Matthew Swibel of the Forbes outlines the methodology of the rating and summarizes the results in Microfinance Fever. MIX Market, the microfinance information clearinghouse, compiled the list following the direction from the Forbes. MIX used its 2006 data and analysis from rating firms Micro-Credit Ratings International Limited and MicroRate. Six variables are considered: gross loan portfolio, operating expense, operating expenses divided by the average number of active borrowers as a percentage of gross national income per capita, the outstanding balance of loans overdue by more than 30 days as a percent of gross loan portfolio, return on assets and return on equity. There were four categories with equal weight for scoring: scale, efficiency, portfolio risk, and profitability. The combined average score of these categories determined the ranking of the institution. The analysis considered only those MFIs that have had audited financial statements for 2006, or for 2005 with the intention of providing 2006 results when available. The resulting pool comprises of 641 MFIs. The ranking attempts to measure financial performance, not the social benefits of the institutions.

The Top 50 MFIs are as follow:

1. ASA (Bangladesh)
2. Bandhan (Society and NBFC) (India)
3. Banco de Nordeste (Brazil)
4. Fundación Mundial de la Mujer Bucaramanga (Colombia)
5. FONDEP Micro-Crédit (Morocco)
6. Amhara Credit and Savings Institution (Ethiopia)
7. Banco Compartamos, S.A., Institución de Banca Múltiple (Mexico)
8. Association Al Amana for the Promotion of Micro-Enterprises Morocco (Morocco)
9. Fundación Mundo Mujer Popayán (Colombia)
10. Fundación WWB Colombia – Cali (Colombia)
11. Consumer Credit Union ‘Economic Partnership’ (Russia)
12. Fondation Banque Populaire pour le Micro-Credit (Morocco)
13. Microcredit Foundation of India (India)
14. EKI (Bosnia and Herzegovina)
15. Saadhana Microfin Society (India)
16. Jagorani Chakra Foundation (Bangladesh)
17. Grameen Bank (Bangladesh)
18. Partner (Bosnia and Herzegovina)
19. Grameen Koota (India)
20. Caja Municipal de Ahorro y Crédito de Cusco (Peru)
21. Bangladesh Rural Advancement Committee (Bangladesh)
22. AgroInvest (Serbia)
23. Caja Municipal de Ahorro y Crédito de Trujillo (Peru)
24. MIKRODIN Banja Luka (Bosnia and Herzegovina)
25. Khan Bank (Agricultural Bank of Mongolia LLP) (Mongolia)
26. INECO Bank (Armenia)
27. Fondation Zakoura (Morocco)
28. Dakahlya Businessmen’s Association for Community Development (Egypt)
29. Asmitha Microfin Ltd. (India)
30. Credi Fe Desarrollo Microempresarial S.A. (Ecuador)
31. Dedebit Credit and Savings Institution (Ethiopia)
32. MI-BOSPO Tuzia (Bosnia and Herzegovina)
33. Fundacion Para La Promocion y el Desarrollo (Nicaragua)
34. Kashf Foundation (Pakistan)
35. Shakti Foundation for Disadvantaged Women (Bangladesh)
36. enda inter-arabe (Tunisia)
37. Kazakhstan Loan Fund (Kazakhstan)
38. Integrated Development Foundation (Baghladesh)
39. Microcredit Organization Sunrise (Bosnia and Herzegovina)
40. FINCA – ECU (Ecuador)
41. Caja Municipal de Ahorro y Crédito de Arequipa (Peru)
42. Crédito con Educación Rural (Bolivia)
43. BESA Fund (Albania)
44. SKS Microfinance Private Limited (India)
45. Development and Employment Fund (Jordan)
46. Programas para la Mujer – Peru (Peru)
47. Kreditimi Rural i Kosoves LLC (formerly Rural Finance Project of Kosovo) (Kosovo)
48. BURO, formerly BURO Tangali (Bangladesh)
49. Opportunity Bank A.D. Podgorica (Serbia)
50. Sanasa Development Bank (Sri Lanka)

In addition to the ranking of MFIs, the feature includes three articles from industry experts on the latest trend of private sector investment in the industry.

