Government agencies and international aid groups have long supported programs that train the world’s poor in how to start and run their own businesses. The training is seen as a way to end hunger and stabilize societies.

TechnoServe

Fred Phillips, right, a business adviser with TechnoServe, helping Susana Nsiah and Yaw Dankwa on a cocoa farm in Ghana. Since 1968, TechnoServe has helped small businesses worldwide.

But interest in these programs has grown lately with the wider availability of microloans, or very small enterprise loans made to the poor. As with any start-up, these businesses are more likely to survive, advocates say, if the owners have basic operational skills.

“There’s been a realization in the microfinance community that loan recipients are more likely to succeed if they also receive business education,” said Bobbi L. Gray, research and evaluation specialist with Freedom From Hunger, a nonprofit organization in Davis, Calif., that provides financial education in developing countries.

Indeed, the nonprofit research group Innovations for Poverty Action in New Haven, Conn., published a paper in May that found that Peruvian villagers who had received microloans and had been randomly selected to receive business training performed significantly better than peers who had received loans and no financial education.

“Even those who reported having the least interest before getting the training had higher revenues,” said Dean Karlan, a professor of economics at Yale, a founder of Innovations and lead author of the study.

From Botswana to Bolivia, entrepreneurship training has resulted in thriving microenterprises — like soap makers, cocoa processors and handicraft exporters — that would not have existed otherwise. Some programs may gather villagers in huts and use multiple baskets to demonstrate how to allocate capital. Other programs may focus on established but struggling businesses, giving owners DVDs that cover topics like pricing and distribution.

“A good intervention doesn’t treat everyone the same,” said Bruce McNamer, chief executive of TechnoServe, a nonprofit group in Washington that has worked with entrepreneurs in developing countries since 1968 to expand their businesses and foster economic growth in their communities. “How you help depends on the circumstance.”

Mr. McNamer’s group, which works with the United States Agency for International Development and the State Department, provides free business consulting services and also sponsors business plan competitions to identify aspiring entrepreneurs in developing countries. “These are usually people who have started a business but they just don’t know how to get from point A to point B,” he said.

An example is a cooperative of 50 farmers in northern Nicaragua that four years ago was just getting by while cultivating coffee, he said. But the cooperative, with assistance from TechnoServe, turned to other crops, like the starchy staple malanga, that increased their profits. The cooperative now has 250 farmers and has opened its own packaging plant, which employs 80 people. The plant’s products are exported as far as Miami.

Teaching financial literacy and entrepreneurial skills is seen as particularly important to the reconstruction of war-torn regions like Afghanistan and Iraq. “It doesn’t matter if you build roads if one in four kids dies by age 5” because of illness or malnutrition, said Ross Paterson, a self-described business coach and retired Army officer in Keller, Tex.

He has been to Afghanistan 10 times in the last seven years to teach entrepreneurship. It is more important, he said, to give Afghans the ability to build businesses that will provide the income to sustain them.

Occasionally fearing for his safety because of the continued Afghan fighting, Mr. Paterson says he primarily teaches leadership skills by helping the local residents to recognize and successfully work with different personality types, whether colleagues or customers.

While Mr. Paterson’s courses last only a few weeks and are limited to those who speak fluent English, other organizations emphasize the importance of finding and training local people to teach business fundamentals.

“You need people who are going to be there for the long term and who know what really works on the ground,” said Fiona Macaulay, founder and president of Making Cents International, a 10-year-old nonprofit organization in Washington that creates entrepreneurship courses for the disadvantaged and trains the people who teach them.

Continuing mentorship and support are crucial to helping entrepreneurs succeed, Ms. Macaulay said. Her organization also offers networking opportunities for its students. “At a business fair in Jordan, for example, we were able to connect a woman who made cakes with a woman who made boxes to transport the cakes,” Ms. Macaulay said.

Many of those who teach entrepreneurship in remote and impoverished areas say the biggest hurdle is persuading students to believe that there are opportunities beyond, say, selling fruits or trinkets in an open-air market.

“I’d say getting them to identify new approaches and opportunities is the hardest part,” said Harsh Bhargava, a business consultant in McLean, Va., who with his wife, Aruna Bhargava, a sociology professor at Rutgers, started the nonprofit group I Create in 1997 to teach entrepreneurship in India, their native country.

