HSBC has indicated the loans will carry an interest rate of Turkish Lira Reference Interest Rate (TRLIBOR) with a one percent spread. The one percent spread will be allocated toward donations or plowed back into microcredit, according to Antika. As of August 15, 2008, the six month TRLIBOR rate was 17.4%.

Turkey is listed amongst HSBC’s priority countries for microfinance expansion, alongside Argentina, Brazil, China and Poland. According to HSBC’s 2007 Sustainability Report, its strategy is to “engage with the microfinance sector on a commercially viable and sustainable basis, not as philanthropy. The strategy exploits HSBC’s strengths and focuses the business on [its] existing products and operations such as cash and liquidity management, collections, receivables, currency, remittances and cards.”

HSBC, headquarted in London, was established in 1965. HSBC has operations in 85 countries, and is involved with microfinance in India, Mexico, the Philippines, Russia, Sri Lanka and the USA. MicroCapital has previously reported on HSBC’s involvement in microfinance, including its partnership with Islamic Relief to offer Islamic Microfinance in Pakistan, expansion in China and partnership with Indian microfinance institution Mann Deshi Mahila Sahakari Bank.

By Jocelyn Cheng, Research Assistant

ADDITIONAL RESOURCES:

The Banks Association of Turkey. Turkish Lira Reference Interest Rate (TRLIBOR).

HSBC. 2007 Sustainability Report.

HSBC Investor Presentation, March 2008. Sustainability at HSBC.

MicroCapital.org News Wire, July 25 2008. HSBC Ammanah partners with Islamic Relief to Launch Microfinance Program in Pakistan.

MicroCapital.org News Wire, March 28 2008. Rise in Rural Microfinance Investment from HSBC, Others Seen as Tip of Iceberg.

MicroCapital.org article, December 7 2006. Indian Microfinance Bank MDMSB Creates Partnership With International Bank HSBC.

Turkish Daily News, August 15 2008. Microcredit to fight poverty in Turkey.

Shubhankar Sengupta, Arohan’s CEO, cited the Lok Capital and Dell Foundation investment as validation of Arohan’s for-profit model: “It…confirms the faith of the microfinance industry that this business can be financially sustainable, even while meeting the social objective of financial inclusion”. Geeta Goel, the head of the Dell Foundation’s Indian microfinance effort, also emphasized Arohan’s high operating standards in its decision to invest in Arohan: “we are particularly excited about Arohan’s commitment to understand and satisfy client requirements through appropriate product design and high levels of customer service, delivered in a cost-efficient manner”.

The investment by the Dell Foundation takes the form of a Program Related Investment (PRI), the legal term for a debt or equity investment made by a private foundation to a non-profit or for-profit organization with the chief purpose of advancing a social mission. The Dell Foundation has made previous PRIs in microfinance, including a USD 475,000 equity investment in for-profit Indian microfinance institution Ujjivan, which granted them a seat on Ujjivan’s board. The Dell Foundation has also made other equity investments to fund the creation of microfinance institutions; however, the majority of the Dell Foundation’s work is through grant funding for non-profits. MicroCapial has previously commented on the topic of PRIs in microfinance, including a PRI paper wrap-up and the role of PRIs in foundations, as well as the example of the Gates Foundation’s USD 29 million PRI to ProCredit.

According to the MIX Market, Arohan was founded in 2006.  As of December 2007, Arohan had total assets of USD 795,580 and a total loan portfolio of USD 686,618 with 9,945 active borrowers. Arohan has stated its goal is to reach 400,000 clients by 2011. In June 2006, MicroCapital reported the Bellwether Microfinance Fund, made a debt and equity investment of USD 438,400 in Arohan. Arohan does not report a third party performance evaluation of operations to The MIX, the microfinance information clearinghouse.

Lok Capital is microfinance-focused venture capital fund founded in 2006. According to the MIX Market, As of March 2008 Lok Capital had total assets of USD 22 million, of which USD 3.9 million were allocated to microfinance investments. Lok Capital’s investors include institutional investors such as CDC, FMO, KfW, and the IFC, as well as microfinance-focused institutions such as ACCION International, responsAbility and Développement International Desjardins.

The Dell Foundation, established in 1999, has an endowment of over USD 1 billion. The Foundation focuses on the areas of urban education, childhood health and family economic stability/microfinance in the US, Africa and India. The Dell Foundation’s stated strategy in microfinance is to “in collaboration with other foundations and commercial banks, provide start-up capital to directly invest, through equity or grants, in scalable urban growth-oriented microfinance institutions to make a diverse range of financial services accessible”.  For a list of MSDF grant recipients in the area of microfinance, please see here.

