The split of PRIDE Tanzania was announced at World Savings Banks Institute (WSBI) meeting in Zanzibar in June 2008, saying that the split would enable PRIDE to provide diversified services to “enhance value of social objectives and transform its microfinance company into a deposit taking Microfinance company”. The PRIDE NGO will be responsible for the provision of social services to Tanzanian communities, including the initiation of a Microfinance Development Center, as well as providing financial services to assist rural people with issues such as health, safe water and residential improvements. The ownership of the NGO and MFI were not discussed, nor how the continued funding from Swedish and Norwegian governments, as PRIDE’s major source of funding, would be divided.

At that time it was estimated that the demand for microfinance services was between nine and 12 million people and that only five percent had access to these services. Dr Nagu stated that over 2.4 million Tanzanians join micro businesses every year, which is 22 times more than the 6.7 percent who join formal employment. Dr. Nagu spoke about the provision of education to entrepreneurs was vital as they needed skills to manage their micro businesses, stating that almost 440,000 Tanzanians join the informal sector every year.

The training workshop through the NHH and UDEC was part of a research project entitled Teaching Entrepreneurship To Microfinance Clients in Tanzania: Financial and Human Capital for Development and was led by NHH professors Kjetil Bjorvatn and Bertil Tungodden. Simultaneously in Dar es Salaam, an entrepreneurial training course was held as a part of completion of Phase II of a training workshop entitled Believe Become Begin (BBB), where 158 entrepreneurs were in attendance and of those 80 were awarded with business development vouchers worth over USD 400,000. The 158 entrepreneurs had been selected from an initial pool of over 300 who had attended the Phase I training workshops and from the over 550 entrepreneurs who had submitted their business concepts to the initial workshop. Additionally, the top 20 entrepreneurs were selected to proceed to the final round of the business competition. Whether the two workshops were connected with each other was not reported.

PRIDE was established in 1994 as an NGO using a “modified Grameen” methodology to provide microfinance to clients. Its operations began as a two-year pilot project involving three branches and after this was completed it expanded into its second phase which was to “expand the programme to a network of 25 branches serving 30,000 clients and attain operational sustainability in its fifth year”. Its main funding comes from the Norwegian Agency for Development Cooperation (NORAD) and the Swedish International Development Cooperation Agency (SIDA). As of the end of 2007 there were over 82 thousand active borrowers, 65 percent of which were women and the average loan balance per person was USD 307. The total assets stood at USD 34.1 million, with a debt to equity ratio of 705.44 percent and a return on assets of 0.41 percent.

By Lori Curtis, Research Assistant

Additional Resources:

Daily News: “PRIDE to secure microfinance bank licence“

Forskning: “Fjernundervisning in microcredit“

IPP Media: “PRIDE Tanzania turns into microfinance bank” “Tanzania has vast untapped potential of microfinance opportunities“

IPS News: “Economy Tanzania: Investing The Money Under The Mattress“

MIX Market: “PRIDE Profile“

The Citizen: “Entrepreneurs challenged on business sustainability“

What follows is a summary of the original article.

INTRODUCTION

In Nigeria microfinance has been a part of cultural economic activities historically, including ‘Esusu’, ‘Adashi’, and ‘Otataje’, initiatives that provided funds for rural producers within communities. A change to these rural microfinancing initiatives has become evident through attempts by governments to modernize microfinancing in order to improve to productive capacity of the poor and increase economic activity on a national level. After a number of recent failures to modernize this area, the Federal Government established legislation for the creation of community banks, now called microfinance institutions. Since the legislation has been established, a number of NGOs have become licensed MFIs and commercial banks began engaging in microfinance. This paper documents and examines Nigerian microfinance policy measures and evaluates the effectiveness of these.

A REVIEW OF MICROFINANCE POLICY MEASURES AND INSTITUTIONS IN NIGERIA

Microfinance Policy Measures

The formal financial system in Nigeria provides services to approximately 35 percent of the economically active population, while the other 65 percent are often served by the unregulated informal financial sector, creating implications for the Central bank of Nigeria (CBN) in its ability to promote monetary stability. Various policies which enhance monetary stability and expand the financial infrastructure of the country to meet the financial requirements of micro, small and medium enterprises (MSMEs) have been formulated by the CBN.