He says many people I Create works with are so downtrodden they cannot envision another way of life. He discussed an Indian woman who was so abused by her husband and in-laws that she lacked the confidence even to look anyone in the face. After a local I Create trainer persuaded her to take an entrepreneurship course, she left her husband and started a grocery store.

Moreover, she successfully sued her husband and in-laws for the return of her dowry and for child support for her son. “She’s now studying to become a lawyer and hopes to work to protect women against dowry-related crimes,” Mr. Bhargava said. “It’s these kinds of stories that make what we do so gratifying.”

JAKARTA, INDONESIA, June 25 – Slum-dweller Krustin bin Juri lost everything when floodwaters swept through his home and shop on the banks of Jakarta’s filthy Ciliwung river two years ago.

But when the next flood hits, and it will because Jakarta sees frequent floods in the rainy season, bin Juri may have a modicum of protection thanks to a low-cost insurance policy that he purchased this month.

He is among millions of the world’s poor who are covered for natural disasters by cheap insurance, or microinsurance, as commercial firms recognise that insuring the poor is not just good public relations but also profitable.

“Interest in microinsurance has been exploding throughout the world,” said Craig Thorburn, a senior insurance specialist at the World Bank who has developed microinsurance programmes and who advises countries on insurance market development.

“New projects and proposals are being developed in more and more countries. Government policy-makers are reviewing their regulations and the microinsurance sector does not appear to have been slowed by the crisis.”

Microinsurance began as a form of charity in the 1990s, when the International Labour Organisation began experimenting with super-cheap insurance policies, said Michael McCord, president of the U.S.-based MicroInsurance Centre who recently discussed the topic with officials at Indonesia’s central bank.

In 1995, McCord said he developed an entirely commercial microinsurance product backed by insurer AIG, with a view to selling it through a microfinance institute in Uganda.

“This example showed that commercial microinsurance is possible and became the demonstration model that helped other commercial insurers recognise the low-income market as viable,” he said.

Within a decade, AIG’s Ugandan business covered about 1.6 million lives, and microinsurance premiums accounted for nearly 17 percent of its Ugandan unit’s profits.

Today, a $1,000 life insurance policy sells for just $1 a year in Uganda, McCord said, making it affordable to the poor. He estimates that about 135 million low-income people worldwide are now covered by cheap insurance, up from 78 million two years ago.

Investors are seeing potential in what could be a multi-billion dollar industry. The Leapfrog Financial Inclusion Fund announced last week that it had raised $44 million for what it said was the world’s first microinsurance fund.

“The world desperately needs market-based solutions to poverty that draw in major financial investors by offering fair but competitive returns,” said Dr. Andrew Kuper, President and Founder of LeapFrog, a Luxembourg-based fund.

“Microinsurance is both profitable and scalable,” he was quoted as saying on the fund’s website. The fund will invest in India, Pakistan, South Africa, Ghana and Kenya, it added.

MIXED SUCCESS

Some governments have taken a more active role in promoting such insurance schemes to the poor. For example in India, it is compulsory for insurer firms to offer a microinsurance product, though the results have been mixed.

In practice, only about a third of India’s insurance firms offer such products, said Rupalee Ruchismita, founder of the Centre for Insurance and Risk Management in India, which works with insurers and microfinance firms to develop livestock, health, weather, and catastrophe insurance plans.

“Most insurance firms are doing it simply to meet targets or to be in the good books of the regulators, and their argument is that it is very difficult to reach the intended audience,” she said.

Insurance experts, including Ruchismita and McCord, said such microinsurance schemes tend to be more successful when a community-based organisation works in partnership with a private insurer, as both have strengths in different areas.

For insurers, the sheer number of potential customers in the low-income bracket makes this an attractive market.

“About 80 percent of the world population live in emerging markets but they account for only 22 percent of global GDP and 9 percent of global premiums,” said Kua Ka Hin, Munich Re’s chief executive for Singapore and Southeast Asia.

“These emerging markets still offer huge potential; they have got the large numbers which underline the principle of insurance.”

Kua says Munich Re is looking at microinsurance products in Asia covering earthquakes, typhoons and even loss of income for businesses forced to close because of a flu, or H1N1, pandemic.

FLOOD-PRONE JAKARTA

Last month, Munich Re began a trial of the world’s first flood microinsurance policy in flood-prone central Jakarta.

