In January, a socially-conscious investment conference organized annually by Foundation & Endowment Money Management, Money Management Letter, and the Social Investment Forum will be held at the Union League Club located at 38 East 37th Street in New York City.   This year’s theme is “ESG on the Ground: Enhancing Profitability through Sustainable Investing.”   The third such conference of its kind, the conference this year has been expanded to two full days and will include a half-day workshop entitled, “A Practical Guide to the UN Principles for Responsible Investment (PRI),” which will be led by the PRI Secretariat.  The conference is open to those who hold leadership positions anywhere along the spectrum of investment organizations, from hedge funds and private equity firms to public foundations and family offices. 

The conference’s panels, workshops and speaker events will touch upon the following topics: 

1. investor criteria for selecting a fund manager or consultant
2. methods for improving shareholder engagement
3. empirical insights for community investing
4. foundations’ real-world experiences with responsible investing
5. investing university endowments responsibly
6. how asset managers can achieve environmental, social, and governance (ESG) integration
7. risk-return correlations and reporting metrics for ESG portfolios
8. corporate sustainability case studies

Speakers from the following companies, institutions, and organizations will be in attendance: Responsible Endowments Coalition, Social Investment Forum, Interfaith Center on Corporate Responsibility (ICCR), Grameen Foundation, Rockefeller Philanthropy Advisors, Benchmark Asset Managers, Bard College, HSBC Global Asset Management, Intel Corporation, Goldman Sachs, Calvert Investments, Network for Sustainable Financial Markets, Columbia University, University of California, and the Annie E. Casey Foundation.  Sponsors include: Benchmark Asset Managers, Calvert Investments, KLD Research & Analytics, Parnassus Investments, and Trucost. 

Participants must register before downloading a full brochure, which contains a complete schedule of events.  Attendees must pay a registration fee of USD 1,495 for the conference only and USD 1,990 for the conference and workshops.  There are discounts, however, for Social Investment Forum members and individuals who work for pension funds, foundations, and endowments.  For a full list of prices, please see the pricing webpage. 

For more information on registration or general inquiries, please email registration@iievents.com.  For questions about conference exhibits and sponsorship, please call Adrienne Bills at 212-224-3214 or email abills@iinews.com. Speaking and agenda inquiries should be directed to the Conference Producer, Joanna Randell, who can be reached at 212-224-3526 or jrandell@iievents.com.

Uniglobal Research, a business events firm for various industries in the financial sector, will host its second Annual Microfinance Forum in Spring of 2009 in Vienna, Austria. The conference will touch upon all of the following topics: how global trends and imbalances affect the microfinance industry; successful business models in low-income markets; including the world’s poor as investors, producers, sellers, and buyers; common standards for the microfinance industry; mobile banking for the poor; retail microfinance; and micro (life) insurance. The event has been billed to various groups, including: microfinance institutions (MFIs), non-governmental organizations (NGOs), commercial banks, research institutions, technology providers, and other public sector organizations. Uniglobal Research hopes participants will learn about the current activities and future plans of international commercial banks with respect to microfinance, capture lessons from relevant project experiences, and gain unique perspectives on how to align social issues with corporate strategy.

Speakers from the local branches of following organizations will be in attendance: Deutsche Bank (Germany), FINCA International (Ukraine), Habitat for Humanity (Slovakia), International Finance Corporation (Turkey), Internationale Projekt Consult GmbH (China), International Labour Organization (Switzerland), Kreditananstalt fuer Wiederaufbau (Germany), Microfinance Center for CEE and CIS (Poland), Microdevelopment Fund (Serbia), Planet Guarantee (France), PlaNIS (France), Turkish Grameen Microcredit Project (Turkey), and Zurich Insurance (Switzerland).

Interested parties must fill out a registration form online. While there is no mention of any fees on the conference website, the registration form prompts users to pay USD 1,796 (EUR 1,341) + 19 percent VAT as a fee to cover conference participation, conference materials, board, and service charges. Interested parties can also register by calling the Operations and Hospitality Team in Prague at +420-226 538 100 or by emailing registrations@uniglobalresearch.com.

