The International Fund for Agricultural Development (IFAD) is an agency of the United Nations, established during the 1970s as a response to a food crisis in Africa. IFAD’s mission is to eradicate rural poverty in developing countries by working with governments, NGOs and other partners to increase access to financial services, technology and other resources. Since its inception, IFAD has invested USD 9.8 billion in 751 programs and projects that have reached over 310 million impoverished women and men.

Chartered in 1936 by Henry and Edsel Ford, the Ford Foundation is a nonprofit organization that seeks to “strengthen democratic values, reduce poverty and injustice, promote international cooperation, [and] advance human achievement”. Toward this end, the foundation makes grants to institutions and individuals that can advance these causes. In fiscal year 2007, the foundation reported total assets of USD 13.7 billion, and had approved USD 530 million in grants.

By Ryan Benson, Research Assistant

Additional Resources:

eGOV monitor: UN Rural Development Arm helps strengthen Nigeria’s microfinance institutions

AllAfrica: Nigeria: Microfinance – IFAD Okays N3.2 Billion Loan to Country

IFAD: Home

IFAD: Rural Finance Institution Building Programme

Ford Foundation: Home

Ford Foundation: 2007 Financial Statements

“To reach one million clients fills us with pride, but it also obligates us to double our efforts,” stated CFO Fernando Alvarez Toca.

“There continues to be a large market for us to reach in Mexico and this is one of the reasons that will allow us to maintain growth in the coming years,” he added.

Compartamos continues grow in size and scope following its 2007 IPO, amid a fierce ideological debate about the existence and scale of commercial microfinance institutions. On one side, individuals like Sam Daley-Harris, director of the non-profit Microcredit Summit Campaign, accuse Compartamos of “mission drift” – claiming that the firm is losing sight of the socioeconomic goals of microfinance when it seeks to maximize investor returns. On the other hand, many argue that Compartamos’ large operational scale and commercial status have enabled it to achieve strong credit ratings, which ultimately creates more financing opportunities that allow it to serve more impoverished clientele. In addition, the sustainability of its operational scale instills confidence in the microfinance asset class from the perspective of institutional investors, a sentiment that may ultimately attract greater capital inflows into the sector. For more information on the debate surrounding Compartamos, please refer to this MicroCapital story.

Compartamos was originally founded in 1990 as a faith-based NGO. After a transitioning to commercial status in 1997, the firm steadily scaled up operations, making an Initial Public Offering on the New York and Mexican Stock Exchanges in April 2007.

As of 2007, Compartamos held total assets of USD 474.4 million, had a debt-equity ratio is 123.33 percent, and received an “AA-” in its most recent credit rating by Standard & Poor’s in October 2007. The MFI enjoyed a 33.7 percent increase in annual net income between 2006 and 2007, as reported by MicroCapital. Since its IPO in 2007, Compartamos’ market capitalization has expanded to USD 1.8 billion. A complete set of financial data on Compartamos can be found at MIX Market, a microfinance information clearinghouse.

By Ryan Benson, Research Assistant

Additional Resources:

PR Newswire: Compartamos Banco Reaches One Million Client Target

MIX Market: Banco Compartamos Profile

Banco Compartamos: Home

Microcredit Summit Campaign: Home

MicroCapital Story: New York Times Reports on Controversial Microfinance Giant Banco Compartamos of Mexico

MicroCapital Story: Banco Compartamos, Mexico’s Largest Microfinance Bank, Reports 33.7 Percent Increase in Net Income in 2007

MicroCapital Story: “Further Extracts from the Microfinance Practice Group Debate on Compartamos IPO – Malcolm Harper”

MicroCapital Story: “Further Extracts From the Microfinance Practice Group Debate on Compartamos IPO – Vineet Rai”

“We disburse credit to small borrowers to invest in different income generating activities like poultry, dairy, agriculture and small business. But they are spending a major portion of their loan to purchase rice over the last few months,” said a field officer of nonprofit microlender BRAC, one of Bangladesh’s largest MFIs.