Nigeria Microfinance Policy Strategies

The strategies that have been formulated include the licensing and regulation of MFIs, the promotion of establishing NGO-based MFIs, the encouragement of local governments to devote one percent of their budget to microfinance initiatives, the mobilization of domestic savings and promotion of a banking culture among low-income groups, strengthening the capital base of existing MFIs and broadening the scope of activities of MFIs. The targets of these policies include:

• Covering the majority of the poor but economically active population by 2020 creating millions of job and reducing poverty.

• Increasing the share of microcredit as a percentage of total credit to the economy from 0.9 percent in 2005 to at least 20 percent in 2020; and the share of micro-credit as a percentage of GDP from 0.2 percent in 2005 to at least 15 percent in 2020.

• Promoting the participation of at least two thirds of the states and local governments in micro-credit financing by 2015.

• Eliminating gender disparity by improving women’s access to financial services by 5% annually;

• Increasing the number of linkages among universal banks, development banks, specialized finance institutions and microfinance banks by 10% annually.

Participating Institutions In Microfinance Activities In Nigeria

MFIs in Nigeria are categorized into informal or traditional MFIs and formal or modern MFIs. Informal MFIs include self-help groups (SHGs) or Savings and Credit Associations (ROSCAS), as well as cooperative societies and savings collectors. These generally have limited outreach. Formal MFIs include universal banks and community banks or microfinance banks (MFBs). MFBs are either licensed to operate as a unit, in which case the minimum paid-up capital required is N20 million per branch, or MFBs licensed to operate in state where the minimum paid-up capital is N1 billion. The difference is determined by how the MFB is allowed to branch throughout the community and state. Additionally, NGO-base MFIs, public sector poverty alleviation agencies, special microfinance schemes and donor agencies are also recognized by the CBN as having an important role in microfinance, although they are not all supervised or regulated by the CBN.

STYLIZED FACTORS ON THE OPERATION OF MICROFINANCE PROGRAMMES IN NIGERIA

The report conducts an assessment of performance which is based on the outreach of major microfinance institutions and schemes. The following institutions were assessed: the Nigerian Agricultural and Cooperative Bank Ltd. (NACB/NACRDB); Nigerian Bank for Commerce and Industry (BOI); People’s Bank of Nigeria (PBN now NACRDB); and Community Banks/Microfinance Banks. From this analysis, it was observed that most institutions and programmes have at best recorded limited success in securing wide access to sustainable microfinance. High operational costs, repayment problems, weak access to re-financing facilities, client apathy and internal control problems are highlighted as the main challenges for microfinance in Nigeria. The author sees a variety of imperatives that must be implemented properly if microfinance is to be successful. They include: group delivery methodology, an efficient management information system, intensive monitoring, increased involvement of clients, real or market interest rates need to be charged, the development of innovative products and an intensive use of Microfin.

By Lori Curtis, Research Assistant

]]> http://www.microcapital.org/microcapital-paper-wrap-up-much-ado-about-nothing-the-case-of-the-nigerian-microfinance-policy-measures-institutions-and-operations-by-bo-iganiga/feed/ 0 http://www.microcapital.org/microcapital-paper-wrap-up-the-state-of-the-microcredit-summit-campaign-report-2009-by-sam-daley-harris/?utm_source=rss&utm_medium=rss&utm_campaign=microcapital-paper-wrap-up-the-state-of-the-microcredit-summit-campaign-report-2009-by-sam-daley-harris http://www.microcapital.org/microcapital-paper-wrap-up-the-state-of-the-microcredit-summit-campaign-report-2009-by-sam-daley-harris/#comments Mon, 02 Feb 2009 14:59:24 +0000 Lori Curtis http://www.microcapital.org/?p=2963 The State of the Microcredit Summit Campaign Report 2009 was written by Sam Daley-Harris and is a 70 page report that discusses the human face of global poverty, reviews microfinance breakthroughs in helping slum dwellers move out of the slums and highlights innovations that have brought renewable energy to poor communities. The report is a summary of the achievements and innovations of the Microcredit Summit Campaign for the year 2008 as wells as notable achievements in the microfinance community in general and consists of contributions from a variety of experts in the microfinance industry. The original report is available here.

What follows is a summary of the report.

INTRODUCTION

At the end of 2007, 3,552 microfinance institutions (MFIs) reported reaching over 154 million clients, 106.6 million of whom were among the poorest when they took their first loan. Loans to the 106.6 million poorest clients affect a total of 533 million people, including clients and family members. Additionally, as a part of the 2007 Microcredit Summit Campaign, MFIs were asked for the number of clients how have crossed the USD one a day threshold. Although it is too early to report these findings, the progress of these findings will be reported beginning in next year’s report.