For more information, please contact Olha Vyshnevskaya:

Olha Vyshnevskaya
Conference Producer
Uniglobal Research
Nekazanka 11 Prague 1
110 00 Czech Republic
Main tel: +420-226 538 100
Direct tel: +420-224 012 361
Email: olha@uniglobalresearch.eu

Aitec Africa, an event management and marketing firm with offices in Kenya and the UK, will hold a conference to discuss the banking and payment technologies available to the East African financial services sector.  Aitec Africa hopes that bank managers and customers will learn about the latest international developments in payment technologies, best practices in information technology (IT) project deployment, and current trends in customer service delivery.  The conference will be held over a three-day period at the Kenyatta International Conference Centre in Nairobi, Kenya. 

The theme for the 2009 conference is “Serving the Customer through Payment Technologies.”  The conference will cover the following topics:  how bank managers can efficiently and profitably deliver banking services to the low-income masses; whether African mobile operators should function as partners, competitors, or both; technological innovations and business model alternatives for Africa’s burgeoning mobile banking sector; return-maximization and cost-minimization of self-service banking systems; economies of scale through infrastructure sharing by microfinance institutions (MFIs); and an introduction to Islamic banking.   Aitec Africa emphasizes on their website that there will be an emphasis on case studies and that vendor product promotion will be kept to a minimum.  However, the conference will still provide kiosks for local banks to demonstrate their services and obtain customer feedback and data.  A complete schedule does not yet look to be available, but a program listing the conference’s major workshops is available online.  

The following is a selection of organizations that have sponsored the conference so far:  Paynet (Kenya), Safaricom (Kenya), SBA Technologies (USA), Postilion (USA), Clickatell (South Africa), iVeri (Kenya), Nirph (South Africa).

To attend, interested parties must pay USD 650 to register for the three-day conference (including lunch and refreshments).  A separate Islamic Banking Masterclass is also available for USD 190.  Discounts apply for multiple registrants.   For more information on the conference, please contact Helen Morony at +44-1480-880774 or email info@aitecafrica.com.   Interested parties can also propose conference presentations by emailing the same address.

The ChaBaLEU-Project, a collaborative partnership of ten business, public, and academic institutions from four EU member states, will host a discussion forum entitled, “Implementing the EU Microcredit Initiative – What can we learn from developing and transforming countries?”  ChaBaLEU, short for “Character-Based Lending,” works to ensure the continued development of microcredit services and products aimed at small-to-medium enterprises (SMEs) within the EU-15.  The forum intends to create a space for entrepreneurs and development leaders to discuss whether microcredit can “function as a meaningful instrument of business development in the EU.” 

Presentations and discussions will touch on one or more of the following topics:  microcredit in Eastern Europe, Western Europe, and the Southern hemisphere; the South-North/East-West knowledge transfer; several European microcredit case studies; supply and demand for microcredit across Europe; and introductions to various microfinance perspectives—the enterprise’s, the investor’s, and the policymaker’s.  For a complete schedule, please click here.

The event will be held at the following location:

GTZ Haus Berlin
Reichpietschufer 20
10785 Berlin, Germany

The event is free, but ChaBeLEU asks that all interested participants register beforehand.  For more information on the conference, please contact Carina Schultz at Carin.schultz@gtz.de. 

Bob Annibale’s corner office, high up in one of London’s few real skyscrapers, overlooks the Thames and the Millennium Dome from one window, Greenwich Park and the Royal Observatory from another. It is the kind of enviable perch you’d expect Citigroup’s senior treasury risk manager to enjoy. But that is the job Annibale left three years ago; now he is Citi’s “Global Director of Microfinance”.

Microfinance, the system of providing tiny loans and savings accounts to the poor, seems an unlikely and somewhat ironic candidate for Citigroup’s attention. It was because banks weren’t interested in serving the poor that the pioneers of micro­finance saw a gap to be filled, back in the 1970s.

The most celebrated microfinance institution, the Grameen Bank, was born in Bangladesh in 1976 after a young economics professor, Muhammad Yunus, discovered that craftswomen were struggling to deal with the high costs of borrowing in order to buy raw materials. Village moneylenders charged up to 10 per cent interest per day. At such rates, a debt of a single cent would balloon to the size of the US economy in just over a year.

Yunus began lending – originally, less than a dollar each to a group of 42 families – and found that the poor were capable of investing the money, lifting themselves out of poverty and paying back the loans with near-perfect reliability. “All people are entrepreneurs,” he proclaimed.

