The report finds that formal credit access to the low income segment of Kenyan society has been constrained by tedious requirements in accessing financial services, high fees in existing financial services, lack of trust in banks, limited income, and illiteracy, among other factors.  MFIs on the other hand have embraced this segment by a suit-your-needs approach that overcomes many of these obstacles. The uptake of micro finance services is expected to expand with the enactment of a micro-finance law last year that empowers the Central Bank to license, regulate, and supervise any deposit-taking micro-finance institutions. The inclusion of MFIs in the deposit insurance scheme, Deposit Protection Fund Board, is also expected to increase the level of public confidence.

Last week, as reported by MicroCapital, Faulu Kenya became the first MFI in Kenya to start taking deposits from the public.  Kenya Women Finance Trust is expected to follow shortly. Previously Kenyan MFIs only offered credit services.  Deposits will provide the institutions with a more stable, low cost source of funds.

Muhammad Yunus, the Nobel Laureate who made microfinance a success in Bangladesh, has expounded the virtues of deposit-taking by MFIs, suggesting that to avoid the dangers of foreign currency exposure, MFIs should make themselves into a bank and take deposits.  However many regulatory environments prevent MFIs from taking deposits, and international best practices recommend that not all MFIs should be permitted to take deposits.  Rather, deposit-taking should be allowed only for those MFIs that demonstrate the capacity to do so.  When done well deposit-taking provides an essential service to the poor and provides funds for lending, when done unsuccessfully deposit-taking can subject a disadvantaged and vulnerable population to more risk.

A series of papers by the Consultative Group to Assist the Poor (CGAP) in 2006 explored the issue of deposit-taking by MFIs and found that over the course of seven years the seven deposit-taking MFIs that were studied experienced massive growth, strong profitability and improved efficiency.

Earlier this year the FDSK, in conjunction with Unitus, an international non-profit organization, opened the Africa Microfinance Growth Center to help CEOs and senior managers of early-stage microfinance organizations (MFIs) improve strategy, leadership, and execution in order to grow their organizations and expand microfinance services in East Africa. To read a MicroCapital story on the center click here. 

The Financial Sector Deepening Trust was established in 2005 to support the development of financial markets in Kenya as a means to stimulate wealth creation and reduce poverty. The trust operates under the supervision of professional trustees with policy guidance from a program investment committee.  Funds are provided by development partners working with the government of Kenya.  Current donors include the UK’s Department for International Development (DFID) the Ministry of Trade & Industry at the World Bank and Swedish SIDA. The MIX Market has no information on FSDK.  To view FSDK’s most recent annual report click here. 

By Laura Anderson, Research Associate 

Additional Resources:

Business Daily Africa: MFIs fill banking void as new laws provide more market flexibilty

Financial Sector Deepening Kenya: Home, 2007 Annual Report

FinAccess: Home

FinAccess 2009 Survey Results

FinAccess 2009 Survey Brochure

Central Bank of Kenya: Home, Microfinance Act, Deposit Protection Fund Board

Unitus: Home

MicroCapital Story: Unitus, in Partnership with Financial Sector Deepening (FSDK), Opens Africa Microfinance Growth Centre, a Leadership Development Program for Early-Stage Microfinance Institutions in East Africa

MicroCapital Story: Faulu Becomes First Microfinance Institution in Kenya Licensed to Take Deposits

Faulu Kenya: Home

Kenya Women Finance Trust: Home

SIDA: Home

Department for International Development: Home

CGAP: Savings Month, Article Four: Learning from the Progress of Seven Microfinance Deposit-Taking Institutions

Consultative Group to Assist the Poor: Home

The use of mobile phones for banking in poor and developing countries has been spreading rapidly.  Mobile phone operators have strong incentives to team up with microfinance companies serving untapped markets.  As reported in a recent MicroCapital story, the Consultative Group to Assist the Poor (CGAP) and the GSM Association (GSMA), a global trade association representing over 700 mobile phone operators from 218 countries, will be releasing a study on the mobile money market at the Mobile Money Summit in late June 2009.  In the study they estimate that the global market for mobile money transfer could reach USD 5 billion by 2012. Mobile banking allows customers who do not have traditional bank accounts or access to conventional banking services to make transactions such as cash transfers by text message and payments such as utility bills. 