Humayan Kabir, a senior official at a nonprofit MFI in the Mohanpur-Shataphul region, said their loan disbursement and recovery rates have fallen over the last few months due to higher food prices.

“The borrowers are most of the time spending the credit to procure rice which has been affecting the main vision of our micro-credit programmes,” he said.

Selima Akhter, a micro-credit borrower in Bangladesh’s Mohanpur Upazila of Rajshahi district, told The Financial Express, “I have borrowed [USD 102] from the BRAC to set up a small poultry farm at my home. But I have spent [USD 22] from the credit to purchase rice as I had no money to procure food before getting the loan.”

“Over the last six months we (family members) did not have regular income, which forced us to borrow money from the NGO to purchase food. We do not know how we would repay the loan,” she said.

Dr. Baqui Khalil, Executive Director of Bangladeshi think tank Institute of Micro-Finance has urged NGO microlenders to accommodate the food crisis by scrapping their traditional loan operations and introducing medium-to-long-term credit programs like ‘disaster loans’ and seasonal loans.

The 2008 world food shortage – spawned by a combination of droughts, soaring fuel prices, and increased consumer demand – has caused dramatic increases in prices of some of the world’s most basic food commodities. Developed and undeveloped countries around the world have experienced the effects. The food prices in Bangladesh have increased an average of 60 per cent since the beginning of 2007 putting the poor and lower income groups into hardships. The price of rice alone has risen 30 percent since December 2007.

The microfinance sector in Bangladesh is one of the world’s largest. As of 2005, the sector served 14.3 million borrowers, 86 percent of this was served by the four largest lenders: Grameen Bank, BRAC, ASA, and Proshika.

By Ryan Benson, Research Assistant

Additional Resources:

BRAC: Home

Symbiotics: Bangladesh – Microcredit Borrowers Spending Major Portion of Loan to Buy Food

Microfinance Gateway: Microfinance and the Poor – an overview of the sector in Bangladesh

Credit and Development Forum in Development: Bangladesh Microfinance Country Profile

Institute of Microfinance: Home

ASA: Home

The forum will be attended by major Indian development institutions, including and NABARD (National Bank for Agriculture and Rural Development) and SIDBI (Small Industries Development Bank of India). Both government agencies, NABARD manages India’s Self Help Group Bank Linkage Programme, which connects commercial banks and their lending activities with small groups of impoverished individuals seeking access to microcredit. As of March 2006, 33 million individuals have been linked to microcredit through this program. SIDBI is a state bank that aims to encourage growth of small-scale businesses through financing and development support.

Sa-Dhan, founded as the Association of Community Development Finance Institutions in 1999, is a nonprofit organization serving as an association of 196 Indian MFIs. Sa-Dhan works to improve standards, disseminate best practices and contact policy makers with the goal of improving microfinance services in India. Together, the organizations that comprise Sa-Dhan have a gross loan portfolio of RUP 150 billion (USD 3.5 billion) and a total of over 7 million borrowers. Sa-Dhan’s 2006-2007 annual report provides none of its own financial information. A list of member organizations and their financial data can be found on Mix Market.

By Ryan Benson

Additional Resources:

The Financial Express: Sa-Dhan to Market Microfinance Concept to Rurals

MIX Market: Sa-Dhan

NABARD: Home

Sidbi: Home

While the body of literature on economic-related HIV interventions is limited, the study did rely on a key conclusion from previous work: that financial dependence on men directly translates to an inability to negotiate safer sexual intercourse.

Researchers employed a randomized trial in eight rural areas across South Africa’s Limpopo province, monitoring subjects over a two year period. A total of 1750 microloans were issued through IMAGE, with an average loan amount of USD 166. The repayment rate of loans in the study was 99.7 percent.

Following the study’s results, the IMAGE program is now being scaled up to a wider range of communities in South Africa’s Limpopo province. Program officials intend to reach 15,000 households before 2010.