By Jocelyn Cheng, Research Assistant

Additional Resources:

Lok Capital Raises Fund Size to $22m With Investments from ACCION, responsAbility, Développement International Desjardins (DID). Business Standard, March 19 2008.

The Michael and Susan Dell Foundation

MicroCapital.org paper wrap-up, September 25 2007: Mission Investing in Microfinance: A Program Related Investment (PRI) Primer and Toolkit, by Jonathan C. Lewis and Robert A. Wexler

MicroCapital.org article, February 6 2007: The Gates Foundation Accelerates by Lending and Giving $29 Million to ProCredit Microfinance Banks in Angola, Democratic Republic of Congo (DRC), Ghana, Mozambique, and Sierra Leone

MicroCapital.org article, June 7 2006: Bellwether India-focused Private Equity Microfinance Fund Makes Second Investment of US$274,000 in Arohan Microfinance Services

MicroCapital.org article, July 24 2005: Program-Related Investments and Microfinance, Part 2

MicroCapital.org article, July 25 2005: Mr. Omidyar’s Philanthropic Vision: a Work in Progress, Part 1

The MIX Market profile for Arohan: http://www.mixmarket.org/en/demand/demand.show.profile.asp?token=&ett=2491

The MIX Market profile for Lok Capital: http://www.mixmarket.org/en/supply/supply.show.profile.asp?token=&ett=2128

Press Release: Michael and Susan Dell Foundation, Lok Capital invest in Kolkata micro finance firm

Lars Thunell, the CEO of IFC, emphasized the IFC’s strategy of partnering with local institutions: “IFC is partnering with Kyrgyz banks to develop the country’s microfinance industry…This will help the bank diversify its loan portfolio and grow stronger, while at the same time creating opportunities for people to grow their businesses.” IFC also holds 17% equity ownership in the KICB, and was one of the founding shareholders of KICB in 2001. Other shareholders include the Aga Khan Fund for Economic Development, Habib Bank Limited, DEG and KfW, the European Bank for Reconstruction and Development, and the Kyrgyz government. KICB does not report information to the MIX Market, the microfinance information clearinghouse.

In addition, IFC also announced it will provide mortgage lending advisory services to Krygyz microfinance institution Bai Tushum. The scope of IFC’s advisory services include analyzing Bai Tushum’s practice, which began in 2004, and assisting with the establishment of an environmental management system in order to improve sustainability and expand its mortgage portfolio. Mr. Thunell emphasized the role of Bai Tushum as a national champion in the Krygyz mortgage industry: “IFC wants to help Bai Tushum make housing more affordable for people in the Kyrgyz Republic. We are optimistic that our support will strengthen Bai Tushum’s mortgage business, making it a model for other Kyrgyz financial institutions”.

Bai Tushum was created in 2000 with the mission of contributing to sustainable development of the Kyrgyz economy by granting financial services to farmers and micro, small and medium size entrepreneurs. As of July 2008 Bai Tushum had total assets of USD 56.5 million and a total loan portfolio of USD 37.5 million with 17,431 active borrowers and a debt to equity ratio of 608.34 percent. In 2007 it earned a return on equity of 23.31 percent. MicroCapital has reported on Bai Tushum’s recent rounds of financing, including a USD 1.5 million loan from responsAbility in June 2008, a USD 1 million loan from Dexia Microcredit in May 2008 and a USD 2 million guarantee from the European Bank for Reconstruction and Development in November 2007.

By Jocelyn Cheng, Research Assistant

IFC Press Release: IFC Invests in Kyrgyz Investment and Credit Bank to Expand Lending in Remote Regions of Kyrgyz Republic.

IFC Press Release: IFC Supports Mortgage Lending in the Kyrgyz Republic.

IFC Summary of Project Information. Kyrgyz Republic – SEF KICB.

MicroCapital.org article, June 3 2008: Swiss responsAbility Loans $6.4m to Eastern European and Central Asian Microfinance Institutions

MicroCapital.org article, May 23 2008: Dexia Microcredit Fund of Luxembourg Lends $2m to Asian Microfinance Institutions Bai Tushum Financial Foundation (BTFF), Finance for Development LLC (FinDev) and Angkor Microfinance Kampuchea (AMK)

MicroCapital.org article, November 13 2007: European Bank for Reconstruction and Development (EBRD) Provides $2m Guarantee to Kyrgyz Microfinance Institution Bai Tushum

The MIX Market profile for Bai Tushum: http://www.mixmarket.org/en/demand/demand.show.profile.asp?token=&ett=859

In discussing the impact of the loan, LAPO Founder and Executive Director Godwin Ehigiamusoe specifically highlighted LAPO’s outreach efforts toward women: “This is the largest portfolio financing support LAPO has received so far from a commercial bank. It has great implications for our efforts to reach a large number of female owners of microenterprises across the country”. LAPO plans to use the proceeds of the loan to expand into southwest and eastern Nigeria. Since 2003, the Grameen Foundation has supported LAPO’s branch expansion, client lending and Management Information Systems automation, as well as providing technical assistance in developing financial reporting and internal systems.