RULE-BREAKERS LEAD THE WAY

The Microcredit Summit Campaign has continued to stress that microfinance is just one of the tools needed to end global poverty, and that the mere availability of financial services must be accompanied by other services, and go beyond the mantra of inclusive financial services. A transformation in how development and financial services is required. New rule-breakers have emerged to continue to break the rules of commercial banking, but also to break the rules of microfinance itself. Their innovations are leading to breakthroughs in other areas of development in their quest to find better ways to use microfinance to end poverty. The report highlights the achievements of Jamii Bora, and MFI based in Nairobi which provides loans to beggars, prostitutes, thieves and others normally excluded from microfinance, while the staff consists exclusively of clients and former clients.

MICROFINANCE AS A PLATFORM, NOT A PRODUCT

Grameen Foundation President and CEO, Alex Counts wrote an article entitled “Re-imagining Microfinance”, which was published in the Stanford Social Innovation Review in 2008 and called for microfinance to serve as a platform and not as a product. This platform is proposed to be used to deliver a host of products and services to the world’s poorest, most isolated people. He suggests that the most important assets of MFIs are not their loan portfolios but their high quality relationships with the world’s poor, which can be leveraged in order to develop and distribute financial and non-financial products and services. It also challenges MFIs to lower interest rates once service costs have been reduced, as well as adopting a business model based on conducting many marginally profitable transactions, rather than fewer highly profitable ones.

Dipal Chandra Barua, Founding Managing Director of Grameen Shakti is an example of using microfinance as a platform as it sells, finances and services renewable energy systems throughout Bangladesh, and is reducing carbon emissions by 90,000 tons per year through solar home systems to rural people. It plans to create 100 thousand Green Energy Entrepreneurs by 2015.

INTEGRATING MICROFINANCE AND HEALTH EDUCATION-A ROAD TO THE FUTURE

MSC has also beeng working with Freedom from Hunger to promote the integration of microfinance and health education, launching a 15-month microfinance and health integration pilot project in Southern India with support from Johnson & Johnson. The pilot project worked with four institutions to train local trainers who trained one hundred of these organizations’ field workers, who then delivered health lessons to over 15 thousand clients on HIV/AIDS prevention and care, managing childhood diseases and women’s health.

COMMERCIALIZATION: THE OPPORTUNITY AND THE CHALLENGE

While the debate on the commercialization of microfinance is often reduced to whether or not MFIs should be profitable, MSC argues that no serious actor in this field proposes unsustainable MFIs and that the debate is actually centered around the issue of profit-maximization at the MFI level versus a more holistic measurement of success which includes MFI profitability as well as improvements in the socio-economic conditions of clients. Dr. Steven Funk, of Unitus, writes that commercial investment in microfinance must be seen as an integral part of the equation in order to reach all of the people who need access to microcredit loans. He suggests that resources from private philanthropy and the public sector are not capable of increasing on the scale required to reach all of the world’s poor, and that those involved in microfinance must be open to the “critique of commercial capital’s investment motives.”

THE NEED FOR PRICING TRANSPARENCY IN MICROFINANCE

Chuck Waterfield, founder of Microfinance Transparency, writes that the true price of microfinance loan products has never been accurately measured nor reported. Microfinance loans, contrary to commercial loans, can quote an interest rate of three percent a month which results in an APR between 36 percent and 96 percent, depending on how this rate is applied. The same principles of transparent pricing applied within the commercial finance industry have not been applied to the microfinance industry. There has been intensive dialogue on this issue, and initiatives have been created in order to address non-transparent pricing, including the “Campaign for Client Protection” which began in April 2008, and another is MicroFinance Transparency.

THE WORLD BANK’S OPPORTUNITY TO LEAD IN EMPOWERING THE VERY POOR WITH MICROFINANCE

In response to a lack of investment in microfinance in Africa and other extremely poor regions globally, 1,400 parliamentarians around the world wrote letters to the World Bank asking it to ensure that the growing commercialization of microfinance does not result in the poor being left behind. These letters have emphasized three actions: creating a USD 200 million annual grant facility to build MFIs’ capacity to reach clients living on less than USD one per day; establishing three regionally based “centers of excellence” that demonstrate success in reaching the very poor; and creating a regional or sub-regional apex fund in Africa to encourage the expansion of successful pro-poor MFIs in the region.

