Category: Trends/Challenges

MICROCAPITAL.ORG STORY: CGAP Microfinance Blog Comments On Case Studies On The Liquidation Of Microfinance Institutions And Highlights Challenges Associated With Retaining Borrower Repayment Incentives In The Midst Of A Deteriorating Loan Portfolio

In a blog on the CGAP Microfinance Blog portal entitled ‘When MFIs fail, is their loan portfolio worth anything?’ [1], Senior Advisor to Research and Market Intelligence Team at CGAP, Mr Richard Rosenberg refers to Mr Daniel Rozas’s publication entitled ‘Throwing in the Towel: Lessons from MFI Liquidations’ [2]and makes some observations about the steps an MFI should take to maximise collections on a deteriorating loan portfolio. Mr Rosenberg notes that Mr Rozas’ article offers a ‘useful, timely, concise, and readable study of a half-dozen MFI failures, focusing on efforts by creditors and others to collect the loan portfolio of the defunct institutions’ but cautions that some of Mr Rozas’ recommendations may be difficult to implement in practice. Continue reading

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MICROCAPITAL.ORG STORY: Founder And Officer Of India-Based SKS Microfinance Comment On Prospects For Microfinance In China In A Wall Street Journal Report

A recent article entitled ‘Microfinancing China’ in the Wall Street Journal [1] by Mr Vikram Akula and Mr Tarun Khanna discuss the scope for microfinance in China and explores why the concept of microcredit has a ‘notably minimal footprint’ in a mammoth economy such as China. Mr. Akula is founder and chairperson of India-based MFI, SKS Microfinance [2]. Mr. Khanna, the author of the book ‘Billions of Entrepreneurs’ [3] is Jorge Paulo Lemann Professor at Harvard Business School and serves on SKS Microfinance’s board of directors. The view taken by Mr Akula and Mr Khanna is that ‘it will take hard work and reform to grow microfinance in China’ but that millions of poor people in the world’s third largest economy could derive benefits from microloans. Continue reading

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MICROCAPITAL.ORG STORY: Former Founding Member Of Amanah Ihktiar Malaysia And Current Professor At Universiti Sains Malaysia Professor Sukor Kasim Appointed As Government Adviser To Northern Malaysian State Of Perak to Help Address Problems Related To Poverty And Income Disparity

It was recently report in in Malaysia’s Bernama press portal [1] that Professor Sukor Kasim of Universiti Sains Malaysia’s (USM) [2], a tertiary educational institution in Malaysia, will be appointed adviser and consultant to the Perak state government in its bid to narrow income disparities in the state. Perak is a state in the northern half of Western Peninsula Malaysia. Professor Kasim was co-founder of Malaysia’s earliest microfinance NGO, Amanah Ihktiar Malaysia (AIM) [3] in 1986. AIM’s operations were modelled after Grameen Bank [4]. Continue reading

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MICROCAPITAL.ORG STORY: Kiva.org Partners with Moody’s to Receive Credit Ratings, Risk Management Tools, and Financial Support

According to a recent press release by Marketwire, Kiva.org, known as the first person-to-person online microfinancing website, plans to partner with Moody’s Corporation to provide pro bono credit ratings of partner microfinance institutions (MFIs), risk management training for staff, and financial support to expand its partnership with MFIs. [1] Continue reading

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MICROCAPITAL.ORG PAPER WRAP-UP: Acute Poverty Alleviation Through Women’s Targeting by Micro nance Programs, by Alexandra Dobra

Written by Alexandra Dobra, published in March 2009 by the Munich Personal RePEc Archive, 8 pages, available at: http://mpra.ub.uni-muenchen.de/16874/1/MPRA_paper_16874.pdf

This paper, by Alexandra Dobra of the University of York Department of Politics, is a literature review that attempts to address the merits of female-targeted microfinance [1]. In addition to microfinance, Ms. Dobra has also done research on immigration in developed countries [1,2]. The paper is published by the Munich Personal RePEc Archive, an archive that houses economics papers for authors who want their work to be freely available [3]. Continue reading

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MICROCAPITAL.ORG STORY: Peru Ranks First in 2009 Microscope Microfinance Index, A Global Index on Business Environment for Microfinance Developed by the Economist Intelligence Unit (EIU), Released by the Inter-American Development Bank (IDB), the Corporación Andina de Fomento (CAF), the International Finance Corporation (IFC), and the EIU

Peru has been named the best country for microfinance in terms of business climate by the 2009 Microscope microfinance ranking from the Economist Intelligence Unit (EIU), the research arm of the Economist Magazine that provides “country, industry and management analysis” [1,2,3]. The 2009 Microscope was published jointly by the Inter-American Development Bank (IDB), the “main source of multilateral financing” in Latin America and the Caribbean, the Corporación Andina de Fomento (CAF) the primary source of multilateral financing in the Andean region, the International Finance Corporation (IFC), the investment arm of the World Bank, and the EIU [4,5,6]. Last year, Peru was named the best country for microfinance in Latin America and the Caribbean. This was covered by Microcapital in October of 2008 [7,8,9]. This year, the rankings were made globally and Peru still topped the list of 55 countries [1]. Continue reading

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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: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6VC6-4WRD6C7-1&_user=142623&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1032771517&_rerunOrigin=scholar.google&_acct=C000000333&_version=1&_urlVersion=0&_userid=142623&md5=93709e08c2d88cfca1ce951dff7c457d

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

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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

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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

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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

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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

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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 http://mpra.ub.uni-muenchen.de/17143/

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

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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

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