In a recent Economic Times editorial, Philip Vassiliou, managing director of Legatum Capital, an international investment firm, argues that, “to reach its full potential, the microfinance sector must embrace free market principles of competitive pricing and commercial incentives.” He also believes that “modifying these incentives, however noble the intention, will only damage the natural development of the sector.” His comments come at a time of fierce debate over the benefits of commercial microfinance. Continue Reading »

Muhammad Yunus, the microfinance pioneer and winner of the Nobel Prize for founding the Grameen Bank, spoke out against the growing trend of commercial microfinance. In an interview with CNNMoney.Com, Yunus chastised those involved with for-profit microfinance by saying that “poor people should not be considered an opportunity to make yourself rich.” These remarks come at the start of the Asia-Pacific Regional Microcredit Summit 2008 in Bali Indonesia. Continue Reading »

In the rural Indian village of Jaltara, the village council is extending microfinance loans to villagers by issuing Gram Sabha (village council) Credit Cards (GSCCs). As part of the government-sponsored Madhya Pradesh Rural Livelihoods Project, the council issues the GSCCs, which serve as loans from the village treasury, instead of distributing money. The size of each loan, which must be repaid in six months, and the repayment schedule are decided in the council meetings. Continue Reading »

Pakistan’s PPAF (Pakistan Poverty Alleviation Fund), a government program to support poverty alleviation, recently launched PRISM (Programme for Increasing Sustainable Microfinance). PRISM’s main objective is to assist Pakistani microfinance institutions that largely rely on donor funding in forging new partnerships with commercial funders. The program’s establishment represents an acknowledgement by policy makers that Pakistan’s microfinance institutions have proven themselves to be commercially viable enterprises and worthy targets of commercial investment in lieu of grant support. The PRISM program has an operating budget of USD $45 million, and involves partnerships with 72 organizations working in 33,000 villages. In addition to government support, PRISM was financed by a USD 35 million loan from IFAD (International Fund for Agricultural Development). Continue Reading »

Rwandan Prosecutor General, Martin Ngoga announced that fifteen former microfinance institution managers had been arrested over a period of four days for defrauding depositor money after a year-long investigation following a government shut-down of 8 bankrupt microfinance institutions in June 2006. Continue Reading »

The Inter-American Development Bank (IDB) will subsidize USD 405,000 of a Standard & Poor’s (S&P) project to develop a globally accepted rating system of microfinance institutions (MFIs). S&P is a rating service and a division of McGraw-Hill Companies. The actual funding will be by the Multilateral Investment Fund (MIF), a fund administered by the IDB to encourage private sector development of micro-enterprise in Latin America and the Caribbean (LAC).

The stated goal and rationale of this project is to increase capital flow to micro-banks. However, with MIF’s public money subsidizing a company with over USD 1 billion in annual profits, such justification is thin. Top micro-banks do not suffer from too little investment, but rather there is now far too much money chasing too few micro-banks.  Has the IDB gotten it exactly wrong? Continue Reading »

The authors assert that, “Private moneylending and subsidised microfinance can complement each other at certain levels of subsidy.” Continue Reading »

Bernd Balkenhol of the International Labour Office and Jonathan Morduch of New York University discuss “The bottom line for microfinance”:

“Muhammad Yunus had a small and beautiful idea, an idea that was celebrated globally by the Nobel Peace Prize in 2006. Yunus showed that poor households in his native Bangladesh could be reliable bank customers, and, with that, he promised a new way to open opportunities for the excluded and to attack entrenched poverty. Small loans, he argued, could nourish the tiny, capital-starved businesses of the poor and create lasting improvements in living conditions. But he had more than an idea: “microfinance” became the foundation of Grameen Bank, a financial institution that today serves over 7 million customers. Other pioneers in Latin America, Africa and elsewhere in Asia have made microfinance a global phenomenon. Continue Reading »

Source: Financial Times. Continue Reading »

MICROFINANCE DIALOGUE: THE NEXT DECADE

NOVEMBER 2, 2007 - MEDFORD, MASSACHUSETTS, USA

Quite a few top thinkers in the industry will be on hand at the Fletcher School to state their positions and engage in discussion with the audience. Topics are to include:

Microfinance and the Capital Markets – Who Benefits?

What is the impact of commercial financing on microfinance? Who benefits - customers, investors, the local economy or the public at large? What is an appropriate role for policy in mediating microfinance, if any?

Microfinance and Soft Money – What Is It’s Best Use?

Continue Reading »

The annual G8 summit, an international forum attended by the world’s leading economic powers, will include addresses from the CEO of Equity Bank, a Kenyan financial institution offering microfinance services to its clients.