From small beginnings, a global movement has developed, with perhaps $25bn of loans outstanding and 125 million-150 million customers of microfinance institutions. It has been blessed by the United Nations, which declared 2005 the International Year of Microcredit, and by the Nobel committee, which awarded the Nobel Peace Prize to Yunus and the Grameen Bank in 2006.

Now multinational banks at last see microfinance as a profit opportunity. “Colleagues asked me if was giving up a business role,” says Annibale, who became Citi’s first microfinance chief in 2005. “I’d say, ‘No, I’m taking up a new one’.” He plans to make money for Citigroup by providing technology, advice and investment banking services to microfinance lenders. And so far his division has been unaffected by this year’s market turmoil.

The Citigroups of the world are not the only commercial players to get involved in what was once a purely philanthropic endeavour. Sequoia Capital, the venture capital fund that backed Google, Apple and Cisco, has taken an $11m stake in SKS Microfinance, a large Indian lender. Private equity groups such as Helios Capital are making similar moves. Pierre Omidyar, founder of eBay, gave $100m to Tufts University in 2005 with the stipulation that the donation be used to create a fund seeking its returns only through investments in microfinance. The fund’s director, Tryfan Evans, recently predicted that it would be fully invested by the end of this year.

Most surprising and controversial are those microfinance institutions that have been transformed from charities to profitable companies through hugely successful initial public offerings. The most notorious, Mexico’s Compartamos (“Let’s Share”), used a $6m investment to turn itself into a billion-dollar company in less than a decade, expanding rapidly while charging very high rates to borrowers. What was once an idealistic movement is now a fast-growing industry, and one that is rapidly losing its innocence.

The commercialisation of microfinance has sparked a fierce debate between profit advocates such as Carlos Danel and Carlos Labarthe, the founders of Compartamos, and traditionalists such as Muhammad Yunus, who see microfinance lenders such as Compartamos as indistinguishable from the moneylenders he set out to replace in 1976. Between these two poles lie the majority of microfinance practitioners, eager to gain access to capital and commercial expertise, but concerned that competitive market forces may not help the poorest.

Commercialisation is a huge opportunity to lift people out of poverty. Despite the credit crisis, most of us take for granted the ability to save, to borrow for emergencies or to buy assets, to move money around and to insure ourselves. But several billion people lack these basic, life-improving services. The microfinance industry today serves fewer than one in 10 of them. Few people believe microfinance can grow quickly enough under its own steam without adopting a more commercial model.

It is not just that commercialisation would provide plentiful access to foreign capital – although that is likely – but also that expertise from commercial players might allow microfinance lenders to move beyond simple loans. If lenders could take deposits, they should easily be able to fund their own loans: many poor people are would-be savers who lack a safe place to put their money. But as the credit crisis has made clear, deposit-taking is a difficult business requiring regulatory supervision even in rich countries. Commercial expertise is therefore indispensable for a deposit-taking bank.

Yet this is also a dangerous moment. Microfinance is a way of harnessing market forces to bring basic financial services to the poor, but many microfinance institutions do much more than that. Using donor funds or reinvested profits, coupled with their reach into remote villages, they provide subsidised education, healthcare and business advice. There is a risk that commercial logic could threaten these subsidised services by repelling donors or poaching the best customers. There is also the risk that competition misfires, leaving the poor paying higher interest rates, rather than lower ones…

To continue reading, please visit the Financial Times’ website.

In a joint statement, several APEC leaders said that member economies have in recent months taken steps to stabilize their respective financial sectors, promote domestic investment and consumption, and in general strengthen their respective economies.  The leaders jointly pledged to support efforts by export credit agencies, international financing institutions and private banks meant to ensure that SMEs and other businesses obtain adequate capital.   The APEC Business Advisory Council (ABAC) proposed additional SME programs to the APEC leaders that cover technological infrastructure, financing-capacity building, training, and other measures to sustain and promote SME employment and stability.

The statement echoed sentiments expressed at the APEC Business Advisory Council (ABAC) Summit held earlier in November, in which APEC Vice Admiral Luis Giampietri told over 1000 entrepreneurs from the organization’s 21 member nations that SMEs are the “engine of APEC economic deveopment as well as that of all countries in general.” The statement was also released with the explicit intention of reaffirming much the group’s 2009 work plan for the APEC Regional Economic Integration (REI) Agenda, a collection of the group’s economic and trade goals.  In support of the agenda, APEC leaders committed to instituting numerous regional trade agreements written to ensure fairness, consistency, and coherence among the policies of trade partners, praising new plans to improve and study investment flows and investment agreements, supporting capacity building of capital markets, and creating legal mechanisms for protecting property rights.