In Profit and Poverty: Why It Matters, Michael Chu, a senior lecturer at Harvard Business School, explains why the entry of private capital into the microfinance industry and ensuing pursuit of profits by MFIs are crucial for the industry as an answer to the concern about motives of private microfinance investors. Chu identifies scale, permanence, continuous efficacy, and continuous efficiency as four basic conditions of successful poverty intervention. Chu asserts that microfinance will be able to deliver the four conditions when private capital participates and an industry arises as the result. Such birth of an industry requires economic activities and above-average returns. According to Chu, competition inherent in such industry will ensure that the growth of the industry benefits not only the investors, but also the clients of MFIs.

In The Changing Face of Microfinance Funding, Elizabeth Littlefield, CEO of the <a href=”http://www.cgap.org”>Consultative Group to Assist the Poor</a> and a director at the <a href=”http://www.worldbank.org”>World Bank</a>, asserts that traditional public agencies, such as development and international aid organizations, still play a critical role in microfinance despite the fast growth of private sector participation. They are the ones to support early-stage microfinance for the very poor before the market becomes mature enough to yield profit and to attract private investment. They also provide emerging financial institutions with subsidies, training and technical assistance. Additionally, assisting governments in creating laws and regulations to structure the market and protect the clients has long been a key role of public agencies like the World Bank. Littlefield concludes by reminding that microfinance should ultimately fund itself principally through local deposits and cooperation of private and public sector players is necessary to achieve the feat.

In Let Me In!, Ian Callaghan, the head of the Microfinance Institutions Group at <a href=”http://www.morganstanley.com”>Morgan Stanley</a>, observes why opportunities to own microfinance stakes are so scarce, making investing in microfinance so popular. Firstly, not enough information is currently available about channels through which to invest in MFIs. Secondly, there is almost no liquidity in microfinance investments. Motives of shareholders and investors and form of the ownerships of the MFIs vary across the industry, which complicates trade of microfinance stakes. Moreover, most MFIs start as nonprofit outfit seeded from donated funds and later convert to for-profit structure. As a result, it is often hard to value the assets of MFIs. For all these reasons, investing in MFIs in the current market asks for more prudence and proficiency of the market than traditional financial investment does.

Additional Resources:
Forbes: The World’s Top 50 Microfinance Institutions

KB, the largest licensed microfinance institution in Pakistan, was established in 2000 as a part of Pakistani government’s Poverty Reduction Strategy and Microfinance Sector Development Program that was developed with the assistance of Asian Development Bank. According to MIX market, the microfinance information clearinghouse, KB reported total assets of over USD 112 million and gross loan portfolios of over USD 35 million at the end of 2006. In 2006, it marked Return On Assets of –3.29 percent and Return On Equity of –12.26 percent. KB is rated as the region’s fastest growing; it has shown 1.25 percent average annual growth in total assets since 2003. KB operates across all provinces of Pakistan including Azad Jammu and Kashmir, servicing 85 districts through 73 branches and 12 district service centers.ShoreBank, a US-based community development and environmental bank, reported over USD 2.1 billion in assets at the end of 2006.

The SBI, the consulting arm of ShoreBank Corporation, provides consulting and research services to financial institutions and governments around the globe to create easier access to capital for underserved clients and generate economic wealth in target markets. Gregory Chen is the Chief of Party for the USAID-funded WHAM project and represents ShoreBank Internatoinal in Pakistan.