MEASURING PROGRESS ON THE SUMMIT’S GOAL, CLIENT MOVEMENT ABOVE THE US$1 A DAY THRESHOLD

Phase II of the MSC was launched in 2006 with two new goals for 2015: Working to ensure that 175 million of the world’s poorest families are receiving credit for self-employment and other financial and business services; and working to ensure that 100 million of the world’s poorest families move from below USD one a day to above USD one a day, adjusted for purchasing power parity and using a starting point of 1990. These new goals were established to contribute to achieving the Millennium Development Goal on cutting absolute poverty in half by 2015.

By Lori Curtis, Research Assistant

A 2007 report commissioned by the International Finance Corporation (IFC) to assess the financial needs of micro and small enterprises (MSEs) suggested that, while it is difficult to estimate the number of MSEs in Yemen, a conservative estimate not inclusive of farmers would be 400 thousand. Of these, 90.7 percent were microenterprises and 98.5 percent were owned by men. Only 3.5 percent of the population has an account with a formal financial institution, and this sector is highly underdeveloped. There are only 15 active banks, four of which are fully foreign-owned, three are public and eight are private. There are 13 active MFIs in Yemen, with an outreach of 31 thousand clients and a loan portfolio of USD 6.9 million and an average loan size of USD 97. Of these MFIs, five MFIs report to the MIX, which with a total of 18 thousand active borrowers and a gross loan portfolio of USD 1.8 million.

Yemen is the least developed country in the Middle East, with a Gross Domestic Product (GDP) per capita of USD 650 and a life expectancy of 59 years for men and 62 years for women. It has a population of 21.6 million with a population density of 37 people per square kilometer. Approximately 25 percent of the population is urban and nearly 40 percent of the population lives below the poverty line.

The Central Bank of Yemen was established in 1971, and merged with the Bank of Yemen in 1990 with the reunion of the northern and southern sectors of Yemen. Assets totaled YR 1.6 trillion (USD 8 billion) at the end of 2007.

The GTZ is an international cooperation enterprise for sustainable development with worldwide operations. It was founded in 1975 as a company under private law and is now a federal enterprise based in Eschborn, Germany. While the German Federal Ministry for Economic Cooperation and Development (BMZ) is its major client, it also operates on behalf of other German ministries, the European Commission, the United Nations and the World Bank. GTZ operates in over 120 countries globally.

By Lori Curtis, Research Assistant

Additional Sources:

Central Bank of Yemen: “Home” “Annual Report“

IFC: “Assessment of MSE Financial Needs in Yemen 2007“

GTZ: “Home” “About Us”

MicroCapital Story: “Yemen to Establish Microfinance Banks“

MicroCapital Story: “Government of Yemen, Social Fund for Development (SFD) of Yemen, and Arab Gulf Program for United Nations Development Organizations (AGFUND) Invest USD 30 Million in Microfinance I“

MIX Market: “Home” “Profile of Yemen“

Yemen Observer: “GTZ trains Central Bank on microfinance“

Yemen Times: “GTZ trains Central Bank on microfinance“

A large part of the microfinance market is currently made up by Bank Rakyat Indonesia (BRI), which has been involved in microfinance for over 20 years and Bank Perkreditan Rakyats (BPRs), which is a generic term for people’s credit banks. These include village-owned Bada Kredit Desas (BKDs) and Lembaga Dana dan Kredit Pedessan (LDKPs) which are Rural Fund and Credit Institutions. Of the 42 MFIs registered with the MIX Market, 30 are a form of BPRs. There are reportedly over 50 thousand MFIs operating in Indonesia, some that have been existence for over 100 years. MBK Ventura, an Indonesian MFI, ranked first in the MIX Global 100 Composite Ranking for 2008, summarized in this MicroCapital Paper Wrap-Up and was also recognized at the Grameen Foundation 2008 Awards in November 2008.

The Indonesian microfinance industry is one of the largest in the world, however it faces a variety of challenges. The Promotion of Small Financial Institutions (ProFI) has highlighted three major challenges to the Indonesian microfinance system, including inadequate outreach to remote and marginal areas, inadequate depth of financial services to the poorer sections of the population, and inefficiency of large numbers of MFIs and their integration into the financial system. The Microfinance Innovation Center for Resources and Alternatives (MICRA) concurs, stating that MFIs cite lack of access to affordable capital as their main constraint.

