Published by World Bank and the Microfinance Network, August 2006, 566 pages, purchase here: http://publications.worldbank.org/ecommerce/catalog/product?item_id=5646933

The World Bank and the MicroFinance Network recently published a new book on microfinance in August 2006. Transforming Microfinance Institutions: Providing Full Financial Services to the Poor by Joana Ledgerwood and Victoria White is a 566 page how-to manual for credit-focused microfinance organizations interested in becoming regulated deposit-taking financial intermediaries.

Continue reading “Transforming Microfinance Institutions: Providing Full Financial Services to the Poor by Joanna Ledgerwood and Victoria White”

Nigerian Bank åö Intercontinental Bank Plc has acquired CITI Savings and Loans Ltd, a microfinance institution (MFI) and transformed it into a bank. The bank will be known as Intercontinental Bank Ghana Ltd, Ghana’s 25^th bank. The bank has announced its intent to use this institution to expand microfinance operations in Ghana.

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In a broad reaching agreement, Microfinance Institutions (MFIs) operating in Andhra Pradesh, India have reached an agreement with the state government on MFI interest rates, product portfolio, inter-MFI competition, credit disbursement and loan recovery methodologies. An agreement pertaining to a smaller jurisdiction åö the Krishna district of Andhra Pradesh was earlier reported on MicroCapital.

As per the terms of the agreement, MFIs have agreed to an interest rate ceiling of 15%. They have agreed to desist from providing multiple credit to an existing borrower and recover loans at a pace compatible with the borrower’s income level. MFIs are also to remain strictly within the micro-credit domain, avoiding micro-insurance products.

Continue reading “Microfinance Institutions Reach Crucial Agreement with Government in Andhra Pradesh, India”

Bangladesh’s Microcredit Regulatory Authority (MRA) recently announced that all MFIs in Bangladesh now have to apply for special microfinance licenses. The applications will be available November 1^st of this year and the institutions will have until February 26, 2007 to file them. The application fee will be $7.50, while the fee for the license, which is expected to be the primary cost of the policy, will be decided on a later time. According to the agency’s director, Dr. Salehuddin Ahmed, ““The MRA will examine the source of funds, ownership, internal governance and the real financial position of the NGOs before giving the license.”

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India’s largest Life Insurance Company, the Life Insurance Corporation of India (LIC) has quickly followed through on recent announcements of MicroInsurance plans with the launch of a microinsurance life product åö ‘Jeevan Madhur’ (roughly translates to ‘sweet life’).

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The Center for the Development of Social Finance (CDSF) is launching a project for the development of securitization style static pool analysis to the portfolio of Microfinance Institutions (MFIs). This project has received funding support from the Omidyar Network and Taylor Jordan Donor Advised Fund of the RSF Global Community Fund.

Static pool analysis involves the performance tracking of a pool of investments with similar risk-return profiles, typically loans that have similar vintages and underwriting criteria. Thus static pool analysis shows a financial institution’s true return on a pool by keeping it static. This allows the disaggregation of the overall loan portfolio into loan pools whose returns can be more accurately predicted and priced.

Continue reading “Micro-banks Sought to Participate in Pilot Study to Foster Securitization of Microloan Portfolios”

ICICI bank has reached an agreement with the provincial government of Andhra Pradesh, India to cap interest rates at 15% and charge a diminishing interest rate on the loans disbursed through microfinance institutions (MFIs) in the Krishna district of the state. The revised interest rates will be charged retrospectively from April 2006. As per the terms of the agreement, the bank will also open an MFI desk and 10 rural centers in Krishna district to offer loans directly to customers. The bank will also explore the possibility of opening additional branches in other districts. The state government, in turn, has lifted the ban on MFIs loan collections at the agreed upon interest rates.

Earlier this year, the government of Andhra Pradesh, an Indian state where microcredit has witnessed rapid growth, had accused MFIs of usurious lending practices and unethical collection methods. Multiple suicides over MFI harassment were reported from five districts were reported with Krishna district being the most affected region. The government specifically charged the following MFIs åö Spandana, Asmita, Umduma Poddu Pedatha and Share Microfin of extortionate practices and subsequently, the Krishna district administration enforced temporary closure of 50 branches of these MFIs, seizure and destruction of loan records and encouraged non-payment of loans.

Continue reading “Indian Bank åö ICICI Reaches Arrangement with Provincial Government on Micro-Loan Interest Rates”

Life Insurance Corporation, New India Assurance, United India Insurance, and Oriental Insurance will begin offering microinsurance. All four insurers will use microfinance and nongovernmental organizations to act as agents for their services. SEWA and SKS MicroFinance are notable among the forty institutions that have met with the insurers.