The IMAGE program is jointly administered by the Small Enterprise Foundation (SEF), and the Rural AIDS and Development Action Research program (RADAR). Founded in 1992, SEF is a nonprofit microfinance institution (MFI) based in South Africa’s Limpopo Province. SEF’s stated mission is to “[alleviate] poverty in a sustainable manner by enabling the poor to increase their income through microcredit and by assisting them in the accumulation of savings.” To this end, SEF employs a group-based microlending methodology patterned after Bangladesh’s Grameen Bank. At the end of its 2006 fiscal year, SEF held total assets of USD 6.59 million and a gross loan portfolio of USD 5.36 million, serving 41,000 active borrowers. According to microfinance data provider MIX Market, SEF had a debt-equity ratio of 156 percent and return on assets of -1.96 percent. Rating data on SEF is not available.

RADAR, co-administrator of IMAGE, is a collaborative research initiative between the University of Witwatersrand’s School of Public Health and the London School of Hygiene and Tropical Medicine. RADAR’s research seeks to develop clinical and social interventions to HIV/AIDs that are tailored toward impoverished individuals in rural areas. According to RADAR, the bulk of its research is founded on the premise that the HIV epidemic is rooted in biological, behavioral and social processes – reflecting complex and dynamic relationships within countries and between them. Thus, generating an effective response requires a similar diversity of strategies at the level of individuals and populations.

By Ryan Benson, Research Assistant

Additional Resources:

AIDS Map: Microfinance project reduces HIV risk in South African women, gold standard trial shows

Interagency Coalition on AIDs and Development: HIV/AIDs and Microfinance

National Institute of Health: The Intervention with Microfinance for AIDS & Gender Equity (IMAGE) – A structural intervention for HIV prevention in rural South Africa: early results from a community randomized trial.

Communication Initiative Network: IMAGE

Small Enterprise Foundation: Home

University of Witwatersrand: Home

University of Witwatersrand: RADAR

MIX Market: Small Enterprise Foundation

MedicineNet: Randomized Trial

2008 International Aids Conference: Home

MVA’s investment consists of USD 6 million in equity. Investment data on Bellwether’s and IFF’s commitments are not available.

Equitas plans to use the fresh capital to establish microlending services in untapped regions, and to augment lending services where the firm currently operates. With the latest infusion, Equitas’ total equity stands at USD 16.1 million, up from USD 3.6 million. In closing the deal, Equitas has made good on previously announced plans to raise capital from existing investors, as reported by MicroCapital in May 2008.

Equitas is a commercial microfinance institution that has enjoyed considerable growth since its inception in July 2007. In its first four months of operation, the firm opened 15 branch offices and served 25,000 predominately female clients. Currently, the firm holds the distinction of having the largest startup equity capital of RUP 135 million (USD 3 million) of any Indian MFI, and with this latest round of financing has become the fourth highest capitalized MFI in the country.

According to microfinance data provider MIX Market, as of March 2008 Equitas held total assets of USD 4.8 million, a gross loan portfolio of USD 4.2 million, and a debt-equity ratio of 66.27 percent. Data on return on assets or equity were not available. In October 2007, Indian microfinance rating agency M-CRIL gave Equitas a “4″ on a scale of 1 to 8, in which “1″ was the best possible rating.

Founded in 2005, The Bellwether Microfinance Fund is an Indian investment fund that holds a portfolio of debt and equity investments in microfinance institutions. In some cases, Bellwether supplements its investment activity with technical assistance to its MFI investments. As of December 2007, the Hyderabad-based firm held investments totaling USD 15.7 million allocated across 14 Indian MFIs. For a complete list of MicroCapital reports tracking Bellwether’s activity, please click here.

MicroVentures SPA is the parent company of MVA Ventures, which specializes in microfinance ventures via debt and equity investments. According to MIX Market, a microfinance data provider, the entity held eight active microfinance investments, totaling USD 12.4 million as of May 2008.