Mr. Mwangi’s keynote address is entitled, Contributions of Micro-credits to Overcoming the Spell of Poverty Also in Africa. It will be followed by a roundtable discussion on eradicating poverty; a goal G8 countries are under pressure to achieve. His focus will be on increasing the accessibility of financial services to the low-income population, who are currently neglected from the sector.

Continue reading “MICROCAPITAL STORY: Equity Bank Chief Executive Officer Mwangi to Address Microfinance at G8 summit”

By Julie Abrams and Damian von Stauffenberg, sponsored by Calmeadow, 24 pages. This paper discusses the relationship between government-owned development institutions (called International Financial Institutions or IFIs in the paper), who concentrate their lending on the strongest microfinance institutions (MFIs), and the private lenders, who are left only smaller, riskier MFIs. The authors contend that the IFIs are crowding out the small private institutions from lending to the “best MFIs,” in contrast to their public claim of taking the risks the private sector is unwilling to take.

Continue reading “Paper Wrap Up: Role Reversal: Are Public Development Institutions Crowding Out Private Microfinance Institutions?”

The German government, according to the, Financial Times, will propose an African microcredit fund during the upcoming “G8” rich country club in June. Even though the article provides precious few facts and figures, it is still probably safe to assume this is bad news.

Government “foreign aid” has a very ugly past. Why are we to think it will be any different this time?

Microfinance is not magical. It can be undone like any other well intended plan by hamstring policies and screwy politics.

The Financial Times leads us to believe that this proposal is Berlin’s bold response to taunts that tight-fisted Germans do not give enough foreign aid. If this is true, then microfinance has earned the dubious honor of being a chip at the richest table.

The Bolivian microfinance world is in turmoil because Prodem, the country’s #3 microbank, was sold to a Venezuelan government bank. The sale has provoked anxiety that micro-financial services will be used to generate political support for the Chavez administration, thus undermining the Bolivian microfinance market as micro-borrowers smell politics and stop paying their loans. Or, worse, that Mr. Chavez will undercut other Bolivian micro-banks by charging artificially low interest rates subsidized by Venezuela’s wealth in oil. Such a scenario would have broader impact on the microfinance industry as a whole because Bolivia is arguably the second most important market in the world after Bangladesh.

M.M.M. Aheeyar, research associate at Hector Kobbekaduwa Agrarian Research and Training Institute, Colombo, Sri Lanka, recently concluded research on the impact of cash grants on the microfinance market in areas of Sri Lanka affected by the tsunamis of 2004. Mr. Aheeyar writes, “There were reports of uncoordinated and poorly targeted cash grants. Some areas attracted a large number of NGOs and aid agencies, resulting in more cash and in-kind assistance than was required. According to the MFIs, this had a negative impact on repayment cultures and on the honesty of beneficiaries. There is insufficient evidence to prove that excessive cash grants affected the repayment of culture of beneficiaries. In any case, the problem lies not with the concept of cash assistance, but with a lack of coordination and improper targeting in its delivery” (15).
Continue reading “Researcher Examines the Effects of Cash Grants on Microfinance in Tsunami-Affected Sri Lanka”

In a parliamentary meeting recently, Microfinance State Minister Salim Saleh voiced concern over donations to microfinance institutions. According to him, donors have been giving heavily to Uganda’s microfinance sector. But rather than increasing access to capital for the poor, “the donors have invested at the policy level as well as seminars and workshops”. He concluded by stating that donors should spark economic growth in the country, but not control it.

Continue reading “Uganda’s Microfinance State Minister Says “No” to Donations”

The Gates Foundation has made an unrestricted grant to the Grameen Foundation as a show of support for the latter’s strategic plan. On June 1, 2006, MicroCapital reported on the Gates Foundation $1.46 million donation to nonprofit microfinance network Unitus. Earlier in March, it also reported on Bill Gates’ focus on microfinance investing. And in January, ACCION International received a $5.8 million grant from the Gates Foundation to develop partnerships with microfinance institutions in West Africa and India. The Gates Foundation gave $8.7 million in microfinance grants in 2005 (see MicroCapital Blog’s December 14, 2005 and December 1, 2005 articles). The recipients of these grants were Opportunity International, FINCA International, and California-based Freedom From Hunger.

Continue reading “The Grameen Foundation Receives $1.5 Million Grant from the Gates Foundation for Strategic Plan”

A relatively new organization, Kiva.org, has been receiving a lot of press lately for its distinctive approach to microcredit (including The Wall Street Journal, BusinessWeek, BBC News, NPR and The Village Voice). Kiva offers the general public the unique opportunity to back a micro-business by underwriting a loan via Kiva’s website. Pictures and payment updates posted by Kiva’s partner micro-banks in countries around the world make the process compelling and fun.

Continue reading “Kiva.org Gets the Press It Deserves for Microcredit Investment”