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Banks in India have begun to enter the microfinance lending market, and many are partnering with regional microfinance institutions. Increasingly, loans as small as $100 are being made by mainstream Indian banks such as ICICI, HDFC, and UTI, and often contain unconventional covenants typical of microfinance transactions.
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Market research agency Consumer Insight discovered that 60% of Kenyan borrowers last year did not rely on commercial banks and instead chose alternate lenders such as Savings and Cooperative Credit Associations (SACCOs). The agency also states “almost 50% of the upper social economic classes do not have a bank account” and “72% of average Kenyan families earn less than 32,000 shillings (USD $440) per month.”

Continue reading “Market Research by Consumer Insight Reveals Kenyans Prefer Savings and Cooperative Credit Associations (SACCOs) Over Commercial Banks”

When the National Resistance Movement convened its Parliamentary Caucus meeting on August 7 to discuss the future of microfinance in Uganda, President Yoweri Museveni made it clear to his party that no government money should go to microfinance institutions (MFIs) with “high interest rates.” He also ordered ministers from the Finance Ministry to investigate interest rates charged by MFIs while taking into account the loan recipients, their businesses, and the effect on the national economy. He did make sure to stipulate that microfinance loans should be repaid since many loan recipients under a former government start-up capital scheme mistook the money received as a gift. The government has only recovered 358 million (USD $193 thousand) out of 9.433 billion shillings (USD $5.1 million) in loans handed out under the “Entandikwa” scheme.

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Tyler Cowen, in his August 10 article for The New York Times, examined the success of microfinance in helping the poor through the MIT-supported Poverty Action Lab’s research on Spandana, an Indian microfinance institution. Mr. Cowen concluded that “microfinance is working, but it is often more corporate, more commercial and under more attack than I had expected.” Excerpts from “Microloans May Work, but There Is Dispute in India Over Who Will Make Them” are below:

Continue reading “Another Day to Remember: The New York Times Recognizes the Challenges of For-Profit Microfinance”

In his inaugural speech this month, Colombia’s President Alvaro Uribe outlined plans to create a new microcredit bank. Capitalized with 120 billion Colombian pesos (equivalent to $50 million) from the state-owned bank, Bancafe, the new Banco de las Oportunidades will focus on low-income groups and microlending. President Uribe promised that this will create credit opportunities for more than six million low-income Colombians.

Continue reading “Can a State-owned Microfinance Institution Succeed? A Look at Colombia’s New Banco de las Oportunidades”

A seminar on “Bank-NGO/MFI Partnership: Today and Tomorrow” was held in Dhaka, Bangladesh on July 26. Credit and Development Forum (CDF), Federation of NGOs in Bangladesh, and International Network of Alternative Financial Insitutions jointly organized the seminar. The consensus emerging from the discussion moderated by CDF Chairman Dr. Atiur Rahman was that nationalized commercial banks (NCBs) must engage in poverty reduction through the microfinance sector. Participants believed that alliances between banks and non-governmental organizations or microfinance institutions would encourage risk-averse NCBs to lend to small and urban entrepreneurs, in keeping with the Government of Bangladesh’s Poverty Reduction Strategy Papers.

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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.

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MicroCapital recently reported on Aavishkaar India Micro Venture Capital Fund’s support of businesses which need start-up capital greater than those provided by microfinance institutions (MFIs) but smaller than those provided by venture capitalists. Agora Partnerships carries this mission beyond India with its operations in Nicaragua. It seeks to fill this gap between $25,000 and $200,000, making it a vanguard in the micro venture field.

Continue reading “Another Micro Venture Capital Fund Seeks to Fill the Gap between Microfinance and Venture Capital: Agora Partnerships Funds Entrepreneurs in Nicaragua”

According to The Tufts Daily, the Board of Trustees of the Omidyar-Tufts Microfinance Fund has taken initial steps to outline an investment plan for the $100 million gift donated to Tufts University from eBay founder Pierre Omidyar and his wife Pam, who also co-founded the Omidyar Network. The endowment, originally made in November 2005, is intended exclusively for microfinance initiatives. The Board plans to diversify the fund through both direct and indirect microfinance investments in multiple countries, utilizing a variety of currencies and investment-fund managers.

Continue reading “Update on Omidyar-Tufts Microfinance Fund: Ensuring Sound Microfinance Investment”

In a paper published by Asian Development Bank (ADB), Nimal A. Fernando offers an explanation into why microcredit interest rates are so high, and what should, and should not be done to address this. The paper, entitled Understanding and Dealing with High Interest Rates on Microcredit, is addressed toward Asian Policymakers who have become increasingly critical of the high interest rates being charged by microfinance institutions (MFIs).

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