MicroCapital has reported on several recent mobile banking stories involving major players in microfinance and mobile telecom operators.  In November of last year, Globe Telecom, the second largest telecommunications company in the Philippines, announced a partnership with the (CGAP) to utilize mobile banking technology in rural Philippine provinces.  In another report the Indian government has recognized the potency of m-banking to promote financial inclusion of the rural poor.  And in yet another report covered by MicroCapital, CGAP last year partnered with the UK Department for International Development (DFID) and the GSMA to conduct diagnostic reviews of the regulatory environment for branchless banking approaches in Pakistan, Kenya, South Africa, the Philippines, India, Russia and Brazil. 

As reported in a MicroCapital story in March of 2009, a key concern surrounding the growth of mobile banking, is that as technologies continue to rapidly evolve and increase in scale regulators are likely to see more sophisticated frauds and new consumer safety issues.  The challenge, as highlighted by CGAP’s article “Regulating Transformational Branchless Banking”, will be to develop regulations that are proportionate to the risk.  Regulations must provide sufficient consumer protection while at the same time permit innovation and scaling-up of mobile financial services that are potentially very valuable to low-income clients.  

IFC’s investment portfolio in Afghanistan now totals USD 95 million in five companies, including two microfinance institutions.  IFC, in partnership with the Aga Khan Fund for Economic Development, created the First Microfinance Bank of Afghanistan in 2004, the first licensed postwar bank of any kind in the country. IFC provided equity capital and debt funding to help the bank expand its operations, as well as advisory services to build capacity. Today, the bank has a loan portfolio of over USD17 million, serving more than 20,000 clients. To read a MicroCapital interview with First Microfinance Bank, click here.  According to its 2008 Annual Report, in 2007 the IFC’s clients represented a portfolio of 8 million loans to micro, small, and medium enterprises totaling USD 94 billion. Of these, about 7 million loans were for microfinance. 

According to the press release by the IFC, MTN-Afghanistan is the second largest mobile phone operator in the country with 2.5 million subscribers.  According to MTN Group’s 2008 annual report, the group’s total overall subscribers reached 90.7 million in 2008, revenues were ZAR 102.5 billion (USD 12.5 billion), and total assets were ZAR 170.1 billion (USD 20.8 billion).  Individual financial figures for MTN-Afghanistan were not available. 

By Laura Anderson, Research Associate 

Additional Resources:

World Bank: Home

International Finance Corporation: Home, IFC Invests $75 million to Expand Mobile Communications Access in Afghanistan, 2008 Annual Report

MTN Group: Home

Consultative Group to Assist the Poor: Home, “Regulating Transformational Branchless Banking”

MicroCapital Story: CGAP (Consultative Group to Assist the Poor) and GSM Association Release Mobile Money Market Sizing Study which Estimate Mobile Financial Services will Reach $5b in 2012

Microfinance Event: Mobile Money Summit 2009 in Spain Hosted by CGAP (Consultative Group to Assist the Poor), Department for International Development (DFID), International Finance Corporation (IFC), and GSM Association

MicroCapital Story: Challenges to Regulation of Mobile Transaction Services, E-Money and other Branchless Banking Technologies

MicroCapital Story: Globe Telecom Establishes Partnership with and Receives $600k from Gates Funded CGAP for Mobile Banking Projects

MicroCapital Story: CGAP Releases Notes on Regulation of Branchless Banking in India

MicroCapital Technology Focus, October 2008: Rural Users Yet to Take a Call on Mobile Banking

MicroCapital Interview: Meet a MicroBank: An Interview with Managers of First Microfinance Bank (FMFB) of Afghanistan, Member of Aga Khan Development Network (AKDN)

Aga Khan Development Network: Home

To be a professional member of the association, an applicant must have, or aim to develop professional experience within the microfinance sector. There are four categories of membership; Fellow – for practitioners with at least 10 years of experience in the microfinance sector, Associates – for practitioners with at least 5 years of experience, Affiliates – for individuals who are not in the industry but would like to contribute to the development of the industry, and Graduate Academy – for individuals pursuing or willing to pursue a career in the microfinance industry.  Annual membership fees are as follows: 

Fellow:                        GBP 200 (USD 325)

Associate:                   GBP 125 (USD 204)

Affiliate:                      GBP 100 (USD 163)

Academy Students:       GBP 50 (USD 81) 

The Microfinance Association will be applying to the UK Privy Council which will allow the association to become a Chartered Institute. This status will allow the association to award the Chartered Microfinance Practitioner (CMP) Status. 