Indian Financial Fund does not report financial data to MIX Market or to other market research firms, and does not maintain an online presence. Prior to the Equitas deal, MicroCapital has not reported any investment activity by IFF in the microfinance sector.

By Ryan Benson, Research Assistant

Additional Resources:

Business Standard: Equitas Makes Fresh Capital Infusion

MicroCapital Story: For-Profit Equitas Microfinance to Raise $12.5m via Private Equity

Livemint: Equitas microfinance to raise $12.5m via PE

MIX Market: Equitas

Bellwether Fund: Home

Mix Market: Bellwether

M-CRIL: Home

VCCircle: Equitas Gets $12.5M Fund Infusion From Three Funds

Produced by Fitch Ratings, June 2008, 20 pages, available at: http://microfinancegateway.org/files/49914_file_Microfinance_Success_Could_Be_its_Biggest_Risk1206.pdf

This paper presents what Fitch Ratings believes to be the key risk factors of commercial microfinance. While the title of the report suggests that the paper presents risk factors directly associated with the sector’s rapid growth, the report actually includes a wide array of perceived risks that may not necessarily be a result from the sector’s success. Below are summaries of the risk factors that Fitch seems most concerned with in its report. For the complete report containing all risk factors, please click here.

Risks Associated With Transformation

Following the success of many large scale commercial lenders, many nonprofit MFIs sought to transform into commercial institutions. Fitch believes there are two risk factors associated with this legal transformation that should be heeded by microfinance practitioners.

First, Fitch asserts that a commercial MFI runs the risk of becoming too bureaucratic and as a result may not be able to retain a connection with the communities they serve, which is often seen as a key ingredient to an MFI’s success. Fitch raises an important concern here, but unfortunately does not endeavor to explain why, upon transformation, commercial lenders would be particularly more apt to suffer a “disconnect” from the communities they serve than would a bureacratic microlender of nonprofit legal status.

Fitch also believes that following transformation, nascent commercial MFIs may be more prone to “mission drift”. That is, an MFI’s search for profit increases its temptation to shift toward higher loan amounts or into higher yielding consumer loans, both of which are less costly to provide. Ultimately, Fitch is concerned that this adjustment of service may lead some commercial MFIs to serve fewer individuals in the most impoverished segment of its client base.

Reputation Risks

Fitch is particularly concerned with reputation risks of the microfinance sector. It believes that, because the majority of MFI funding comes from socially-motivated as well as financially-motivated investors, an investor’s discovery of an MFI in its portfolio performing unethically may leave them with a sense of disillusionment about microfinance as a whole. Fitch believes that this disillusionment could potentially lead to capital outflows by some investors.

Foreign Currency Risk

As an emerging market investment, currency risk should also not be ignored, says Fitch. Seventy percent of microfinance investments are made in foreign currency (usually USD), rather than the local currency where the MFI operates. Consequently, this creates currency risk for either the MFI or its clients: the MFI is at risk if its assets are in the local currency; the clients risks facing repayment problems in the event of the local currency’s devaluation.

Political Interference

Finally, the report stresses the detrimental effects of governmental interference with commercial microlending, the most damaging forms of which are interest rate ceilings and direct lending from government funds at below market rates.

It cites an example in Ecuador, where in 2007 policymakers introduced “hard caps” on effective interest rates in an effort to create fair disclosure of the full effective costs of an MFI loan (whereas the previous “soft cap” on interest rates could be circumvented by MFIs adding disbursement fees). The existence of such hard caps has the potential to stifle the growth of commercial MFIs, as they restrict the firm’s ability to charge interest rates high enough to cover relatively high operating costs and to generate sufficient capital.

By Ryan Benson, Research Assistant

CDC’s commitment to Advans takes its total investment in microfinance-related funds to USD 53.2 million since 2004. Prior to the Advans deal, CDC’s most recent microfinance investment occurred in October 2007, when MicroCapital reported that it made a USD 30 million equity commitment to American hedge fund Minlam Microfinance Offshore Fund.