In other ways, the summit statement served as a reaffirmation, vis-à-vis the credit crisis, of the progress made at the 15th APEC SME Ministerial Meeting held earlier this year, where several APEC Ministers agreed to promote policy, business, and regulatory environments that foster the establishment, growth, and development of microenterprises and SMEs.  They discussed policies designed to support SME development and reduce poverty within local communities across a range of areas, including: sustainable environmental initiatives, corporate social responsibility, innovation management, public-private partnerships, and regional economic integration.   Additionally, the APEC Small and Medium Enterprises Working Group, a steering sub-committee created specifically for strengthening SMEs, signed a new Strategic Plan for 2009 to 2012 that involves building member countries’ business environments; liberalizing markets; growing entrepreneurship; and focusing on reducing poverty among youth, women, and minorities.

Started in 1989 in Australia as an informal Ministerial-level dialogue group with 12 member nations, the Asia-Pacific Economic Cooperation (APEC) has since grown to become a forum for 21 Pacific Rim countries to discuss cooperation on trade and investment in the area.   Now headquartered in Singapore, the organization annually holds an APEC Economic Leaders Meeting where by high-ranking officials from all member economies plan and discuss regional trade and investment developments.   APEC activities are centrally funded by small annual contributions from APEC member economies that since 1999 have totaled approximately USD 3.3 million per year.  After 2009, members’ contributions will increase by 30 percent to USD 5 million per year.  These funds are used to compensate a Secretariat in Singapore and various projects in support of the group’s trade and investment goals.   Please see the APEC project database for more information. 

Additional Resources:

Asia-Pacific Economic Cooperation (APEC)

APEC: 2008 15th APEC Small and Medium Enterprises Joint Ministerial Statement: Sustainable Local Development to Foster SMEs Growth

APEC: Economic Leaders Meeting Statements from November 22 and November 23

APEC: How APEC Operates

APEC: Project Database

APEC: Small and Medium Enterprises Working Group

Balita: “PGMA to push for welfare of small entrepreneurs amid global crisis”

Balita: “APEC countries to continue support for SMEs”

LivingPeru: “Small and Medium Enterprises Foster APEC Economies’ Development”

Although the Center website does not give much detail regarding its methodological tools, one thing is clear: its commitment to microfinance as a viable mechanism for improving the financial well-beings of its clients.  The ESR Center has identified as one of its top two major initiatives today its MicroFranchise Development Initiative (MFDI), which focuses on spurring and sustaining the growth of microentrepreneurship across the developing world.  Through MFDI, Center practitioners examine and develop replicable business models for small businesses operating in developing economies and with start-up costs of USD 300 to USD 2,000.  Another product offered by the Center is its Microfranchise Toolkit, which is comprised of a book and other informational materials that the Center claims will help interested persons become micro-business owners by covering micro-business topics such as customer service, funding, and franchising agreements.  It can be purchased for USD 17.50 from the Center’s online store, which also sells Small Fortunes: Microcredit and the Future of Poverty—a documentary featuring interviews with several microfinance experts.  

Two of the ESR Center’s four major goals relate to the creation and dissemination of research intended to promote economic self-reliance, for which the Center established its two academic journals—the Journal of Microfinance and ESR Review.   Started in 1999, the Journal of Microfinance was meant to be a forum for practitioners and researchers interested in microfinance and other topics relating to economic development principles.   A cursory investigation of the Journal’s archives reveals that several angles on microfinance are presented in its pages, including: case studies of microfinance institutions’ (MFI’s) programs, the financial development of small to medium enterprises (SMEs), accounting analyses of MFIs’ business operations, performance measurements or studies of MFIs’ impacts, and the relationship between microfinance and progressive social theories.  For a more complete glimpse into the contents of the Journal, please see this recent Microcapital posting.   In 2006, the Journal of Microfinance changed its name to the ESR Review in order to cover a broader scope of poverty alleviation methods and micro-business considerations in its pages.  According to the BYU Center Library, the purpose of the ESR Review today is to “help shape and advance the field by presenting articles on innovative approaches, lessons learned, empirical studies, and essays that represent the broad spectrum of views on the field of economic self-reliance in the United States and abroad.” While the same economic, financial and accounting analyses are used to analyze methodologies, trends, or technologies in microenterprise, the ESR Review differs from its predecessor in that each issue now possesses a focus, such as the effects of technology and development or social capital on micro-entrepreneurs.