Ademola A. Tosoye is the Chief Executive of The Microfinance Association, Michael Kay will be developing the training unit of the association, Azlam Kashif is in charge of web development, and Sarah Braxton is Membership Manager.

For membership enquiries or to sign up online, please contact:

The Microfinance Association
Science and Innovation Park
Brunel Way
Kent, UK DA1 5GA
Tel +44 (0) 1322 312 078
Fax +44 (0) 1322 312 001
www.microfinanceassociation.org

By Laura Anderson, Research Associate

“Microfinance for Bankers and Investors” educates potential microfinance investors in three ways: by reviewing authoritative research that demonstrates the investment opportunity; by analyzing success stories from around the world; and by identifying best practices.  The book details: 

• The social value and business sustainability of microfinance
• Changes in the market that allow for increased private investment in microfinance
• New technologies and delivery channels that reduce costs for small transactions
• Innovative products for grassroots finance, such as mobile phone banking and microinsurance
• Proven ways to overcome the unique challenges of serving customers at the bottom of the pyramid 

No book reviews on “Microfinance for Bankers and Investors” were available for this story. 

Elisabeth Rhyne is the author/co-author of four previous books on microfinance, including “Mainstreaming Microfinance” (Kumarian Press, 2001), “The Commercialization of Microfinance: Balancing Business and Development” (Stylus Publishing, 2002) and “The New World of Microenterprise Finance: Building Healthy Financial Institutions for the Poor” (Stylus Publishing, 1994). Ms. Rhyne was director of the Office of Microenterprise Development at the U.S. Agency for International Development (USAID) from 1994 to 1998, where she developed and led USAID’s Microenterprise Initiative.  Her microfinance experience includes eight years living in Africa (Kenya and Mozambique), consulting on microfinance policy and operations for governments, international organizations and microfinance institutions.  Ms. Rhyne holds a master’s and Ph.D. in public policy from Harvard University and a bachelor’s degree in history and humanities from Stanford University. 

According to its website, since 1998, ACCION affiliated programs have made USD 23.4 billion in micro loans to more than 7.7 million people, with a historical repayment rate of over 97 percent.  As of December 31, 2008 ACCION and its partners had 3.74 million active clients, representing a total loan portfolio of USD 3.57 billion.  As of the same date ACCION and its partners had over 800,000 client savings accounts representing approximately USD 1.3 million in deposits.  The most recent information for ACCION International on the MIX Market, the microfinance information clearinghouse, is from 2002.  Per the company’s audited 2007 financial statements, as of December 2007 ACCION had total assets of approximately USD 353 million, total equity of approximately USD 334 million, and total revenues of approximately USD 20 million.  ACCION International was recently awarded the Juscelino Kubitschek Award by the Inter-American Development Bank (IDB) for its contributions in the field of economics and finance.  To read a MicroCapital story about the award, click here. 

By Laura Anderson, Research Associate 

Additional Resources:

PRNewswire: McGraw-Hill Releases Microfinance for Bankers and Investors

McGraw-Hill Professional: Home

ACCION International: Home

Inter-American Development Bank: Home, IDB Announces Winners for the Juscelino Kubitschek Award, Distinguished Latin American and Caribbean leaders to select recipients of IDB’s Juscelino Kubitschek prize

The MIX Market: Accion Investments Profile, Accion MFB Profile

MicroCapital Story: Accion International Wins Inter-American Development Bank’s First Juscelino Kubitschek Award