According to the MIX Market, LAPO was founded in 1987. As of December 2007, LAPO had total assets of USD 27.4 million and a total loan portfolio of USD 16.5 million with 130,979 active borrowers. In 2007 it earned a return on equity of 39.07 percent and had a debt to equity ratio of 437.68 percent. As previously reported by MicroCapital, in 2007 LAPO had received a USD 1.04 million loan from Citibank, also with a Grameen Foundation guarantee of USD 500,000. In 2006 LAPO received a USD 393,960 credit line from the Impulse Microfinance Investment Fund, a social investment fund founded by the Belgian microfinance investor Icofin, and a USD 800,000 loan from MicroCredit Enterprises, a non-profit organization that lends to private microfinance institutions.

Standard Chartered Bank Nigeria is a wholly owned subsidiary of the British Standard Chartered Bank Plc. Standard Charter re-entered Nigeria in 1999 following the Nigerian civil war and is engaged in consumer and wholesale banking.

The Grameen Foundation is a non-profit organization and a global network of 55 partners in 24 countries. Its founding in 1997 was inspired by the work of Grameen Bank. However, the Grameen Foundation is a separate entity from Grameen Bank. Under its Growth Guarantees program, it has provided financial guarantees to back loans to microfinance organizations located in Latin America, Asia, the Middle East and Africa.

By Jocelyn Cheng, Research Assistant

ADDITIONAL RESOURCES:

Grameen Foundation Press Release: “GF Secures $5 Million Financing Deal for Nigerian MFI LAPO”

MicroCapital.org article, April 24 2007: Nigerian Microfinance Institution LAPO Receives a USD 1.04 mn Loan from CitiBank Enhance by a USD 500,000 Guarantee from the Grameen Foundation

MicroCapital.org article, December 11 2006: Impulse Microfinance Investment Fund offers USD 393,960 credit line to Nigeria’s LAPO

MicroCapital.org article, September 29 2006: MicroCredit Enterprises Issues Loans Totaling $1.9 Million to IMON, LAPO, Associacion Benefica PRISMA, and EDPYME CONFIANZA

The MIX Market profile for the Grameen Foundation:  http://www.mixmarket.org/en/partners/partners.show.profile.asp?token=&ett=652

The MIX Market profile for LAPO: http://www.mixmarket.org/en/demand/demand.show.profile.asp?token=&ett=995

The Capital to Risk Weighted Assets Ratio (CRAR) is the primary measure used by the RBI of a bank’s capital. The CRAR measures a bank’s capital reserves as a percentage of risk-weighted assets. The majority of MFIs in India fall under the category of non-deposit-taking non-banking finance companies (NBFCs); the RBI had previously set the minimum CRAR for all NBFCs at 10%. However, the RBI cited the global credit crunch in its decision to raise the minimum CRAR: “In view of recent international developments, the risks associated with highly leveraged borrowings and reliance on short term funds by some NBFCs to fund long gestation assets, concerns have arisen regarding the enhanced systemic risk”.  NBFCs have until April 2009 to achieve 12% CRAR and must attain 15% CRAR by April 2010.

Several MFIs in India have protested against the tightening of capital adequacy standards. P N Vasudevan, the Managing Director of the Indian MFI Equitas, argued that more stringent requirements were unwarranted, since MFIs “are not into such risky business and their loans are generally very small”. In addition, Indian MFIs worry the need to seek additional capital will lead to higher costs, thus sparking an increase in interest rates. Suresh Krishna, a Managing Director at the microfinance organization Grameen Kuta, expressed concern the capital requirement increase will force MFIs into the arms of private investors, “leading to commercialisation of microfinance, which again makes it an expensive exercise and leads to higher rates.” Krishna also stated the immediate solution is to sell part of its portfolio to other banks or to perform off-balance sheet transactions to reduce its loan portfolio. According to Business Standard, Grameen Kuta has been in discussions with ABN Amro, Axis Bank, Citibank and Standard Chartered Bank to offload a portion of its portfolio.

