MEET THE BOSS: Interview with Robert Annibale, Global Director of Citi Microfinance (Part Two of a Two Part Series)

Bob Annibale is Global Director of Citi Microfinance. He leads the bank’s commercial relationships with microfinance institutions, on a multi-business and product basis, providing financing and product partnerships to institutions that serve the poor and the unbanked.

He joined Citibank in 1982. After a first assignment in Greece, he held a number of senior treasury, risk and corporate positions at Citi in Athens, Bahrain, Kenya, London and New York.  Mr. Annibale completed his BA degrees in History and Political Science at Vassar College and his Masters Degree in African Studies (History) at the University of London, School of Oriental and African Studies.

Mr. Annibale served on the Board of Advisors for the United Nations High Level Commission on Legal Empowerment of the Poor. He represents Citi on the Board of the Microfinance Information Exchange, on the Council of Microfinance Equity Funds and with the Microfinance Network. He also serves on a number of other external boards and councils.

Robert Annibale, Global Director of Citi Microfinance

MicroCapital:  You had recently been mentioned by the WSJ that more microfinance institutions (MFIs) will begin to seek banking licenses to broaden their sources of funding due to the lack of liquidity caused by the financial crisis; thus, creating a situation in which MFIs need diversified funding and that deposits are one source that MFIs should draw from.  Furthermore, as debt and credit markets have slowed down during the financial crisis, these sources of funding have been more difficult to obtain, which has not been the case with deposits.  You cite 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.

How do you foresee the MFIs and the microfinance landscape to look like in the next 5-10 years?

Bob Annibale: I come from a treasury background and I think it is important for all financial institutions to have a diversified funding source.  Clearly deposits are one of the most important products for both MFI clients and for institutions themselves.  Some MFI strategies are more liability driven than asset driven, such as Equity Bank (Kenya) or SEWA (India).  I anticipate that there will be an increased effort by MFIs and a number of regulators to increase the number of institutions that can accept deposits.  We have seen some very progressive banking laws introduced, in Pakistan for instance, and others under review by regulators that create a specific category of licensed microfinance banks. In some cases, as with Equity Bank, Pro Credit, Banco Compartamos or Banco Sol, these institutions have full commercial banking licenses.

Domestic banking and capital markets are also an important source for stable funding.  Foreign exchange hedged internationally sourced funds can be another source of often long tenor financing, and thankfully more microfinance investment funds are lending in local currency and the need to hedge foreign exchange risk is increasingly appreciated.  We expect that more MFIs will be seeking to transform into deposit taking institutions, both to serve their clients’ savings product needs, and to support their asset growth.  There aren’t that many markets where you can reach scale by just being wholesale funded institution.

We are presently observing a wider range of local commercial banks that are expanding their strategies and reaching much more deeply, to new previously underserved clients, than they have for some years. This is an important trend, however we refer to MFIs, as a wide range of financial institutions, whether NGOs or banks, which primarily provide financial services to poor, low income and the underserved clients. I think more institutions will eventually also serve some of those clients, including banks and I hope that they learn from the experiences and values of the MFI sector.   The landscape for providing services will widen.  This is being supported by institutions, such as the Bill and Melinda Gates Foundation, that focus on the expansion of access to savings products and services by MFIs, but also by postal savings banks, cajas, cooperatives and credit unions, while stressing the need to ensure that new participants and products are appropriately structured for serving such first time clients.

MC:  Some believe that microfinance will become part of a larger sector of emerging market financial services and an increased linkage with the mainstream economy; developing into full service microfinance banks for the emerging markets sector with the anti-cyclical nature of microfinance potentially disappearing.  Do you believe that to be the case?  Please elaborate.

Bob Annibale: I think it varies so much.  If you look at some of the markets where microfinance operates a vast majority of the population doesn’t have access to a bank account, often more than 70 percent. Amongst that diverse population there are a whole range of people and needs; people who are salaried, self-employed, urban or rural based, men and women, old and young, etc.  It will take a range of diverse financial institutions to serve and provide choice to the majority who are currently underserved or unbanked.

That leadership and the need for the microfinance sector certainly won’t diminish, as it has unique experiences, values and models for serving the poor and it has been both innovative and successful, often also providing other services, such as education and health.  However, there is also a broadening of some MFIs strategies in terms of the clients, models and products that they provide. Microfinance has taken the lead in serving the unbanked and underserved, but a very large segment of the population in most countries still need to be reached and it will take a spectrum of institutions to achieve financial inclusion for the majority.

I don’t believe that microfinance is anti-cyclical with regard to global market trends, as some claim, but it increasingly correlates with domestic markets in many countries. Overall, the financial sector in most emerging markets was much more prepared for this global markets crisis than in the past, as most countries had real interest rates, floating exchange rates, deficits and inflation at historic lows and most central banks had higher levels of reserves.

MC: At the Global Microfinance Investment Congress last week, you were part of a panel that discussed how investors and MFIs can successfully manage key financial risks in today’s markets?  Can you provide detail as to what those key financial risks are and how one can successfully manage these risks?  Also, what is your perspective on the performance of microfinance investment vehicles/funds (MIVs) in the next couple of years?

Bob Annibale:   We discussed the Banana Skins report on risks in microfinance that Citi and CGAP sponsored, in which a wide range of respondents indicated that the greatest risks they perceived for the sector were credit, liquidity and re-financing risks.  These perceived risks were similar to the results of a report on the banking industry in 2008.  Another risk discussed included the quality of management, as this is key in terms of a firm’s ability to respond to unanticipated events and to support the very rapid growth in portfolios of some MFIs.

Where we have seen the biggest challenges in the last two years probably had less to do with the global markets than with an institution’s or local market’s specific characteristics. Morocco is an example where rapid growth by a number of MFIs and over lending has occurred in the absence of a credit bureau, leading to a rapid decline in growth and significant deterioration in their portfolios.  In Bosnia you have a multiplicity of institutions in a small and restrictive regulatory environment, as MFIs are not licensed to accept deposits. In Nicaragua you have specific country events that have led to a debt moratorium by many borrowers and the politicization of the sector.

Thus, you look at a couple of the markets that are having the hardest time and it is not necessarily because of global market events, but some patterns in terms of how fast the microfinance sector grew in that market and what were the tools in place (credit bureaus, financial education) to ensure that growth occurred at an appropriate pace for the institutions and their clients.

The MIV sector is doing well overall.  It is interesting that this is a moment when some of them have or are discussing loan loss provisions, which appears appropriate.  There are certainly more restructurings going on in MIV portfolios than in the past and there are a couple of countries where MIVs have been active that are specifically challenging.  The biggest MIVs continue to seek portfolio diversity and they are increasingly trying to diversify the countries and institutions that they reach.

MC: In general, can you explain the process involved in selecting the most sustainable businesses in which to invest?

Bob Annibale: Citi Microfinance has not focused on becoming an equity investor in MFIs or managing MIVs, but we are serving MFIs to provide funding, capital and debt structuring solutions, hedging and cash management innovations that lead to efficiencies and savings, and we seek to partner to develop remittance, insurance, savings products. Citi Microfinance works with a wide range of sustainable microfinance institutions, in 40 countries, which have clarity in their mission and objectives, transparency in their financials and operations, strong management and boards that provide the leadership and governance necessary to expand and address challenges.

By Zoran Stanisljevic

Part one of our interview can be viewed here: https://www.microcapital.org/meet-the-boss-interview-with-robert-annibale-global-director-of-citi-microfinance-part-one-of-a-two-part-series/

 

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