Evidenced by Advans’ stated mission “to build a network of financial institutions in developing and emerging countries offering [...] standard financial services to [microenterprises]“, and its demonstrated success at attracting players like CDC (USD 4 billion in assets), Advans appears poised to join the ranks of a growing number microfinance-oriented VC and PE firms that command a large number of MFIs in which they retain both operational and equity control. Such firms include ProCredit Bank, Access Holdings and Catalyst Microfinance Investors (CMI). This is a relatively nascent approach to commercial microfinance investment; three of these institutions – Access, CMI and Advans – were established after 2005. Coincidentally, their inception followed UN-sponsored International Year Of MicroCredit 2005, an event that helped advance the notion of microfinance as a profitable enterprise and legitimate asset class.

Based in Luxembourg, Advans SA describes itself as a venture capital firm that “creates new microfinance institutions in which it invests as lead shareholder, alone or with other shareholders with similar interests and vision, guided by two bottom lines: return on investment and social development.” To date, Advans manages only three microfinance ventures, but has stated plans create 10 new MFIs and invest in existing ones as the majority shareholder over the next five years. As reported by MicroCapital, Advans’ most recent venture was the establishment of Advans Banque Congo in June 2008.

Advans was originally founded by French consulting firm Horus Development Finance, with equity backing of several development financial institutions. Along with CDC’s equity investment, current ownership of Advans includes Horus Development Finance, World Bank unit International Finance Corporation (IFC), German development bank Kreditanstalt für Wiederaufbau (KfW), European Investment Bank (EIB), French Development Agency AFD, and Dutch development bank FMO. No shareholder retains more than a 20 percent stake in Advans. For more information on Advans’ ownership, please click here.

Based in England, CDC is a private equity fund of funds that makes investments in firms holding an investment portfolio of social enterprises. CDC targets those firms that invest in Asia, Africa, and Latin America. As part of its investment policy, 50 percent of CDC’s portfolio is allocated toward investments in Sub-Saharan Africa and South Asia.

CDC operates as a government-sponsored, privately-managed enterprise. Registered as a Public Limited Company (PLC), 100 percent of CDC’s equity is owned by Britain’s Department For International Development. Evidently, CDC does not receive government funds on an annual basis; as stated on its website, “[CDC] has received no government capital for a decade.” As of December 2007, the fund held total assets of USD 4 billion, and reported return on assets of 33 percent (p. 34).

By Ryan Benson, Research Assistant

Additional Resources:

MicroCapital Story: International Finance Corporation (IFC) to Join German Development Bank Kreditanstalt für Wiederaufbau (KfW) and Venture Capital Firm Advans Group in Launching Commercial Microfinance Institution Advans Banque Congo; Will Provide up to $3.1m in Debt and Equity

MicroCapital Story: UK’s CDC Group Invests USD 30 Million in Minlam’s Microfinance Offshore Hedge Fund

Advans SA: Home

Horus Development Finance: Home

Private Equity Hub: CDC Backs Advans

CDC: Home

CDC: 2007 Financial Statements

MIX Market: Advans SA

Department for International Development: Home

“India has a vast experience in the area of microfinancing, which has contributed to the development of families belonging to low income groups. [...] We want to learn from that experience for the benefit of our people in Bahrain,” Al Balooshi said in an interview with Gulf Daily News.

Microfinance activity in Bahrain is very limited. As reported by MicroCapital, the country’s first MFI Innovation Bank commenced operations in August 2007 with USD 25.6 million in authorized capital. Innovation Bank appears to be the only registered MFI operating in the country.

By contrast, microfinance in India has witnessed dramatic growth in recent years. According to an Intellecap study, between 2003 and 2007 India’s 60 largest MFIs – which constitute 95% of all microlending – experienced a cumulative annual growth rate of over 70 percent, and an average increase in return-on-equity from 2.2 percent to 33.2 percent. As of March 2007, these MFIs served nearly 10 million clients and held a cumulative outstanding loan portfolio of USD 769 million.

