collateralized loans below USD 327 (Rp 3 million), however loans are usually set at 83% of the amount of collateral provided, meaning poor clients who have little or no collateral can not access to substantial credit. According to a Country Profile on Indonesia prepared by Banking With The Poor (BWTP), a research network based in Asia, as of 2003 approximately 20% of Indonesia’s 214 million people depend on micro- and small-scale businesses to earn a living, but only 10 million out of 42 million microenterprises have access to credit from formal financial institutions. Although the microfinance sector serves 32 million borrowers, according to a WorldBank report entitled Making the New Indonesia Work for the Poor, 40 million people still live below the national poverty line.

Mercy Corps will take over PT Bank Sri Partha (BSP), a local commercial Bali Bank, to create BoB. Servicing small businesses, BSP provided USD 29,049 in credit to 41,000 customers at an average loan size of USD 648, in 2003. Mercy Corps settled on BSP when, in 2007, Bank Indonesia raised capital requirements for banks to USD 8.42 million. Instead of working directly with those who need credit, BoB will provide financial services and products to bankable MFIs in Indonesia. Working together with MICRA (Microfinance Innovation Center for Resources and Alternatives), an Indonesian foundation founded in 2006 by Mercy Corps to build institutional strength and outreach of the Indonesian microfinance sector, BoB will enable MFIs to provide diversified products like microinsurance, remittances, mortgage finance and mobile phone banking, in addition to microloans and savings. In the first three years, BoB expects to reach 620 MFI clients through which around 3.2 million of micro-entrepreneurs and low-income people can obtain financing.

Based in Seattle, the Gates Foundation has an endowment of USD 38.7 billion as of 2007 and is the largest foundation according to Foundation Center‘s ranking of Top 100 US Foundations by Asset Size. The foundation’s Financial Services for the Poor Initiative of the Foundation, launched in 2005, focuses on development of financial services for the poor. Microcapital.org reported on the foundation’s grant to Opportunity International, a non-profit microfinance institution, in creating its subsidiary, the Microinsurance Agency.

By Ipek Kuran, Research Assistant

Additional Resources:

MIX Market – Mercy Corps Profile

Mercy Corps – MAXIS

Mercy Corps – Press Release

Bank of Banks – Summary of Proposed Investment – IFC

Banking with the Poor – Indonesia Page

Asia Development Bank – Quarterly article on Microfinance

World Bank – Making the New Indonesia Work for the Poor

BRI – Unit Desa

Promotion of Small Financial Institutions – Microfinance Indonesia

Review of Indonesian MicroFinance

Private Sector forum organized by World Bank on the Province of Bali

Indonesia Bank Legal Change

Foundation Center

Gates Foundation

Oregon Business News – Article on BoB, June 15, 2008

Microcapital story – February 19, 2008

Microcapital Press Release – February 7, 2008

Adam Sack, IFC country manager of IFC, interview

MICROCAPITAL STORY: The European Bank for Reconstruction and Development (EBRD) increases syndicated loan for Microfinance Bank of Azerbaijan (MFBA) up to USD 40 million

Ipek Kuran — Thu, 19 Jun 2008 07:30:09 +0000

The Board of Directors of the European Bank for Reconstruction and Development (EBRD), an international bank established in 1991 to support market economies and democracies in countries from central Europe to central Asia, will meet to discuss an increase in previously announced syndicated loan to Microfinance Bank of Azerbaijan (MFBA).

Initially, the EBRD planned to provide syndicated loan in the amount of USD 20 million to the MFBA for on-lending to Micro and Small Enterprises (MSEs). The proposed project now expands the loan to USD 40 million. In providing for the loan, EBRD will use the A/B loan syndication structure, in which commercial banks participate in the loan. The portion EBRD lends is referred as the A loan and the remaining portion as the B loan. Of the newly increased loan, EBRD plans to retain USD 10 million on its own account and offer up to USD 30 million to participating commercial banks.

EBRD is one of the six shareholders of the MFBA; others being the International Finance Corporation, the Black Sea Trade and Development Bank, the German government’s development agency KfW Development Bank, German consulting company LFS Financial Systems GmbH, and microfinance consultants Access Holding. EBRD invested USD 1.3 million in the creation of MFBA and holds 20% share. The shareholders recently increased the share capital of MFBA by USD 11.04 million, making MFBA one of the 10 largest banks in Azerbaijan with a total capital of USD 40.49 million.

MFBA has 13 branches. At the end of 2007, MFBA had a loan portfolio of 29,000 credits totalling more than USD 72 million. According to the MIX Market, in 2007 the number of active borrowers of the bank reached 46,653, the average loan being USD 2,435. The 2007 debt to equity ratio was 713.61% with 4.51% of return on assets. MFBA received Alpha rating for highly recommended from Micro-Credit Ratings International Limited (M-CRIL), a micro-credit rating agency.

EBRD has a subscribed capital totalling USD 30.97 billion, and a credit rating of AAA from Standard & Poor’s and Aaa from Moody’s.

By Ipek Kuran, Research Assistant

Additional Resources:

Micro Finance Bank of Azerbaijan

The MIX Market profile for MFBA

Standard & Poor’s Rating Report – EBRD

EBRD – Azerbaijan

Project Summary document – EBRD loan

Microcapital Story, April 15

M-CRIL