According to the MIX Market, Equitas was established in 2007 and as of December 2007 had total assets of USD 4.8 million, a total loan portfolio of USD 4.2 million and a debt to equity ratio of 66.27 percent with 16,166 active borrowers. In March 2008 Crisil Ratings awarded Equitas an mfR4 rating. MicroCapital has previously reported on Equitas’ plans to raise funding via private equity and focus on urban areas. Grameen Kuta does not report to the MIX Market, the microfinance information clearinghouse.

By Jocelyn Cheng, Research Assistant

ADDITIONAL RESOURCES:

Sreelatha Menon, MFIs Under Pressure to Raise Funds. Business Standard, August 7 2008.

MicroCapital.org article, July 29 2008: Indian Microfinance Institutions (MFIs) Increase Focus on Urban Areas

MicroCapital.org article, May 30 2008: For-Profit Equitas Microfinance to Raise $12.5m via Private Equity

The MIX Market profile for Equitas: http://www.mixmarket.org/en/demand/demand.show.profile.asp?token=&ett=2813

Reserve Bank of India: Guidelines for NBFC-ND-SI as regards capital adequacy, liquidity and disclosure norms. August 1 2008.

According to Police Chief Aminta Granera, police officers were greeted at Fundenuse’s offices by protestors with weapons such as machetes, shovels and Molotov bombs.  Tensions in northern Nicaragua have been high since President Daniel Ortega visited the region on July 12 and in an incendiary speech, called on the population to protest against MFIs charging usury interest rates in order to convince them to renegotiate their rates: “We need to end this policy of usury…go march and plant yourselves in front of the offices of the usurers…Be firm! The usurers don’t have any other option: either they renegotiate or they renegotiate”. Ortega did not cite a particular MFI, and several microfinance organizations in the region were forced to close their doors due to protests led by a group of farmers called Movement of the Producers of the North (MPCS). 

ASOMIF had already signed a debt restructuring agreement, which Ortega was unaware of prior to his visit.  A statement by ASOMIF read: “We express our surprise and worry for declarations made by the president of the republic on July 12 in Jalapa, calling for a renegotiation with microfinanciers, even though we’ve already agreed to a debt restructuring agreement with the members of the movement”. After the height of the protests, Emigdio Lola, the head of Fundense, affirmed that the organization would continue its microfinance work with its clients in good standing. For the 101 clients involved with MPCS, Fundenese is offering a 21% interest rate, forgiveness of late repayment penalties and no commission. In addition, Lola expressed his surprise that the protestors concentrated their attacks on Fundense.

According to the Mix Market, Fundenuse was founded in 1993 and as of December 2007 had total assets of USD 12.3 million and a total loan portfolio of USD 11.3 million with 15,757 active borrowers. In 2007 it earned a return on equity of 30.91 percent and had a debt to equity ratio of 119.18 percent. In October 2007, Planet Rating awarded Fundenuse a B rating with a stable outlook. 

ASOMIF is a network of 20 non-for-profit and credit union entities in Nicaragua, representing a total loan portfolio of USD 140 million.  The association was founded in 1998.

By Jocelyn Cheng, Research Assistant

ADDITIONAL RESOURCES

Comunicado de ASOMIF.  July 24 2008.

The Mix Market Profile for ASOMIF: http://www.mixmarket.org/en/partners/partners.show.profile.asp?token=&ett=1096

The Mix Market Profile for FUNDENUSE: http://www.mixmarket.org/en/demand/demand.show.profile.asp?ett=1891

Daniel Ortega: El Poder del Pueblo Presidente. Jalapa, July 12 2008. 

Blake Schmidt, Police investigate violent protests in northern Nicaragua. Tico Times, July 25 2008.

Leoncio Vanegas, Fundenuse por un clima de distension. El Nuevo Diario, July 31 2008. 

Mongolia has one of the lowest population densities in the world of approximately one person per square kilometer, according to XacBank’s CEO Ganhuyag Chuluun Hutagt. “Mobile phone banking services will have a considerable impact in offering wider access, convenience and cost-efficiency, as well as increased speed and reliability for transactions.” According to Gautam Ivatury, CGAP’s Technology Program Manager, 40 percent of Mongolians use solely cash today, and according to XacBank’s market research 50 percent would welcome the availability of mobile banking services at local merchants. XacBank’s project will be implemented in partnership with local mobile phone service providers and a cash-handling network of local merchants. 

CGAP had previously worked with XacBank through CGAP’s Pro-Poor Innovation Challenge (PPIC), which provides grants of up to USD 50,000 for technical assistance and other expenses related to programs to extend financial services to poor populations. XacBank directed the PPIC funds to extend its Development Guide program, which establishes savings and credit cooperatives in rural areas through a franchising model.