BYU has published online both current full issues and archives of the ESR Review.  The complete archives of the Journal of Microfinance are available here.   Hard copies of past issues for both publications are available for USD 20 in the United States and Canada and for USD 25 in all other countries.   Subscriptions are available for either one-year (two issues) or two-year (four issues) terms.  Prices are dependent on the subscriber’s country of origin, whether the subscriber is an individual or a library, and whether the subscription is for a hard copy or electronic format.  Please see a full list of prices here.

Additional Resources:

BYU Economic Self-Reliance Center

BYU ESR Center: ESR Model

BYU ESR Center: ESR Network

BYU ESR Center: ESR Review

BYU ESR Center: Journal of Microfinance Archives

BYU ESR Center: Our Goal

BYU ESR Center: Research Agenda 

BYU ESR Center: Subscriptions

Microcapital Excerpt: “Selected Microfinance Articles from the Journal of Microfinance Published by Brigham Young University’s Economic Self-Reliance Center“

CashNetUSA allows its customers to apply online for financial products that a recent MarketWatch story labeled “micro-loans.” Applicants must have an active checking account, have been employed for at least one month, be a US citizen or permanent resident, and be at least 18 years of age. The company website claims four out of five applicants are approved instantly. New customers are eligible to receive a loan of up to USD 750, while repeat customers can receive up to USD 1,500. The size of the initial principal amount for which a customer is eligible is determined largely by that customer’s state laws, in addition to his or her financial information. CashNetUSA claims that those who apply by 9pm CST, Monday through Thursday, can receive their funds on the following business day. Applicants who apply by 7pm CST between Friday and Sunday can receive their funds by Monday. The exact times for funds transfers are determined by the Automated Clearing House (ACH) system, a private electronic payment network between banks. Repayment reminders are sent out via e-mail one to two days prior to a loan due date, and repayment can occur in full, for extended periods, or through partial payments.

DataX’s consumer credit reporting service was developed specifically to inform markets traditionally underserved by formal credit bureaus. DataX already provides data validation services for improving the efficiency of its clients’ database-dependent business operations, identity authentication services for preventing business fraud, and personal finance verification services that enable businesses to check the status of their clients’ bank accounts and credit card accounts in real time. Combining these existing services with credit data available through the ACH system, DataX claims it can collect an accurate daily update of the total loans funded by CashNetUSA and other financial companies, in addition to the detailed payment histories of these companies’ customers. DataX hopes to provide lenders with advance warning of a client’s insolvency and to reduce the incidence of bad loans to clients that have exhibited poor payment performance in the past or clients that have engaged in fraudulent activities. Utilizing a client’s borrowing-and-payment history as provided by DataX, CashNetUSA hopes to further refine its underwriting and decisioning systems and thereby maintain its “fair and equitable” lending practices for online consumers. These clients, should they become borrowers, alleges CashNetUSA President Timothy Ho, will benefit from the new credit-building opportunities provided by the information exchange.

This new relationship between CashNetUSA and DataX may portend similar international innovations in the collection of financial data, the regulation of micro-lending organizations, and the transmission of funds. In the future, it may be possible for microfinance institutions (MFIs) to lend online with the aid of data collection and management organizations like DataX. This would require, however, that financial reports on micro-borrowers be available at least to the degree of accuracy and detail exhibited by DataX’s reports, which show, according to MarketWatch, an “unprecedented level of quality and detail.” As the first micro-loan reporting agency compliant with the United States’ Fair Credit Reporting Act (FCRA), DataX has also shown that more detailed data services may better allow microfinance to come under the purview of an American regulatory body, whose international analogues might better protect microlending markets abroad in the near future. Finally, DataX may augur the development of electronic fund transfers and repayment schemes for some international micro-borrowers, and perhaps even the growth of individual financing vis-à-vis the group-lending models that have traditionally driven the operations of microfinance institutions such as the Grameen Bank and ACCION International.