Residents in Manggarai district pay 50,000 rupiah ($4.88) for a flood “cash card” that can be cashed in for 250,000 rupiah if floodwater levels rise to or above 9.5 metres at the Manggarai Water Gate, which is 2 metres above normal levels.

So far only 50 policies have been sold, partly because the insurance only covers the very worst floods, not the recurrent knee-high flooding that can still ruin homes and possessions.

“People say 950 cm is too high and it’s unlikely to happen. Also, the payout, they said, is too small,” said Francis Purwanta, a spokesman for Munich Re’s local partner, Asuransi Wahana Tata, which sells the policies, pays out claims, and is then reimbursed by Munich Re.

“So we try to explain that it has happened before, at least three times in five years,” said Purwanta.

The idea of making a profit off the very poorest members of society is also controversial. Yet supporters say it is necessary if insurance companies are to back such policies.

“Companies can and should make profits of the low-income market. This is the only way we will get commecial insurers in the market,” said McCord, who adds that non-profit organisations working alone rarely have the technical expertise to calculate the risks and then design an effective insurance program.

“A commercial approach is what’s needed here, across the board. But what helps a lot is using institutions that people trust to deliver the product.”

However, some critics, such as Wardah Hafidz, from the Indonesian non-government organisation Urban Poor Consortium, suggest that governments are evading their responsibilities by expecting poor people to take out private insurance policies.

“The government should be giving protection from disasters to these people instead of assisting private business to target poor people to sell them their products,” she said.

The argument is less philosophical for flood victims such as Bin Juri who knows what it’s like to see his precious possessions washed away and is well aware that the 250,000 rupiah insurance policy he holds would be inadequate to cover his losses if another flood struck his home.

“That alone cost 90,000 rupiah,” he said, pointing to a large cooking pot at his feet. “But it’s some money at least.” ($1=10080 Rupiah) (Additional reporting by Rina Chandran in Mumbai; Editing by Sara Webb and Megan Goldin)

June 16 – Faulu Kenya Ltd. was granted a license by the central bank to accept deposits, the first microfinance institution in Kenya to receive such a permit.

As many as nine micro lenders are expected to receive similar licenses by the end of this year, Central Bank of Kenya Governor Njuguna Ndung’u told reporters today in the capital, Nairobi. Previously, the company wasn’t allowed to take money from the public and was only able to issue loans.

Faulu was among nine companies that have submitted formal applications to become deposit-taking institutions, Ndung’u said. The license was granted in terms of the Microfinance Act that came into effect in May 2008 and is expected to promote a culture of saving in Kenya, Ndung’u said.

Faulu currently has 87 branches and plans to increase this number using deposits collected from customers, Chairman Ken Wathome said, without providing further details. Within three years, the company plans to increase its customers to 1 million from 220,000, he said.

Faulu began operations in 1992 as a pilot micro-lending programme of Food for the Hungry International, a Geneva- registered non-governmental organization.

In April 2005, Faulu sold five-year bonds worth 500 million shillings ($6.4 million). The securities are traded on the Nairobi Stock Exchange.

NAIROBI, KENYA, June, 22 - Microfinance institutions in Africa have very little chance of surviving the current financial crisis as loan repayment default soars. 

Most of their low-income debtors will be too busy concentrating on personal survival to think of repaying their loans.

This is despite a show of resilience by the global microfinance sector in a new survey conducted by CGAP, an independent policy and research centre dedicated to advancing financial access for the world’s poor.

“There have been few failures among microfinance institutions since the onset of the current financial crisis. However, the more than 400 respondents to the March survey reported significantly tougher market conditions,” reads the report, released recently.

In East Africa, microfinance institutions have been pivotal in spurring growth and development for the majority of rural dwellers.

They also support a thriving small and medium scale enterprise sector that today account for about 30 per cent of the gross domestic product of countries like Kenya.

However, the full impact of the financial crisis is likely to be felt in the second half of this year.

Accordingly, many MFIs are taking steps to cope, such as taking a more conservative lending approach and in some cases, even cutting staff.

It is this burden that local and regional microfinance institutions will have to deal with as the crisis finally takes its toll on Africa, coupled with other economic situations that may hamper their survival chances in the face of the crisis.