Bank Indonesia is an independent state banking institution whose mission is to achieve and maintain monetary stability by promoting financial system stability for Indonesia’s long term sustainable development. At the end of 2007 its assets totaled Rupiah 973 trillion (USD 85.3 billion).

Bank Rakyat Indonesia was established in 1895 which provides banking services mainly to small and medium enterprises to support economic development. At the end of 2007 BRI had over 3.5 million active borrowers, 47.8 percent of which were women, and the average loan balance was USD 988. Its assets totaled USD 6.4 billion, with a gross loan portfolio of USD 3.5 million. In 2006 its debt to equity ratio was reported at 1,946.43 percent and it return on assets was 6.88 percent.

By Lori Curtis, Research Assistant

Additional Sources:

Antara News: “VP launches 41 micro-financing units in West Sumatra” “BI unconcerned about foreign banks` entry inti micro sector“

Asian Development Bank: “Home” “Country Operations Business Plan: Indonesia 2009-2011“

Banking With The Poor: “Indonesia Country Profile“

Foreign Banks Association of Indonesia: “Home“

MicroCapital Story: “Mercy Corps Buys a Commercial Bank in Bali to Service the Microfinance Sector in Indonesia“

Promotion of Small Financial Institutions: “Home“

Soludo also singled out the 24 state governments which have not been setting aside one percent of their annual budgets towards microfinance, as suggested in the CBN microfinance policy, saying that they are creating a “stumbling block” for the large numbers of people trying to get out of poverty. The 12 out of 36 states which are contributing to the scheme have contributed a total of N9.5 billion (USD 63 million), N620 million (USD 4.1million) of which is coming from Lagos alone. The goal of the CBN microfinance policy is to have at least two-thirds of state governments contributing one percent of their annual budgets to microfinance activities through licensed MFIs. Of the 845 MFIs operating in Nigeria, only 13 report to the MIX Market and only one made the MIX’s recently released Global Top 100 Composite List, Self-Reliance Economic Advancement Program (SEAP), which was ranked at 62. The rankings were summarized in this MicroCapital Paper Wrap-Up.

Also at the conference, Vice President Dr. Goodluck Jonathan announced that the economic outlook in Nigeria was favourable for 2009 due to the improving performance of the non-oil sector and he expressed confidence that the microfinance sector in Nigeria will provide the necessary funding required to increase participation in profitable economic activities. The Annual Microfinance Conference were held in unison with the Microfinance/Entrepreneurship Awards in Abuja. The theme of the conference was “Commercial Microfinance as a Tool for Poverty Alleviation” and ran from January 22 to 23, 2009.

The Credit Reference Company (CRC) was established by a consortium of eleven financial institutions to create a credible database of aggregated information of credit status and borrower behaviour within the Nigerian lending industry. The technical partners involved in the planning and build-up of operations are Dun and Bradstreet, Accenture, and International Finance Corporation. The CRC was launched in June of 2008, which was covered in this MicroCapital Story.

The Nigeria Deposit and Insurance Corporation (NDIC) was established in 1988 as a part of economic reform measures to strengthen the safety net for the banking sector following the government policy of liberalization and the introduction of the Structural Adjustment Programme (SAP) in Nigeria in 1986. At the time the NDIC was established, there was a sharp increase in the number of banks and a breakdown in the corporate governance in banking, and the primary priorities of the NDIC were to provide or facilitate financial assistance to banks as well as restructuring and managing distressed banks.

The Agricultural Credit Guarantee Scheme Fund was established in 1977 and began operations in 1978 and it guarantees credit facilities extended to farmers by banks for up to 75 percent of the amount in default, net of any security realized. The government owns 60 percent while the CBN owns 40 percent. The three main initiatives of the bank are: The Self-Help Group Linkage Banking, Trust Fund Model, and Interest Draw Back.

The CBN was established in 1958 as the bank with the overall control and administration of the monetary and financial sector policies of the Federal Government. Its mission is to provide a stable framework for the economic development of Nigeria through the effective, efficient and transparent implementation of monetary policy and management of the financial sector. At the end of 2007, total assets stood at N 7.4 trillion (USD 49.1 billion).