XacBank was created in 2001 following a merger between Goviin Ekhlel LLC and X.A.C. LLC, the two largest non-bank financial institutions in Mongolia. According to the MIX Market, as of December 2007 XacBank had total assets of USD 122.7 million and a total loan portfolio of USD 85.2 million with 59,793 active borrowers. In 2007 it earned a return on equity of 23.96 percent and had a debt to equity ratio of 984.23 percent. The organization was favorably rated by Moody’s in March 2008 with a Ba2 foreign currency issuer rating and a stable outlook. As previously reported by MicroCapital, in January 2008 the International Finance Corporation (IFC) made a USD 3 million investment in XacBank for a 10 percent equity stake. 

By Jocelyn Cheng, Research Assistant

ADDITIONAL RESOURCES:

CGAP Press Release: Mobile Phone Banking to Reach Rural Mongolia

CGAP: Winners of Round Eight of the PPIC

ePaynews: Cellphone Banking to Reach Rural Mongolia

MicroCapital.org article, January 22 2008: International Finance Corporation (IFC) Makes a $3m Equity Investment in Mongolian Microfinance Institution XacBank

The MIX Market profile for XacBank: http://www.mixmarket.org/en/demand/demand.show.profile.asp?ett=38&

Moody’s Rating Reports: http://www.mixmarket.org/en/demand/demand.show.profile.asp?ett=38&

Upsides newsletter: “Nomadic Banking.” (p44-45). 30 Oct 2007

XacBank: http://www.xacbank.org/index.php

XacBank: Leapfrogging Access to Financial Challenges with Mobile Phones.  Next Generation Access to Finance.  17 Sept 2007.

XacBank Press Release: Mobile Phone Banking for Rural Mongolians: XacBank Selected as CGAP Technology Partner

According to the Wall Street Journal, the Gates Foundation grants will be directed to establishing rural savings programs, including research, training and technology. The Gates Foundation also plans to encourage governmental support for microsavings programs, including funding Central Bank education programs. The Gates Foundation will initially focus on countries that have existing infrastructure for establishing microsavings programs, such as Brazil, the Philippines, Mexico, South Africa and India.  According to a spokeswoman for the foundation, the organization recently granted Oxfam International USD 11.7 million to initiate training and group-savings schemes in Mali and Cambodia. The long-term geographical focus of the Gates Foundation’s microsavings work is expected to be in Africa.   

The Gates Foundation launched its Financial Services for the Poor initiative in 2005 under the scope of its Global Development Program.  Within this initiative, the Gates Foundation has awarded approximately USD 300 million related to microfinance services, including loans and insurance.  MicroCapital has reported on the Gates Foundation’s involvement in microfinance in the past, including a speech by Bill Gates promoting microfinance in April 2008, a USD 34 million grant to International Labour Organization in December 2007; the appointment of its microfinance head in April 2007; and a USD 15.4 million grant to Opportunity International, a USD 24 million grant to the Consultative Group to Assist the Poor, and USD 29 million in grants and loans to ProCredit microfinance institutions in February 2007.

By Jocelyn Cheng, Research Assistant 

ADDITIONAL RESOURCES

The Bill and Melinda Gates Foundation

CGAP: Safe and Accessible: Bringing Poor Savers into the Formal Financial System

MicroCapital.org article, April 11, 2007: Bill Gates Cites Microfinance as He Urges Businesses to Help the Poor

MicroCapital.org article, February 8, 2007: Gates Foundation Names Robert Peck Christen of the Boulder Institute of Microfinance as Head of Microfinance Team

MicroCapital.org article, December 17, 2007: The Gates Foundation Makes USD 34 Million Grant to the International Labour Organization to Set Up Microinsurance Initiative

MicroCapital.org article, April 13, 2007: Gates Foundation Names Robert Peck Christen of the Boulder Institute of Microfinance as Head of Microfinance Team

MicroCapital.org article, February 22, 2007: The Gates Foundation distributes 15.4 million to Opportunity International

MicroCapital.org article, February 6, 2007: The Gates Foundation Accelerates by Lending and Giving $29 Million to ProCredit Microfinance Banks in Angola, Democratic Republic of Congo (DRC), Ghana, Mozambique, and Sierra Leone

MicroCapital.org article, February 1, 2007: Gates Foundation Grants USD 24mn Over 5 Years to Consultative Group to Assist the Poor (CGAP) to Promote Microfinance Technology

Wall Street Journal: Giving a Lot for Saving a Little by Robert A. Guth