By Ryan Benson, Research Assistant

Additional Resources:

MIX Market: Country Profile for India

Thaindian: Bahrain to seek India’s help in micro-finance sector

NABARD: Home

Microfinance Gateway: Microfinance In India – A State Of The Sector Report

Microfinance Gateway: A Primer on Microfinance in India

UNDP: Microfinance Assessment Report: Bahrain

MicroCapital Story: The Gulf’s First of its Kind Microfinance Institution, Innovation Bank, Launches in Bahrain

FMFI will commence operations with USD 8.7 million in total assets. It is not clear from available information if the institution will operate as a commercial or nonprofit microlender, however, founding nonprofit AKDN will retain 99.9 percent equity stake, which may suggest a nonprofit operation.

FMFI received its license shortly after a November 2007 revision to Syria’s financial regulatory framework that allows for the creation of microfinance institutions. Under “Law No. 15″, MFIs will be supervised by the Central Bank of Syria, the same entity which regulates mainstream commercial banks. While microlending activity had existed prior to the revision, it was limited in scope and conducted only via a small group of international aid organizations including UNDP, Firdos and UNWEA. The new regulations that enable microlending to occur via registered MFIs may not only foster the growth of such institutions, it may also grant the sector a sense of legitimacy needed to attract private investment toward future commercial MFIs.

FMFI’s founding organization, Aga Khan Agency for Microfinance (AKAM), has rapidly expanded its operations in the past year, establishing and retaining control of multiple microfinance institutions in countries previously devoid of any microfinance activity. In April 2008, it was reported that AKAM established the first microfinance institution in Ivory Coast. In March, MicroCapital published a report that AKAM brought Pakistan its first provider of microinsurance. Last May, MicroCapital reported AKAM assisted Indian banking giant Development Credit Bank Partners with the launch of a microfinance business unit.

Founded in 1957 by prominent Shia Muslim imam Aga Khan, AKDN is a group of affiliated nonprofit organizations “with mandates ranging from health and education to architecture, culture, microfinance, rural development, disaster reduction, the promotion of private-sector enterprise and the revitalization of historic cities”, according to ADKN’s website. AKDN’s microfinance arm, nonprofit AKAM, was founded in February 2005 and focuses on microfinance investment as well as microfinance institution building. In the MFIs that it creates, AKAM often retains majority ownership or operational control. According to its unaudited 2006 Annual Report, AKAM held USD 114.3 million in total assets (p.55), and had a debt-equity ratio of 102.62 percent (calculated). The aggregated loan portfolio of MFIs it has created or operates totaled USD 68.9 million (p.12).

For a complete profile of AKDN, please see MicroCapital’s “Who’s Who in Microfinance” feature on this organization.

By Ryan Benson, Research Assistant

Additional Resources:

MicroCapital Story: WHO’S WHO IN MICROFINANCE: Aga Khan Development Network (AKDN), Switzerland

MicroCapital Story: First Dedicated Microinsurance Agency in Pakistan Launched with $483k Investment from Aga Khan Agency for Microfinance (AKAM)

Press Release: Netherlands Development Finance Company (FMO) Enters Afghani Microfinance Arena With Loan of $9m in Local Currency to First MicroFinanceBank Afghanistan

News Wire: Aga Khan Network to Open Microfinance Institution in Côte d’Ivoire

MicroCapital Story: India’s Development Credit Bank (DCB)Partners with the Aga Khan Development Network’s (AKDN) Aga Khan Agency for Microfinance (AKAM)

Syria Today: Syria’s first microfinance institution is preparing to launch this summer and aims to provide a range of financial services to small businesses and individuals.

Mix Market: AKAM

Central Bank of Syria: Home

ADKN: Home

CGAP: Policy and Regulatory Framework for Microfinance in Syria January 2008