As reported in an earlier MicroCapital story, Spandana intends to raise INR 3 billion this year (USD 63.7 million) in equity funding which will allow the MFI to expand and strengthen its capital adequacy ratio.  Recently the Reserve Bank of India (RBI) raised its capital adequacy requirements (CRAR) for non-bank financial institutions, requiring institutions to meet a 12 percent CRAR by April 2009 and a 15 percent CRAR by April 2010.  Spandana’s CRAR stood at 19.5 percent last fiscal year. To read a MicroCapital story on the RBI’s new regulations, click here.  Currently Mumbai-based JM Financial holds an 18 percent stake in Spandana, private equity fund Valiant holds 11 percent, Lok Capital has a 5 percent stake and another 15 percent is held by senior employees. 

Standard Chartered recently underwrote another one-year 10 percent bond issue for SKS Microfinance worth INR 750 million (USD 15.8 million), which will also be listed on the BSE.  SKS intends to use those funds to extend loans to new and existing customers.  To read a MicroCapital story on the deal, click here. 

Standard Chartered is an active creditor in the microfinance industry.  As part of the 2006 Clinton Global Initiative, the bank has committed to provide USD 500 million of credit to MFIs around the world within five years.  So far the bank is well on its way to meeting that commitment with USD 385 million of credit provided to date.  Standard Chartered also recently committed to a USD 450,000 women’s empowerment program in Asia to enhance financial literacy, financial planning, investment and capacity building for women owners of small businesses, with a goal of reaching 5,000 women in the region by 2011. 

According to its most recent annual report, as of December 31, 2008, Standard Chartered’s total assets were USD 435 billion and ROE was 15.2 percent. Temasek Holdings Private Ltd., an investment company owned by the Government of Singapore, is the bank’s largest shareholder with an 11.07 percent stake.  Fidelity Investments is the next largest holder with 4.94 percent. 

According to the MIX Market, the microfinance information clearinghouse, Spandana was established in 1998 and has approximately 1.2 million active borrowers.  As of March 31, 2008 Spandana’s gross loan portfolio was USD 182.2 million and total assets were USD 208.9 million.  As of the same date, the institution’s debt-to-equity was 8.56, ROE was 53.62 percent and ROA was 4.34 percent. 

By Laura Anderson, Research Associate 

Additional Resources:

Business Standard: Spandana raise Rs. 80 Crore

Spandana Microfinance: Home

The Bombay Stock Exchange: Home

Standard Chartered Bank: Home

Reserve Bank of India: Home

Lok Capital: Home

JM Capital: Home

MicroCapital Story: Hyderbad-based Spandana Microfinance Seeks to Raise Rs 300 Crore (USD 63.7 million) by June

MicroCapital Story: SKS Microfinance Raises Rs. 75 Crore (USD 15.8 million) Debt and Lists Bonds on Bombay Stock Exchange

MicroCapital Story:  Change in Indian Capital Adequacy Standards Affects Microfinance Institution

The Clinton Global Initiative: Home

Temasek Holdings Private Limited: Home

MIX Market: Home, Spandana Sphoorthy Financial Profile

According to Raj accessing the capital markets is more advantageous for the MFI than the more traditional route of securing bank loans, “We are able to negotiate rates 100 – 150 basis points lower than a bank loan. Raising funds through these routes gives us a pricing advantage. It also opens up more investor avenues like foreign institutional investors, mutual funds and insurance companies.”  As stated in the earlier MicroCapital story, Dilli Raj also believes that listing on the BSE enhances the MFI’s public accountability, transparency and corporate governance through increased public reporting.

So-called securitizations have become increasingly popular mechanisms for raising funds by MFIs.  In most cases the transactions are actually loan assignments whereby future loan repayments are assigned to a bank by an MFI.  The MFI receives the cash value of the loans upfront but at a slight discount – the cost of the financing.  The loans remain on the MFI’s books and only the cash flows are transferred to the purchasing bank.  Earlier this year, as reported in this MicroCapital story, SKS assigned loans to Yes Bank in the amount of USD 17.2 million.  Securitizations such as those found in international capital markets in which pools of loans collateralize a whole new security and are actually warehoused by a third party, are difficult to implement in the microfinance sector.  This is due to the unique aspects of microloans which include short maturities, origination risk resulting from the short maturities, the key role and risk of the MFI as servicer, and the lack of standardized ratings.  In a step closer to a more typical capital market securitization, Equitas Microfinance issued Pass-Through Certificates (PTCs) this spring whereby the MFI issued rated certificates backed by microloan receivables.  To read a MicroCapital story on this deal click here.