“On the client side, we foresee a further deterioration in food consumption and loan repayment in many markets resulting from sustained high food prices and a drop in incomes,” says the survey.

While half of the MFIs participating in the survey expected loan delinquencies to improve over the next six months, this optimism was tempered by the finding that more than 60 per cent of MFIs expect to face liquidity pressures over the same period.

A majority of MFIs report that the liquidity drought is hurting, with smaller institutions suffering more acutely than their larger counterparts.

Sixty-five per cent of respondents to the CGAP survey reported declining — or at best stable — loan portfolios in the most recent six months, reflecting the impact of the credit crunch.

In addition, more than two-thirds of MFIs reported an increase in their portfolio-at-risk levels.

There are, however, strong regional differences, with MFIs in more integrated economies — particularly Europe and Central Asia and Latin America — reporting the largest impacts from the crisis.

It is expected that the same effects will befall those operating in the emerging economies like Africa in the second phase of the crisis.

The World Bank predicts that between 50 million and 90 million more people could be driven into poverty by the current global crisis.

June 05 - Mifos, Grameen Foundation’s open source management information system for microfinance institutions, has won the 2009 Duke’s Choice Award for Best Java Technology for the Open Source Community. This is the first Duke’s Choice Award for Grameen Foundation and the first-ever for a microfinance-focused technology initiative.

The Duke’s Choice Awards program recognizes the year’s most influential Java technology-based applications submitted by developers and companies from around the world. The winners are chosen by Vice President and Sun Fellow James Gosling, along with a panel of Java technology experts at Sun. Click here for the release issued by Sun Microsystems.

Mifos senior software developer Van Mittal-Henkle and Mifos contributor Sam Birney received the award from James Gosling on June 5 at the JavaOne 2009 Conference in San Francisco and also give a brief demonstration during Gosling’s keynote session. Click here to watch. 

In addition, Sam Birney was interviewed on June 4 on JavaOne Radio. Click here to listen.

CHINA, June, 16 - The global crisis sharpened China’s interest in microloans. In May 2008, the central bank and China Banking Regulatory Commission issued a directive expanding to all provinces the establishment of microcredit companies focused on rural lending and explaining the conditions for raising capital and making loans. 

Since Wang Shulian started a gypsum factory nine years ago, her brick home in the countryside of western China’s Ningxia province has filled with the fruits of relative wealth: a refrigerator, television, DVD player, telephone.

She funded her company, which makes a mineral powder used in plaster, through small loans starting at 1,000 yuan ($146) from an organization that supports rural women. Her monthly income has reached 10,000 yuan, up from zero in 2000.

While China’s 4 trillion yuan ($585 billion) stimulus plan to build roads, housing and other projects has grabbed headlines, microloans for farmers and entrepreneurs like Wang may be a more sustainable path to the rural consumption and growth officials say is key to continued expansion.

“Getting the money to trickle down” to the lowest level of the economy “is very, very important for the long-term development of China,” says Tammy Lam, who left her job as chief risk officer at Citibank (China) Co. last year to found Rural Impact Professionals, a nonprofit that fosters microcredit.

Slowing growth has pushed as many as 30 million migrant workers from cities back to their villages in search of jobs. With rural incomes averaging 4,761 yuan — less than a third of urban incomes — the government has prioritized credit to fuel growth in the countryside, where 54 percent of the population lives. China’s economy expanded 6.1 percent in the first quarter from a year earlier, the slowest pace in almost a decade.

Nobel Prize

Microfinance provides small loans of a few thousand yuan to people in poverty who can’t get regular bank funding. Such programs have encouraged rural growth in countries including Bangladesh, where Nobel Peace Prize-winning economist Muhammad Yunus established Grameen Bank in the 1980s to extend loans to the poor.

“It’s really effective,” says Wang, 58, whose success encouraged her neighbors to get loans to raise sheep, expanding their village economy beyond subsistence farming. Many families now make at least several thousand yuan a year. Without the loans, “we’d still be poor,” she says.

Her lender, Ningxia Huimin Microfinance Co., was founded in 1996 with government support and mainly provides credit to rural women organized into groups that help enforce repayment — a method Grameen Bank uses to compensate for lack of collateral. Ningxia Huimin, which is now an independent microcredit company, serves almost 4,500 households with an average loan of 4,000 yuan that’s paid back over a year. Interest rates are 10.2 percent to 12 percent — higher than traditional business loans.