SBI and USAID launched WHAM in May of 2005. The goal of WHAM is to improve overall effectiveness of the microfinance industry in Pakistan, and to provide financial services to the “missing middle” that seeks loans of amount from USD 500 to USD 30,000. The traditional microfinance threshold is at USD 500 and the traditional commercial financial sector provides loans above USD 30,000. WHAM seeks to downscale commercial banks and upscale microfinance loans to cover the missing middle, while strengthening the overall microfinance industry. The program will facilitate more than 40,000 loans by 2008.

USAID has provided nearly USD 7 billion to support Pakistan’s developmental efforts since 1951. In July of 2002, USAID resumed aid to Pakistan after 7-year-long hiatus due to US-imposed nuclear non-proliferation sanctions. The new aid focuses on the areas of economic growth, education, health, governance, and earthquake reconstruction. In the area of economic growth, USAID has implemented several initiatives to strengthen the microfinance industry. It is working with KB to provide microfinance service to communities in Balochistan, Sindh, and the Federally Administered Tribal Areas (FATA) since September of 2003 for projected span of 7 years; the Pakistan Poverty Alleviation Fund (PPAF) is also implementing a project similar to WHAM in Punjab and Sindh since September of 2003.

Additional Resources:

International The News: “Khushhali Bank to Develop Human Resource Capacity”

SBI: “WHAM”

USAID: “Partnership For Economic Growth”

IHG is one of the leading hotel companies of the world with most number of rooms in the industry. IHG reported the annual revenue of USD 4.4 billion in 2006.

CATIE is an international institution founded in 1973 through an agreement between Inter-American Institute for Agricultural Sciences and the Costa Rican government. It aims to contribute to the rural poverty reduction by promoting competitive and sustainable agriculture and natural resources management and through research and higher education. CATIE’s 2006 executed budget exceeded USD 18 million, 68% percent of which accounts for project and productive activities funds. CATIE has 14 member countries from Central and South America. The headerquarter of CATIE is in Turrialba, Costa Rica.

Additional Resources:

IHG: IHG Creates Unique Partnership to Alleviate Poverty and Protect the Environment

IHG: Company Profile

CATIE: Institution Profile

The opening bid of the Alliance is ‘as a rule of thumb the costs of a micro-loan should not exceed a third of the loan amount in real monetary terms’, which puts focus on the cost prices and pricing levels of the micro-loans. The discussion on the inappropriate repossession through undue or illegal pressure on the clients, and untrue information that gives the clients false impression of loans, both of which are important problematic symptoms of current microfinance industry, will follow. Through the accumulation of debates, the Alliance hopes to induce a preliminary ethical certification package for the members of the microfinance industry.

The discussion will take place at the fairmicrofinance Yahoo group. The Alliance does not have a formal membership, but registration at the web site of the Alliance is necessary for participation in the discussion at the Yahoo group. The discussion will be open for a set period of time, after which the summary and concluding remarks will be posted on the web site of the Alliance. The subject will be open to additional comments after the discussion period is over.

The Alliance recognizes various reasons for the deficiency of ethical standards in the microfinance industry. First is the history of the industry; in the past, microfinance has been predominantly carried out by non-profit organizations and supported by non-profit investors and donors who usually treated customers / clients relatively fairly, some times even too leniently. Formulation of proper ethical standard is easy to be neglected in such setting. However, as the industry grows rapidly, the want and need to attract private capital at scale calls for profitability in addition to sustainability, and unfair practices that seek profits arise. Efforts to regulate microfinance practices often meet criticisms that argue for laissez-faire principle and natural growth of the industry.

The initiators of the Alliance are experts from all continents; they are Herman Abels of the Netherlands, the Managing Consultant of the Blue Rhino Consult BV, Maria Sara Jijon Calderon of Ecuador, a legal counsel with specialty in banking and financial matters, Malcolm Harper of the United Kingdom, a long-time microfinance practitioner who now serves as the Chairman of Micro-Credit Ratings Internatonal Limited, Jonathan Lewis of the United States, Chief Executive Officer of Micro Credit Enterprises, Henry Oketch of Kenya, and N. Srinavan of India.