As reported in another MicroCapital story, SKS also recently issued USD 4.8 million of commercial paper (CP). CP is shorter-term financing than bonds, with maturity between one and 270 days. The notes are sold at a rate discounted from the face value, with the agreement that the issuer will pay the face value on a fixed maturation date. Since the notes are not backed by any form of collateral, generally only institutions with very strong credit ratings are able to issue CP at a reasonable rate.

SKS Microfinance was established in 1997.  According to the MIX Market, the microfinance information clearinghouse, as of March 31, 2008, SKS had 1,629,474 active borrowers and a gross loan portfolio of USD 262 million.  Total assets were USD 337 million, debt-to-equity was 5.4 times, ROE was 11.95 percent and ROA was 2.0 percent.

By Laura Anderson, Research Associate

Additional Resources:

The Economic Times: SKS Microfinance to raise Rs. 500 crore through a mix of debt instruments

SKS Microfinance: Home

MicroCapital Story: SKS Microfinance Raises Rs. 75 Crore (USD 15.8 million) Debt and Lists Bonds on Bombay Stock Exchange

Bombay Stock Exchange: Home

Standard Chartered Bank: Home

MicroCapital Story: Indian SKS Microfinance Issues Bonds and Commercial Notes, and Announces a $963.6m Borrowing Plan to Finance Rapid Growth

MicroCapital Story: Equitas Micro Finance Gets Transaction Securitized and Rated by CRISIL, Structured and Arranged by the Institute for Financial Management and Research

MicroCapital Story: SKS Microfinance, Share Microfin, and Equitas Microfinance Collaborate with Yes Bank to Securitize a Series of Micro-loans in India that Cumulatively Amount to USD 38.3 million.

“Securitization in Microfinance”, by Brad Swanson, Developing World Markets: June 2007.

The MIX Market: Home, SKS Profile

In May 2001, the IDB and the Consultative Group to Assist the Poor (CGAP) launched a joint initiative called the Microfinance Rating and Assessment Fund targeting MFIs in six geographic regions with assets ranging from USD 300,000 to USD 30 million. The European Union subsequently joined the Rating Fund in January 2005.  The IDB committed USD 877,000, CGAP committed USD 1.8 million, and the European Union committed EUR 1.85 million.  The fund provided co-financing of up to 80 percent of the cost of a rating or assessment.  At the end of 2007, after co-financing more than 429 ratings, the fund phased out its subsidies for ratings. 

As reported by Microfinance Insights, MFI stakeholders, institutional investors, fund managers, and emerging market specialists all identify the need for a globally accepted set of metrics which would allow comparisons between microfinance investment opportunities as well as with non-microfinance opportunities. The benefits to MFIs include a wider investor base, lower borrowing costs, and the ability to benchmark themselves versus their peers. Currently several companies specialize in rating microfinance institutions including Micro-Credit Ratings International Limited (M-CRIL), Planet Rating, Microrate, and Microfinanza Srl.  In 2007 Standard and Poor’s (S&P) developed a global credit rating framework for MFIs.  Ratings by mainstream agencies such as Fitch and S&P are becoming more prevalent in the microfinance industry as the sector has grown and attracted the attention of global capital market investors who are more familiar with the larger rating agencies’ standardized rating format. 