Expanding Credit

For every 1,000 yuan households borrow a year from Ningxia Huimin, income increases 776.7 yuan, according to a 2007 survey of clients. It plans to almost quadruple its loans to 76 million yuan by 2012 and serve 15,000 households, with investment from companies, grants from international organizations and loans from banks, including the state-owned China Development Bank.

Farmers led China’s first stage of market reform after 1978, a golden age for rural advancement that ended in about 1993, according to professor Yasheng Huang at Massachusetts Institute of Technology in Cambridge, Massachusetts. The financial sector has since evolved into a machine that feeds large state-owned enterprises and urban households at the expense of the countryside, he says.

The global crisis sharpened China’s interest in microloans to address that problem. In May 2008, the central bank and China Banking Regulatory Commission issued a directive expanding to all provinces the establishment of microcredit companies focused on rural lending and explaining the conditions for raising capital and making loans.

Explosion in Growth

That led to an explosion from eight companies in May 2008 to 500 now, according to GTZ, the German development-aid agency, which is conducting a survey with the central bank.

The central bank did not respond to faxed questions regarding the amount of microlending in China now and the government’s target increase.

In March, the central bank and regulatory commission called on financial institutions to increase loans to rural areas and said they are developing new microfinance programs.

“The government is strengthening its work on this issue,” says Long Zhipu, who runs Ningxia Huimin. “We must seize the opportunity.”

Mao Yushi, an 80-year-old economist who established a microlending nonprofit in 1993, says migrant workers who’ve returned to their villages are good candidates for small loans. They understand how markets work because they lived in the more- commercial coastal areas, “but they don’t have money,” he says. “If you provide microfinance, you can help them to set up local businesses.”

Attracting Investors

Still, some nonprofits that carry out such work don’t know how to seek funding from banks or attract investors to what is a low-profit enterprise because of the cost of reaching scattered rural residents. Registration rules, requirements that vary by locality and a prohibition on taking deposits also limit the ability of microcredit companies to expand their scale.

Long says the government should facilitate commercial-bank loans to these companies and institute tax relief and interest- rate subsidies for them.

“Right now, the government doesn’t know how to support it, and the microcredit companies don’t know how to get support,” he says.

Wang is lucky to live in one of the areas where China’s microfinance experiment started. Her success has helped her qualify this year for a loan of 20,000 yuan which she is using to expand her business.

“I don’t have any hardships now in my life,” she says.

HELSINKI, FINLAND, June, 15 - The market of mobile financial services to poor people in emerging markets will surge from nothing to $5 billion in 2012, U.S.-based microfinance policy and research center CGAP said on Monday. 

Mobile money is one of the hottest topics in the wireless world, but so far take-up of services has been mostly limited to a few emerging markets, as in developed countries the popularity of online banking has been a brake on mobile money.

“Theres a lot of excitement, but very little understanding what’s going on as the number of implementations is still limited,” said Mark Pickens, microfinance analyst at CGAP.

The market began in early 2007 with a launch of Safaricom’s M-PESA in Kenya, which has attracted 6.5 million customers, or one in six Kenyans.

Operators in several emerging countries have followed, and by end-2009 CGAP expects more than 120 mobile money implementations in developing markets.

The new estimates are part of CGAP’s joint study with industry group GSMA on estimating the size of mobile financial markets. The study is due to be published next week at the Mobile Money Summit in Barcelona.

Pickens said on top of the $5 billion, telecoms operators could save up to $2 billion from lower customer turnover, and the takeup of financial services would lift by $1.10 their average monthly revenue per user (ARPU).

In Africa only one in five people have bank accounts, mainly because of the prohibitive cost to the banks of operating branches in far-flung parts of a continent where many of the population of one billion live on a few dollars a day or less.

But mobile phones are spreading extremely fast: to 270 million in 2007 from just 50 million in 2003, according to GSMA.

SCOPE OF SERVICES GROWING

The scope of mobile financial services in these markets has grown quickly from simple cash transfers by text message to payments for everything from a taxi ride to a utility bill.

There are about one billion people in emerging markets who have cellphones, but no bank accounts. CGAP expects that number to rise to 1.7 billion to 2012, with around one in five of them picking up mobile money — and creating the $5 billion market.