Established in 2004 and headquartered in Chicago, Illinois, CashNetUSA offers loans in over 30 US states and the UK and claims over 2 million customers. It is a subsidiary of Cash American International Inc., a publicly-traded commercial short-term lender (NYSE: CSH) based in Fort Worth, Texas, that serves the underbanked segment of the population. As of November 27, 2008, current market capitalization of CSH stands at USD 747.63 million. CSH’s return on equity is 16.40 percent, and its return on assets is 8.40 percent.

Founded in Las Vegas, Nevada, DataX, Ltd., has provided since 2004 credit reporting and real-time verification of consumer data and authentication services to specialty finance companies. DataX employs proprietary technology for verifying, correcting, and enhancing webform data and operates an FCRA-compliant consumer credit reporting service. DataX is a subsidiary of Selling Source LLC, which provides specialty finance lenders with a number of data-gathering services covering various phases in the lifetime of a loan. Selling Source was named number 68 on the 2008 Incorporated 500 list, a list f the fastest growing private companies in the United States. DataX’s financial statements are not available on the company website.

Additional Resources:

CashNetUSA

DataX, Ltd.

DataX Credit Reporting Agency

ComputerWorld: Automated Clearing House

DataX, Ltd.: Credit Reporting Agency (CRA)

MarketWatch: Cash America International, Inc. (NYSE: CSH)

MarketWatch: “CashNetUSA Selects DataX as a Provider of Real Time, Transaction Based Credit Reporting”

Selling Source LLC

A qualitative study of CARITAS Matagalpa was undertaken in May 2003. CARITAS Matagalpa is a large, self-sustaining microfinance institution that is located in central Nicaragua and affiliated with Catholic Relief Services. In-depth interviews with 36 microentrepreneurs, all clients of CARITAS Matagalpa, reveal that access to microfinance has enabled these entrepreneurs to start, expand, and develop their enterprises. These interviews also reveal that access to microfinance has also enhanced the life chances of the microentrepreneurs’ households. Additionally, multivariate statistical tests suggest the following: (1) Loan size is directly related to urban location and length of repayment period. (2) The degree of firm-level informality diminishes in urban areas and increases relative to the work experience of the microentrepreneur. (3) Income for self-employed microentrepreneurs is influenced by business sales volume, work experience, number of employees, and loan size. 

Microentrepreneurship and Job Creation
by James O. Bates

This multiple-case study explores local government’s use of HUDfunded microenterprise development assistance for job creation and selfemployment of low-to-moderate-income individuals. Respondent information was reviewed and then supplemented with document analysis and interview materials from earlier research on HUD microenterprise development assistance programs in upstate New York. Because the number of local government respondents who self-identified as providers of microenterprise development assistance was small, it was not possible to generalize research findings to the overall public microenterprise development sector. However, the study of this phenomenon, although limited, does have implications for government microfinance instrumentalities and intermediaries and for future research on publicsector microenterprise development efforts. Based on the participants’ self-report, it appears that both urban and rural HUD-sponsored microenterprise development assistance programs create jobs and self-employment opportunities for low-to-moderate-income persons using a myriad of strategies.

Data Standards for Connecting to Commercial Sources of Capital
by James Dailey

The importance of data interchange between commercial sources of capital and the microfinance sector is generally acknowledged, if not well detailed. But microfinance institutions (MFIs) and commercial sources of capital often need a different depth and breadth of information. As the industry grows and accesses more commercial capital, there is a need to enable standardized reporting from multiple MFIs to multiple sources of capital, rather than a proliferation of one-to-one re porting relationships. IT professionals and managers of microfinance institutions need to recognize this need and push vendors and industry associations to agree on specific standards of data elements, quality, and transmission protocols. This paper aims to provide the reader with a grasp of the issues involved and to recommend a sample set of data standards for MFIs to use in communicating with commercial sources of capital.

Nurturing Joint Forest Management Through Microfinance
by K. K. Kaushal and J. C. Kala

India has embarked upon a community involvement process to restock the state-owned forests through a recent approach called Joint Forest Management. But the success of the Joint Forest Management program lies in the provision of alternative livelihoods to woodcutters and grazers. This article presents how the forest department of a southern state of India devised a potent tool of microfinance promotion for weaning those who are dependent on the forest by implementing a massive externally aided Joint Forest Management Project. Based on a study of 27 program villages in the Tamilnadu state, this paper proves that the success of Joint Forest Management is dependent on and directly linked to the provision of microfinance to villagers through a people’s representative body—the Village Forest Council. The forest department was successful in this unusual task of promoting microfinance even in villages where formal microfinance institutions have failed, which corroborates an earlier finding that microfinance is more workable and successful if it is properly packaged in a locally suitable development program.