The IDB was formally created in 1959, when the Organization of American States drafted the Articles of Agreement establishing the Inter-American Development Bank. The IDB lends money, provides grants and research, and offers technical assistance and advice in 26 countries throughout Latin America and the Caribbean to small businesses, central governments and city authorities. The IDB Group is composed of the Inter-American Development Bank, the Inter-American Investment Corporation (IIC) and the Multilateral Investment Fund (MIF). The IIC focuses on support for small and medium-sized businesses, while the MIF promotes private sector growth through grants and investments, with an emphasis on micro-enterprise.  The IDB has 48 member countries, with the 26 Latin American and Caribbean countries in the IDB holding 50.02 percent of the voting power. The single largest shareholder is the United States, with 30.01 percent.  According to its website, the IDB has lent or granted over USD 10 billion in the last 12 months. 

The MIF was established in 1993 to promote broad-based economic growth through private sector development, particularly micro-enterprises and small businesses.  There are 38 member countries in the MIF.  The organization partners with civil, private and government partners which contribute from 30 to 50 percent of the total project cost, depending on the country. The fund was originally equipped with USD 1.2 billion, with the United States and Japan each contributing USD 500 million.  MIF investment projects typically fund private financial institutions, such as banks, cooperatives, microfinance institutions or NGOs, who can then on-lend the resources to the benefit of micro and small businesses region wide.

Established in 1970 in Caracas, Venezuela, CAF is a multilateral financial institution that mobilizes resources from international capital markets to Latin America. The scale and scope of its operations since inception have expanded to include operations related to integration and economic growth, knowledge and technology transfer, competitiveness, governance, democracy, reaffirmation of ethical values, modernization of the State, decentralization, strengthening of financial systems, and privatization.  CAF’s biggest shareholders are Venezuela, Colombia and Peru.  As of December 31, 2008 the organization had a total loan portfolio of USD 10.3 billion, total assets of USD 14.3 billion, and net income of USD 311 million, representing a return on equity of about 6.8 percent.

CAF just issued USD 1 billion worth of 10-year bonds on the international capital markets at a spread of 450 bps over US Treasuries.  It will use the money to help fund its lending operations in Latin America. CAF aims to increase loan approvals this year to USD 9 billion, as Latin American countries request more trade financing and emergency liquidity amid the global recession, bank President Enrique Garcia said in March. Last year, the bank approved about USD 7 billion in loans, he said. 

By Laura Anderson, Research Associate 

Additional Resources: 

International Business Law Services: LATIN AMERICA: IDB, CAF Back Ratings for Microfinance Institutions

Inter-American Development Bank:  Home

Multilateral Investment Fund: Home

Corporacion Andina de Fomento: Home

Planet Rating: Home

M-CRIL: Home

Microrate: Home

Microfinanza: Home

The Microfinance Rating and Assessment Fund: Home

Standard and Poors: Home

Fitch Ratings: Home

Microfinance Insights, July 2008: Mainstream Credit Ratings Promote Microfinance in its Efforts to Become a New Emerging Market Asset Class

IADB: Agreement Establishing the Inter-American Development Bank

Inter-American Investment Corporation: Home

Bloomberg: Corporacion Andina Sells $1 billion of Dollar Bonds

Mr. Rengaswamy holds a Bachelor’s degree in engineering from IT-BHU/IIT-BHU (India), a Master in Business Administration from Harvard Business School, and a graduate degree in finance and systems strategy from IIM-Calcutta.  Before joining Unitus, Rengaswamy was co-founder of Travelguru.com, a travel website for hotels and vacations in India and South Asia, and launched India investments for Greylock Partners.  Prior to Greylock he worked for Infosys Technologies, managing mission-critical engagements for Fortune 500 clients and leading USD 100 million customer acquisition programs. Before Infosys, he managed a private investment fund. 

Established in 2000 and based in Seattle, Washington (US), Unitus Inc. connects partner MFIs with business expertise, capital investments, and innovative tools and services.  According to its website, Unitus works with 24 microfinance partners in India, Southeast Asia, East Africa, South America, and Mexico, and has served more than 8 million families in the last seven years. According the company’s most recent annual report, as of December 2007 Unitus’ total assets were USD 15.1 million.  The organization reported partnerships with 18 MFIs in seven different countries, representing over 3.3 million clients with an aggregate gross loan portfolio of over USD 379 million.  The annual report is also available on the MIX Market, the microfinance information clearinghouse.  No other more recent data was available.  