Most optimistic researchers expect more than a billion people in emerging markets to start using mobile money within a few years, while some are more cautious than CGAP.

Telecom operators are in a pole position to launch mobile financial services in most emerging countries as most banks know they cannot compete on their own and so are happy to provide the cash float for the systems in the belief that in the long-term they are opening up a channel to potential customers.

“Customers have already purchased point of sale — its in their pocket,” Pickens said, but warned investors should not expect to see returns in a few months.

Safaricom, East Africa’s biggest mobile operator, told Reuters last week the two-year-old M-PESA should generate a profit this year.

Operators such as South Africa’s MTN — the continent’s biggest operator — and Kuwait’s Zain are piling in services similar to M-PESA in a slew of countries including South Africa and Nigeria, and have pilot schemes stretching from the Middle East to Afghanistan.

AMERSFOOT,NETHERLANDS, June, 12 -  At Oikocredit, it’s essential to know exactly how fair finance affects the lives of those it serves. In the first phase of an international study covering four countries (Bulgaria, Kenya, Peru and the Philippines) Oikocredit has examined the notion of fair financing and women empowerment.

Using in-depth interviews, we asked what women empowerment means to our microfinance clients. What is it, how does it work and what does it look like? Is the concept a notion of the North? Or is it genuinely relevant to the small entrepreneurs of the South?

The empowerment and advancement of women is part of Oikocredit’s bid to closely evaluate social performance. We wish to know the real life effect of microfinance on standards of living: access to education, health and general household impact.

Oikocredit board president Shobha Arole said the study was the first step towards ensuring the organization’s contribution to women empowerment through its field work.

“A lack of access to basic education, economic and property rights means 70 per cent of the world’s poor are female,” Dr Arole said. “These are the groups who are marginalized, victims of violence and vulnerable in every sense of the word.”

With this inequality, few women have the opportunity to take their first steps out of poverty. However, Oikocredit sees the empowerment of women as fundamental in achieving sustainable development and alleviating poverty on an individual, family and community level.

Furthermore, with economic empowerment comes social empowerment. Access to credit gives women confidence, skills, respect and social status. Dutch minister for development Bert Koenders said empowerment of women is at the heart of development. “Economic empowerment and women’s rights are interdependent. Each reinforces the other,” he said. “By making use of their economic skills and qualifications, we will build a stronger foundation for long-term economic growth and contribute to greater equality between men and women. This is what I am working for. (Oikocredit is) working for the same goal.”

At the conclusion of the first phase of Oikocredit’s women empowerment study, results show no matter where you’re from, no matter what you do, the empowerment of women is a vital consequence of fair finance. In the context of microfinance, the report summarizes women empowerment as the “progress of women in their ability to make choices and become self-reliant, facilitated by the availability of microfinance”. Although the concept remains a dynamic one, it carries a universal social and economic definition.

In a time of economic doubt and uncertainty in the world, it’s imperative we answer questions on the reality of microfinance’s role in poverty alleviation and empowerment.

The results of the Women’s Empowerment study will be presented and discussed at Oikocredit’s symposium “Empowering Women – The Oikocredit Experience” on June 11 to an expected crowd of over 700 people. The results will be the basis for further case studies in coming years.

For more information please contact Juliette de Voogd, Department Corporate Communication on +31 (0)33 422 40 40 or by email communication@oikocredit.org

GUWAHATI, INDIA, June, 14 - Assam’s fledgling microfinance sector has receive a boost, with a foreign company picking up a stake in Asomi Finance Private Ltd — an institution which undertakes microfinance, income generation and development activities in the state. 

Incofin, a Belgium microfinance company, which operates in 23 countries across the globe, has picked up a 34 per cent stake (Rs 8 crore) recently in Asomi Finance Private Ltd.

The Assam company got its non-banking financial company (NBFC) licence from the Reserve Bank of India on October 30 last year.

This is the first time that the Belgium-based company has invested in the country.

Microfinance is required, as many small entrepreneurs, farmers or artisans in Assam often do not have sufficient collateral or a regular income to qualify for conventional bank loans.

With a small loan, these individuals can start or develop their own business and secure their livelihood.

They thus become more independent and contribute to building a local economy, which, in turn, creates jobs and brings stability.