By Lori Curtis, Research Assistant

Additional Sources:

Business Day: “Another opportunity to learn the hard way”

Leadership Nigeria: “CBN Licenses 840 Microfinance Banks”

MicroCapital Story: “Central Bank of Nigeria (CBN) Declares that New Microfinance Bank Licenses Will Only Be Granted to Those Operating in Rural Areas”

MicroCapital Story: “Only 12 of 36 Nigerian States Contribute to Microfinance Activities for a Total of $1.26m”

MicroCapital Story: “Central Bank of Nigeria Grants 815 New Microfinance Licenses”

MicroCapital Story: “Dun & Bradstreet to Run Nigeria’s First Credit Bureau, with Support of The International Finance Corporation, Accenture and Nine of Nigeria’s Leading Banks”

Nigerian Tribune: “CBN decries states’ neglect of microfinance scheme” “Okumagba predicts capital market rejuvenation early next year“

During the period for PRSP-I, the microfinance industry grew at over 40 percent per year, and by March 2008 the sector totaled over 1.7 million savers, with a clientele of nearly 1.6 million borrowers. Microfinance became present in 105 districts, including some of the more remote districts, such as the Federally Administered Tribal Areas (FATA), outside of the four provinces bordering Afghanistan.

In Pakistan only 17 percent of the population has bank accounts and less than 4 percent are borrowers. Only 25 percent of total bank deposits and 17 percent of total borrowers are from rural areas, representing 10 percent and 7 percent of the total value of deposits and advances, respectively. The State Bank of Pakistan (SBP) has established a Development Finance Group which has developed a Financial Inclusion Programme (FIP) which is aimed at encouraging a shift in banks’ focus away from large companies to smaller companies and the household sector. The six main focuses of the FIP will be a well-target FIP, credit enhancement, sector transformation and institutional strengthening, innovation and delivery mechanisms, small enterprises and rural financing, and financial literacy. Additionally, as a part of its focus on development finance to serve the underserved markets, the FIP will include the launch of a number of initiatives for MFIs include:

• Encouraging MFIs to develop commercially viable operations
• Creating partnerships between commercial banks, microfinance providers and the post office
• Developing a flexible regulatory regime which will allow innovation and growth for MFIs which will not compromise practical objectives
• Providing mobile phone-base banking services

The State Bank of Pakistan (SBP) was inaugurated by Quaid-i-Azam Muhammad Ali Jinnah in 1946 as the central bank of Pakistan and was nationalized in 1974. The scope of the banks operations increased from its original mandate “to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in Pakistan and generally to operate the currency and credit system of the country to its advantage” to its expanded mandate in 1956, to “regulate the monetary and credit system of Pakistan and to foster its growth in the best national interest with a view to securing monetary stability and fuller utilisation of the country’s productive resources”. Total assets in 2008 stood at Rs. 1.05 trillion (USD 13.3 billion).

National Rural Support Programme (NRSP) was established in 1991 and is the largest rural support programme in Pakistan. Its mandate is to alleviate poverty through development activities and “harnessing people’s potential” and to bring the concerns of economically marginalized citizens to the public consciousness. It is present in 46 of the 127 districts throughout Pakistan.

Khushhali Bank was founded in 2000 as a part of Pakistan’s Poverty Reduction Strategy and its Microfinance Sector Development Program (MSDP). Khushhali Bank operates under the supervision of the SBP and its shareholders are comprised of a variety of central commercial banks. It is the largest and lead licensed MFI in Pakistan. At the end of 2007 its assets totaled USD 109 million, with a total loan portfolio of 43 million. Its debt to equity ratio stood at 269.85 percent and its return on assets stood at -3.86 percent. It had over 283 thousand active borrowers, of which 15.4 percent were women and the average loan balance per person was USD 152.

By Lori Curtis, Research Assistant

Additional Resources:

Daily Times: “Govt aiming to accelerate GDP growth rate”

Pakistan Ministry of Finance: “Home” “PRSP-II”

MIX Market: “Khushhali Bank Profile“

The meeting was the first Arab Economic, Social and Development Summit held to gather Arab leaders to work on promoting unified Arab action in the economic, social and development sectors. Twenty-two member states of the Arab league were represented, including 17 heads of state. Additionally, United Nations Secretary-General Ban Ki-moon was also present. The summit was supposed to have selected from more than 400 projects and proposals the secretariat had received, with the Gaza situation at the top of the agenda.

