Category: Trends/Challenges

MICROCAPITAL.ORG PAPER WRAP-UP: Microfinance Mission Drift?, by Roy Mersland and R. Øystein Strøm

Written by Roy Mersland and R. Øystein Strøm, published in July 2009 by Elsevier Ltd., 9 pages, available at:

This paper studies the tendency of microfinance institutions (MFIs), as they grow, to cater to groups that are different from those in the “mission” of microfinance. Basically, this mission includes serving low-income people who have less access to credit, namely poor, rural women. To do this, loan size, the main market, lending methodology, and gender bias were studied in 379 MFIs in 74 counties. The MFIs reported 4-6 years of data each. Continue reading


MICROCAPITAL.ORG STORY: The International Banking Systems Online Journal Comments On How Key Stakeholders Influence Purchasing Decisions Of Microfinance Institutions In Relation To Information Systems And Includes Observations By Grameen Foundation, CGAP And The Bill And Melinda Gates Foundation

The International Banking Systems publication (IBS), an online journal that provides information on banking systems and operations, have produced a detailed supplement on the role of technological systems in microfinance [1]. An article within the supplement entitled ‘Analysis: Microfinance Stakeholders – Guiding hands’ [2] explores how major stakeholders shape the market for microfinance information systems (MIS). The thrust of the article is that there is an important difference between the microfinance and commercial banking sectors when it comes to information systems and that MFIs depend heavily on key stakeholders such as the Bill and Melinda Gates Foundation [3], CGAP [4], the IFC [5] and GTZ [6] for guidance and direction in making technology decisions. The conclusion arrived at is that ‘directly or indirectly, it is these stakeholders that influence purchasing decisions by MFIs, on the business case for investment, the process of selection, and which products to choose’ in respect of MIS. Continue reading


MICROCAPITAL.ORG STORY: International Banking Systems Online Journal Publishes Supplement On The Role of Technology In Microfinance And Highlights Importance Of Risk Management Systems

The International Banking Systems publication (IBS), an online journal that provides information on banking systems and operations, have produced a detailed supplement on the role of technological systems in microfinance [1]. An article within the supplement entitled ‘Technology for Microfinance – Trends driving the technology’ [2], the authors discuss the growing importance of risk management systems in MFIs. These systems are significant as they allow MFIs to address critical issues such as over-indebtedness, a problem which has become acute for some MFIs in the current financial turmoil, and report to their investors promptly. Continue reading


MICROCAPITAL.ORG STORY: Wharton Business School Online Portal Acknowledges The Need For Innovation In The Microinsurance Sector And Highlights The Existing Barriers To A Wider Acceptance Of Microinsurance Products Based On Observations By UK-Based Microinsurance Research Centre, Munich Re Foundation And The ILO’s Microinsurance Innovation Facility

  A recent article on the ‘Knowledge@Wharton’ online portal entitled ‘Microinsurance: A safety net with too many holes’ [1] contains a detailed discussion of existing challenges facing the microinsurance market. The article notes that there has been some recent innovation in the microinsurance sector, a market that has experienced relatively slow growth compared to the microfinance sector in general. The authors note that innovation is to be welcomed and a Bangladeshi pilot microinsurance programme is cited as an example. Continue reading


MICROCAPITAL.ORG STORY: CGAP Microfinance Blog Supports Efforts Of MFTransparency To Promote Transparent Pricing And Enhance Consumer Protection In The Microfinance Industry

In a recent posting entitled ‘More transparency, please!’ on the CGAP Microfinance Blog [1] by Mr Christoph Kneiding, a Market Intelligence Officer for CGAP, attention is drawn to the important issue of transparent pricing for microlending products. Whilst jurisdictions such as the United States have legislation such as the Truth in Lending Act of 1968 which obliges lenders to disclose the annual percentage rate (APR) to prospective borrowers for all products, many countries – particularly those with a significant MFI community – do not have a regulatory framework under which transparent loan pricing can be effectively supervised and enforced. Continue reading


MICROFINANCE PAPER WRAP-UP: Competition and Wide Outreach of Microfinance Institutions by Hisako Kai

Written by Hisako Kai of Kobe University published September 9, 2009 as Munich Personal RePEc Archive (MPRA), Paper Number 17143, 12 pages, available at

Hisako Kai describes how most MFIs that aim for socioeconomic improvements, which are termed ‘socially-motivated’ MFIs, gear their efforts towards expanding their levels of outreach, both in terms of providing to the poorest of the poor (‘wide outreach’) and maximizing their number of clients (‘length outreach’). Attaining wide levels of outreach requires MFIs to utilize external subsidies and cross-subsidies, where gains from more profitable clients are used to subsidize loans to unprofitable borrowers. The assumptions made are that poorer clients tend to have higher default rates, while the relatively more wealthy clients receive larger loans and are thus more profitable to MFIs. Continue reading


MICROCAPITAL.ORG STORY: CGAP Blog Explains High Collection Rates And Clarifies Key Microfinance Concepts Including Loan-Loss Rates and Outstanding Loan Portfolio