Earlier this year, as reported in this MicroCapital story, Unitus opened the Africa Microfinance Growth Center, a non-profit program developed in partnership with Financial Sector Deepening Kenya (FSDK), to help CEOs and senior managers of early-stage MFIs improve strategy, leadership, and execution in order to grow their organizations and expand microfinance services in East Africa.  

By Laura Anderson, Research Associate 

Additional Resources: 

Unitus, Inc.: Home, 2007 Annual Report

PRNewswire: Unitus Announces Ganesh Rengaswamy as India Country Director and Newest Member of Global Senior Management Team

The MIX Market: Home

Financial Sector Deepening Kenya (FSDK): Home

Grama Vidiyal Micro Finance Limited (GVMFL): Home

MicroVest: Home

AMAR Foundation: Home

MicroCapital Story: Unitus, in Partnership with Financial Sector Deepening (FSDK), Opens Africa Microfinance Growth Centre, a Leadership Development Program for Early-Stage Microfinance Institutions in East Africa

Other Indian MFIs are also looking to raise equity funding, despite the ongoing credit crisis.  As reported by MicroCapital, SHARE Microfin also has plans to raise USD 50 million in equity.  Either transaction would be the largest microfinance institution (MFI) transaction since SKS Microfinance raised USD 75.4 million last fall.  To read a MicroCapital story about that deal, click here.  According to an article on the website VCCircle, investors like Lightspeed Venture Partners, Battery Ventures, and India Value Fund are now looking at investments in the microfinance sector. 

According to the Economic Times press release, Spandana also plans to open up healthcare facilities, including at least five maternity hospitals by the end of this fiscal year. “We are currently doing a pilot project and will set up one hospital in the city in a month’s time. By the end of the fiscal, we will have five such hospitals. Besides providing access to financial services, it is very necessary to cater to health services for the poor,” said Ms Reddy.  The hospitals will be started by Spandana Society, a Guntur-based NGO, which Ms Reddy had launched in 1998. Spandana Sphoorthy Financial is a separate entity.  Per the press release, Spandana Society will invest about Rs. 3 Crore (USD 637,000) in each hospital and provide microfinance services to patients, no further information was immediately available. 

The expansion into healthcare by Spandana follows a trend by several other MFIs to offer additional services to the poor.  A recent MicroCapital paper wrap-up examined the case of three MFIs in Bangladesh that offered health micro-insurance schemes.  Other socially responsible initiatives include efforts to tie in microfinance with waste management, and environmental efforts such as the forum on Microfinance and Climate Change hosted by MicroLinks, also reported by MicroCapital. A recent Microfinance Insights survey, summarized in this MicroCapital Story, found that 85 percent of MFIs and 61 percent of microfinance investors say MFIs should offer more than financial services.  

According to the MIX Market, the microfinance information clearinghouse, Spandana was established in 1998 and has approximately 1.2 million active borrowers.  As of March 31, 2008 Spandana’s gross loan portfolio was USD 182.2 million and total assets were USD 208.9 million.  As of the same date, the institution’s debt-to-equity was 8.56, ROE was 53.62 percent and ROA was 4.34 percent. 

By Laura Anderson, Research Associate 

Additional Resources: 

The Economic Times:  Spandana to raise Rs 300 cr

Reserve Bank of India: Home

Spandana Microfinance: Home

MicroCapital Story:  Change in Indian Capital Adequacy Standards Affects Microfinance Institution

MIX Market: Home, Spandana Sphoorthy Financial Profile

MicroCapital Story: Share Microfin Seeks to Raise USD 50 Million From International Finance Corporation (IFC) and Others

VCCircle: Share Microfin to raise $50 million from IFC, Others

Microfinance Insights May/June 2009 Magazine

MicroCapital Story: 85 Percent of Microfinance Institutions (MFIs) and 61 Percent of Microfinance Investors Say MFIs Should Offer More than Financial Services According to Microfinance Insights Survey

MicroCapital Paper Wrap-Up:  “Health Microinsurance: A Comparative Study of Three Examples in Bangladesh” by Mosieh Ahmed, Syed Khairul Islam, Md. Abul Quashem and Nabil Ahmed, CGAP Working Group on Microinsurance, Case Study No.13: September 2005