Building Economic Self-Reliance
by Jan Maes and Malika Basu

The Trickle Up Program is a US-based organization engaged in microenterprise development for very poor households in 14 core countries, including India. Because it targets the most vulnerable sections of the population, such as the rural landless, women-led households, people with disabilities, and economically disadvantaged minorities, TUP employs a seed capital grant strategy to facilitate its clients’ movement from absolute poverty toward economic self-reliance. TUP clients cannot risk taking a loan because they have no spare income to make payments if their enterprises do not generate an immediate profit. A conditional grant, in contrast to credit, exposes its recipients to less risk and allows them to grow a business with a longer payback period. This paper draws from a recent study of the Alternative for Rural Movement, one of TUP’s partner agencies in rural Orissa, India, and shows that its TUP clients moved successfully from a position of extreme vulnerability to one of significantly improved economic self-reliance.

Microfinance and Rural Development
by Henk A. J. Moll

The long-term perspective on microfinance starts with a discussion of three central issues: first, views and policies, with two opposing views: “credit for target group” and “pushing the financial frontier”; second, the performance of microfinance institutions measured via two objectives: outreach and financial sustainability; third, microfinance and rural development. This latter issue is approached through analyses of the effects of financial services on rural households and analyses of long term national financial development. Both micro and macro studies show positive effects of an expansion of savings and lending services, financial deepening. The negative side of financial deepening, the apparently unavoidable occurrence of bank insolvancies, is also reviewed. The concluding section argues that the microfinance sector should be guided by “stability and expansion”: stability to withstand shocks and to maintain the relationships established between rural households and microfinance institutions, and expansion to include more people within the financial frontier.

Book Review
by Richard Norton

The Private Sector in Development: Entrepreneurship, Regulation, and Competitive Disciplines, by Michael U. Klein and Bita Hadjimichael.

Today’s microfinance industry is stepping beyond charitable subsidies toward commercialization, from dependency towards self-reliance. To speed and systemize the eradication of poverty, private capital has become more crucial for microfinance institutions (MFIs). In their book, The Private Sector in Development: Entrepreneurship, Regulation, and Competitive Disciplines, Michael U. Klein and Bita Hadjimichael encourage practitioners and policy makers to enhance the private sector’s role in a broad range of areas that impact development.

Commercializing Microfinance and Deepening Outreach
by Francisco Olivares-Polanco

Does commercialization mean mission drift? Christen (2001) argues that commercialization, which is characterized by profitability, competition, and regulation, does not have any effect on large differences in loan size between regulated and nonregulated MFIs. I used data from 28 Latin American MFIs to conduct a multiple regression analysis to test for some of Christen’s conclusions, as well as for other factors that, according to the literature on microfinance, may affect loan size. The results of the regression indicate first that the type of institution, in terms of NGO versus financial institution, regardless of being regulated or not, has no effect on loan size. Second, the age of the institution predicts loan size in a direction contrary to that suggested by Christen. Third, competition turned out to be significant, in contradiction to Christen’s conclusion; it appears that more competition may lead to larger loan sizes and less depth of outreach. Finally, the models confirm an old belief in microfinance: there is a trade-off between depth and sustainability.

Microfinance Institutions in Transition
by Michael Tucker and Winston Tellis

Microfinance institutions (MFIs) established to provide the poor with access to capital have typically operated outside of their countries’ regulated banking environments. Many have relied on donor grants and low-interest funds to support loan portfolios and social programs. As MFIs mature they aspire to become more efficient and attain economic sustainability because they understand that greater numbers of the poor can be serviced by economically sustainable institutions. Many MFIs collect savings deposits but are often barred from using them for loans by their countries’ laws. Fonkoze, an MFI in Haiti, has sought regulated status, which would provide access to deposit assets and enable Fonkoze to better compete with other MFIs, some of which are regulated subsidiaries of commercial banks. In the midst of political and economic turmoil, Haiti’s Central Bank has delayed Fonkoze’s transformation. A different solution is now moving forward, with Fonkoze becoming two entities, Fonkoze Financial Services and Fonkoze Foundation.