In a recent blog entry entitled ‘Is 95% a good collection rate?’ [1] CGAP Senior Advisor Mr Richard Rosenberg discusses the misconceptions about collection rates in the microfinance world. His blog has attracted significant comment and queries, some of which are referred to below. According to Mr Rosenberg, MFIs that report collection rates of over 90 percent or 95 percent in some cases are typically viewed positively by the press and by other market participants. He cautions that the situation may not be as promising or straightforward as it sounds and that ‘for most MFIs a collection rate of 95 percent would be unsustainable’. One should not equate a 95 percent collection rate with ‘losing just 5 percent of [our] portfolio a year to loan default’ as the reality is often more complicated. In an extreme scenario, he adds that ‘if an MFI makes 3-month loans repayable weekly, and collects 95 cents of every dollar it lends, it will lose almost 40 percent of its loan portfolio in a year’. This is a scenario he explains in some detail in his blog and is summarised below. Continue reading


MICROCAPITAL.ORG STORY: Citi Microfinance Executive, Robert Annibale, Says Financial Crisis Will Spur Microfinance to Move Toward a Banking Model

The Wall Street Journal Online has reported on the comments of Robert Annibale, global director of Citi Microfinance, the arm of the financial services company dedicated to fostering microfinance through funding and support [1,2]. Mr. Annibale believes that more microfinance institutions (MIFs) will begin to “seek banking licenses to broaden their sources of funding” [1]. He sees the lack of liquidity caused by the financial crisis as creating a situation in which MFIs need “diversified funding” and that deposits are one source that MFIs should draw from. In Mr. Annibale’s opinion, deposits have more stable sources of funding in the financial crisis than “selling debt on the capital markets or loans from public and private sector banks” [1]. As debt and credit markets have slowed down during the financial crisis, these sources of funding have been more difficult to obtain, which Mr. Annibale says has not been the case with deposits [1]. He cites the trajectories of MFIs such as Peru’s MiBanco and Mexico’s Banco Compartamos SA, “which started as non-government organizations and later became banks in order to offer a wider range of products” as being indicative of a greater trend to come in microfinance [1,3,4,5,6]. Continue reading


MICROCAPITAL PAPER WRAP-UP: Financial Infrastructure: Building Access Through Transparent and Stable Financial Systems by the World Bank

By International Finance Corporation, published by World Bank, September 2009, 31 pages, available at:…

The International Finance Corporation has recently published a report on payments and securities settlement systems, remittances, credit reporting and secured transactions and collateral registries, with recommendation for reform to create greater efficiency and reliability for the system, while reducing costs and increasing access to financial services.

The report notes that financial infrastructure touches at least every 5th person in emerging markets. While credit bureaus cover 390 million people with remittances of over 700 million and payment systems at 1 billion, the IFC belives that a new more efficient financial infrastructure allows for cost reduction of up to 75 percent or more in transactions costs for credit evaluations, collateralizing loans, remittances and payments. Improvements in financial infrastructure have the potential to enable access to financial services for half the population in emerging markets in the next 10 years. Continue reading


MICROCAPITAL PAPER WRAP-UP: Microfinance Investment Vehicle (MIV) Performance and Prospects: Highlights from the CGAP 2009 MIV Benchmark Survey by CGAP

By CGAP, published by CGAP, September 2009, 6 pages, available at:

Consultative Group to Assist the Poor (CGAP) has recently published a Benchmark Survey which illustrated that while MIVs grew by 31 percent in 2008, overall MIV performance may deteriorate in 2009 as increased credit risks persist. The survey also revealed MIVs efforts to include environment, social and governance considerations in their investment policies, due diligence, and monitoring.

The survey represents 103 MIVs (90 percent of total MIV assets within the MIV investment universe) with an estimated USD 6.6 billion in assets under management. Growth in MIV assets were supported by both public and private investors as retail investors continued to invest in MIVs as well. Continue reading


MICROCAPITAL.ORG STORY: Introduction Of Microfinance Scheme In Northern Malaysian State Of Penang – To Help The Poor Or Gain Political Mileage?

In a recent report entitled ‘Microcredit boon for Penang’s poor’ in Malaysia’s ‘Sun2Surf’ online publication [1] , Penang-based freelance journalist Mr Himanshu Bhatt discusses the recent introduction of a ‘microcredit aid’ scheme in Penang. Penang is a state in the North of Western Peninsula Malaysia. Sun2Surf is the web companion to Malaysia’s widely read ‘The Sun’ newspaper. Dubbed the ‘People’s equality bridging project’, the microcredit scheme was announced last month as a joint effort between the Penang Development Corporation (PDC) [2] and Universiti Sains Malaysia [3]. The PDC is a semi-governmental organisation focused on the socio-economic development of residents in the Penang state. University Sains Malaysia is a Penang-based tertiary  institution that focuses on scientific education. The report by Mr Bhatt refers to the benefits of the scheme but highlights the use of the scheme by opposition politicians in the country to gain political mileage. Continue reading


MICROCAPITAL.ORG STORY: Exclusive Interview On The Current State Of Microfinance In Malaysia And Challenges Facing The Sector: Observations From The Assistant Governor Of Bank Negara Malaysia

In a recent Microcapital.Org exclusive written interview with the Malaysian central bank, Bank Negara Malaysia [1], the Assistant Governor Mr Muhammad bin Ibrahim provided the following responses to a series of questions about the current state of microfinance in Malaysia and challenges facing the sector. Previous Microcapital.Org stories on microfinance in Malaysia have been set out in the Bibliography section below [2] – [5]. Continue reading