The MCGF was initially started with a GBP 10 million (USD 16.2 million) grant from the UK Department of International Development (DFID).  The SBP’s intention is to use the facility to reduce risk for banks and DFIs lending to microfinance institutions and thereby increase the outreach of financial services to the poor.  The partial guarantees will allow the SBP to leverage the initial grant amount up to four times.  Also, because it has been observed that banks are reluctant to lend in local currency, the structure of the guarantees will allow MFIs to borrow in local currency. The amounts lent by banks to MFIs under the facility will be deductible from each bank’s Demand and Time Liabilities for purposes of the SBP’s statutory liquidity requirement (SLR) and cash reserve requirement (CRR) calculations – meaning the banks will not be required to set aside additional reserves for these loans.  Guidelines for the MCGF have also been simplified and made more flexible, said the SBP. 

According to the MCGF guidelines, the interest rate charged to MFIs is limited to 200 bps (2 percent) over the prevailing SBP policy discount rate.  The SBP recently lowered its policy discount rate by 100 bps to 14 percent.  At the time of the move, inflation had declined to a still significant 19.1 percent (year-on-year), from a high of 25.3 percent in August of 2008.  The projection for average CPI inflation for fiscal year 2009 is 21 percent, with fourth quarter inflation falling to 14 percent.  Consequently the SBP’s real rate is currently negative, and the real rate banks are limited to charging MFIs are also negative, counteracting the SBPs recent attempts to entice banks to use the facility.  This latest amendment to the MCGF does compensate banks for charging a lower interest rate to MFIs, however given the large gap between inflation and the discount rate banks are likely to continue to be reluctant to lend until inflation falls significantly or the SBP removes, or raises, its interest rate restrictions. 

The SBP has made several recent attempts to promote microfinance in Pakistan.  MicroCapital reported on the SBPs move last month to require MFI shareholders to deposit their shares in blocked accounts of the Central Depository Company of Pakistan in an effort to ensure adequate capitalization of MFIs.  Unfortunately, as with the SBP’s limitation on interest rates, not all political intervention has served to promote microfinance: for example local politicians in Punjab province were reportedly declaring general amnesty for micro-loans.  More on this and Grameen Foundation’s and Women’s World Banking response can be read about in this MicroCapital report. 

As reported in a MicroCapital paper wrap-up, currently only 14 percent of Pakistanis use savings, credit, insurance, payments and remittance services from the formal financial system versus 48 percent in India, 32 percent in Bangladesh, and 59 percent in Sri Lanka.   According to the original paper entitled “Bringing Finance to Pakistan’s Poor” by the World Bank, financial institution willingness to expand access in Pakistan has been stinted by slow technological advances, weak legal foundations, unsuitable financial processes and products, and the difficulty local banks have had in serving SMEs profitably.   

By Laura Anderson, Research Associate 

Additional Resources: 

The Daily Times of Pakistan: SBP adds incentive to Micro Credit Guarantee Facility

State Bank of Pakistan: Home

Micro Credit Guarantee Facility: Home

State Bank of Pakistan Circular: Amendments in Micro Credit Guarantee Facility (MCGF)

State Bank of Pakistan Circular: Maintenance of Cash Reserve Requirement (CRR) and Statutory Liquidity Requirement (SLR)

State Bank of Pakistan Press Release April 20, 2009: Salim Raza announces reduction in SBP policy rate to 14% on positive inflation outlook

UK Department for International Development (DFID): Home

MicroCapital Story: Grameen Foundation and Women’s World Banking Express Concern Over the Potential Crisis in Punjab, Pakistan’s Microfinance Sector

MicroCapital Story:  State Bank of Pakistan Directs Shareholders of Microfinance Institutions to Deposit Their Shares in Blocked Accounts of the Central Depository Company of Pakistan

The World Bank: Home

MicroCapital Paper Wrap-Up: “Bringing Finance to Pakistan’s Poor” by Tatiana Nenova, Cecile Thioro Niang and Anjum Ahmad