The Arab Fund for Economic and Social Development (AFESD) is an autonomous regional Pan-Arab development finance organization which was established by the adoption of an agreement in 1968 and was declared effective in 1971. The AFESD began operations in 1974. The function of the organization is to assist the economic and social development of Arab countries using three methods. The first is to finance development projects, preferably pan-Arab development projects, the second is to encourage the investment of funds in Arab projects and the third is to provide technical assistance services for Arab development. As of 2006, its total assets stood at KD 2.5 billion (USD 8.5 billion), including its total loans of KD 1.8 billion (USD 6.19 billion).

By Lori Curtis, Research Assistant

Additional Resources:

Arab Fund for Economic and Social Development: “Home” “About Us”

Arab Times: “Gaza divide clouds Arab economic summit”

Financial Times: “Arab states to form $2bn business fund”

Xinhua News Agency: “Moussa: Arab League to coordinate funds for Gaza reconstruction” “Backgrounder: Basic facts about 1^st Arab Economic, Development and Social Summit“

The sample of MFIs served over 67 million borrowers with over USD 35 billion in loans and held USD 15 billion in deposits from 65 million microfinance clients. The results from this year highlight a variety of different observations. MFIs from South Asia and the Middle East and North Africa region (MENA) ranked higher in proportion to their numbers in the full sample. For example, South Asian MFIs made up 25 percent of the top 50 places, but represented only 15 percent of the full sample, while 50 percent of all MENA MFIs ranked in the top 100. India was the only country in the sample with 10 or more MFIs, and seven of these were ranked in the top 50. Only nine MFIs of less than five years of operations ranked in the top 100, while mature institutions with more than 10 years experience dominated the list.

When examining which attributes were particularly important in how MFIs were placed on the list, efficiency was highlighted as a challenge for many MFIs in the ranking. The average ranking for efficiency was only 56.5 percent, but the average ranking for outreach was 73.2 percent. This year was the first year that MFIs posted efficiency rankings above 80 percent, with five MFIs achieving this milestone. Client outreach also expanded faster than population growth, and so the average market penetration improved to 2.3 percent from last year’s 1.7 percent.

Additionally, there was a good deal of movement throughout the rankings. While two-thirds of MFIs in the top 100 for 2008 were also on the list for 2007, only two MFIs in the 2007 top 10 remained there in 2008. Much of the movement throughout the rankings from 2007 to 2008 was brought about as a result of changes in efficiency. Of the 51 MFIs that moved up 10 or more places over the 2007 rankings, two-thirds improved their efficiency ranking more than their outreach ranking. Moreover, while last year’s number two ranked MFI, Zakoura achieved above 80 percent in the outreach rankings in 2008, its efficiency ranking decreased to 53.48 percent, causing it to drop out of the top 10.

The methodology of the adopted approach used to establish composite performance is based on three principles: the factors that measure MFI success must be quantifiable, the approach should be straightforward and easy to reproduce, and the measures of success should encourage widely held goals of microfinance, such as outreach, efficiency, transparency and profitability. Once MFIs were screened for profitability, it is not ranked, and so higher profits do not secure higher rankings, insinuating that achieving the highest profit is not considered a goal, only a necessary condition for the other goals.

In the composite ranking, each MFIs performance results are converted to percentile rankings, and then into commonly used order rankings. Percentile rankings are used to compare and analyze data as they reflect both order and distance from next observation. While an MFI can rank first in overall performance, it can achieve a lower percentile ranking than its peers in certain categories.

Detailed Excel spreadsheets containing data used for rankings can be found here.

This comes just five months after Indian Bank announced the launch of its special ‘Micro State Branches’ established for Self Help Groups (SHGs) to access microfinance. So far twelve Micro State Branches have been established, and Dharmapuri will be the location of the thirteenth. The relationship between the FLCCs and the Micro State Branches has not been publicly reported or defined by Indian Bank, nor was whether the information provided by the FLCCs will encompass those of the banking sector in general or just in relation to what is offered by Indian Bank.

Indian Bank was established in 1907 and is a government-owned bank with over 1500 branches throughout India. The total assets in March 2008 were reported at Rs. 705 billion (USD 14.3 billion) with a return on assets of 1.6 percent in September 2008.

By Lori Curtis, Research Assistant

Additional Resources:

Business Standard: “Indian Bank to launch exclusive facility for women”

Capital Market Plus: “Indian Bank Analysis”

Indian Bank: “Home” “March 2008 Financial Results” “September 2008 Un-audited Half Yearly Financial Results”

Trading Markets: “Indian Bank Starts First Financial Counselling Centre“