“The non-banking financial company was formed to raise capital to lend to the rural poor in Assam. We have been operating through ASOMI, a non-governmental organisation, since 2002. But it was very difficult to raise capital to canalise to the rural mass through a non-governmental organisation. Hence, the company was formed to raise capital from the market and provide it to the people who want to engage in income-generating activities to enhance their living standards,” Subhra Jyoti Bharali, the chairman-cum-managing director of the AFPL, told The Telegraph today.

He said the money was required to reach two lakh families in the state.

The company has been able to help 33,000 families through finance, skill upgrades and capacity development and is working in 16 districts at present.

Bharali said the team members of the Belgium company had understood the specific characteristics of their company.

“They were very responsive in providing solutions and distance and cultural differences never seemed to matter. On the contrary, through its international network and outstanding reputation in the field of microfinance, I feel Incofin will bring a big added value.

“The capital injection by the Rural Impulse Fund of Incofin is a first step in the growth strategy of AFPL. In the coming years, further capital will be attracted, both from the existing local partner and from new partners. For Incofin, acting as sole and lead investor, this investment is an important first entry into India. This shows we have an excellent name in the world of microfinance and that we can be very responsive, even in the face of strong competition,” said Loïc De Cannière, the CEO of Incofin, in a statement.

The Belgium company has a capital base of 150 million Euros and is operating in 23 countries over the globe.

Various European banks like Fortis Bank and international fund providers like the International Finance Corporation and World Bank, are the shareholders of the company.

The company has also requested the IFC to take up equity in the company as this will have a significant demonstration effect and may help in attracting private capital to the region.

The idea is to expand to nearly four lakh people over the next five years and provide livelihood generation opportunities in the region.

Bharali said the investment was a big boost to the microfinance sector in Assam. Other institutions like IFC and Blue Orchards (Switzerland), are showing a keen interest to invest in Asomi Finance Pvt Ltd.

LONDON, UNITED KINGDOM,  May 21  -  The global financial crisis is reducing the pool of small unsecured loans for the poor, particularly in eastern Europe, just as state resources for supporting the worst-off are dwindling, an expert said.

Microfinance — which typically provides loans to small entrepreneurs whom traditional lenders consider too risky — has grown rapidly in recent years, helping lift an estimated half a billion people out of poverty.

But the credit crisis has crimped the ability of mainstream commercial lenders and some donors to fund microfinance lenders.

“The worst-hit region in terms of microfinance has been eastern Europe,” said Mary Ellen Iskenderian, chief executive of Women’s World Banking (WWB).

WWB is the world’s largest network of microfinance institutions. The majority of microfinance users are women.

The sector is closely integrated with the broader financial system in eastern Europe, and as the economy there has been hit hard it has led to lower repayment rates, shrinking deposits and a “dearth of financing available for microfinance institutions,” Iskenderian told Reuters in an interview.

A March survey by industry body the Consultative Group to Assist the Poor made similar conclusions. Three quarters of micro-lenders in eastern Europe and central Asia said borrowers, hurt by high food prices, job losses and economic contraction, were struggling to repay loans.

Europe’s emerging economies have suffered more in the crisis than western Europe and are looking to cut spending as growth and budget revenues fall.

By contrast, the microfinance sector in India has remained relatively shielded from the global crisis, partly because tiny lenders there are not allowed to borrow from external sources, Iskenderian said.

Some Latin American lenders had also managed to reduce their reliance on external funding by attracting deposits, protecting them more from the downturn.

Microfinance has proved itself as an effective tool to alleviate poverty and reduce the burden on the state, said Iskenderian, a former manager at the World Bank.

“(Microfinance) is not a charity. It’s about making a loan that a business can repay and keeping people gainfully employed by institutions that themselves are self-sustaining.”

The economic slowdown has also dented stellar repayment rates in microfinance. Repayment rates have fallen to “high 80s-low 90s” percent, from traditional levels of 97-98 percent, with the steepest fall seen in eastern Europe, Iskenderian said.

But micro-lenders tend to have delayed payments where mainstream banks would have an outright default, she added.

The sector continues to grow globally even if the pace has slowed, and Iskenderian forecasts slower growth this year and possibly in 2010. 

“My network member in Bangalore … is holding his head in his hands and is very sad that he is only going to grow by 100 percent in 2009 and has had to reduce his projections from 300 percent,” she said.