In the news wake of Mr. Yunus’ Nobel Peace Prize, the accepted meaning of the word “microfinance” has been transformed. The popular columnist Ron Lieber of the Wall Street Journal (subscription only) recently capped this development when he named the new internet firm Prosper.com as a microfinance player.

The term “microfinance” has been in play for some time as we reported in May when covering PlaNet Finance and ACCION International, two rich country non-profits that buck tradition by micro-lending both at home and internationally in poor economies.

Mr. Lieber focuses his article on technology. And for good reason, it is technology which has fundamentally changed the meaning of microfinance.

Two websites, Prosper.com and Kiva.org, which have both received ample press, are offered as ways “to be a micro-lender” either for a profit or to get your investment principle back while doing the right thing. Mr. Lieber is right that “peer to peer” micro-lending for a profit on-line will revolutionize microfinance. The reason is the cost structure of micro-lending.

To better understand this phenomenon, let’s look at the traditional microfinance model: in Boston, money is cheap and labor expensive whereas the opposite is true in Bangladesh. This fact makes microfinance a wildly interesting business in Bangladesh, whereas, in Boston, inversely, it mandated government and philanthropic subsidies. Prosper signals a change to this regime.

Prosper leaps the hurdle on one hand by “externalizing” labor costs using do-it-yourself, person-to-person, on-line micro-lending. On the other hand, the cost of capital is lowered because the middle-man is removed. Prosper is an auction marketplace working in the United States, supported by credit profiling and virtual self-help groups. Prosper’s borrower pool consists of individuals with the broad range of credit ratings (A through D paper). In this way, the same system serves people alike who have the option to lend from a bank and those that do not, thus reaching the traditional customers of microfinance.

So, Prosper serves poor people in Boston, but could it serve the customers of the Grameen Bank in Bangladesh? For now, those customers are not going to “do it yourself”, and will depend on micro-banks to secure financing. (For this very reason, Kiva.org, who works in emerging economies, partners with micro-banks, who in turn manage the customer inter-face on the micro-borrower side.) Therefore, while pure “peer-to-peer” micro-lending for the global poor world will not happened tomorrow, we will start to see micro-banks selling interest in their loans to individuals whether directly or, more likely, through a third party like Kiva or Prosper.

Hats off, then, to Mr. Lieber for finally cracking the term “microfinance” wide open by so labeling Prosper. We regret, however, that he let his tidy technology theme badly advise his readers about how to donate money to microfinance. He mentions three organizations which are well respected to be sure, but are not leaders in non-profit microfinance (DonorsChoose, ModestNeeds and GlobalGiving). These organizations are leaders in using technology to improve efficiency and transparency when donating to grass-roots projects. This is important work; the point is not to criticize these worthy organizations because Mr. Lieber over did his provocative and welcome essay. The point is simply that a donation is a donation whether made over the internet or a jar of coins dropped off at your local school. Please Mr. Lieber, if you are going to tell Wall Street Journal readers about charitable options in microfinance, then it is most responsible to start at the top of the list.

The fact remains that delivering good financial services to the global poor at a good price requires deep institutional expertise and infrastructure. Bangladesh does not have a Prosper (yet). The top microfinance charities delivering on their mission should not be overlooked in the name of slick writing, especially in a business publication like the Wall Street Journal dedicated to rational allocation of resources. Nonetheless, Mr. Lieber’s essay is brilliant because it demonstrates exactly how technology transforms what we mean by “microfinance” and the probable evolution of the same.

In a press release, recently formed company Access Holding AG, announced that prominent microfinance investors, KfW, the European Investment Bank (EIB), the International Finance Corporation (IFC) and the Omidyar-Tufts Microfinance fund have each 19.2% of the company’s equity. The founding company LFS Financial Systems GmBH together with its employee investment company, MicroAssets, hold the remaining 23.2% equity.

The press release informs, “Access Holding’s strategic objective is to build up a network of commercial microfinance banks, with common principles and under a common management.” The IFC investment summary says, “Over time, AccessHolding aims to transform into a controlling parent company of a global network of microfinance banks with a common brand identity”.

This proclaimed strategy seems to be very similar to what ProCredit Holding has been executing to considerable attention from the capital markets. Procredit Holding AG, has, over the past decade or so, with the aid of funding from multilateral institutions, scaled up into a network of nineteen microbanks with a USD 2.3 billion loan portfolio spread across 670,000 loans of which 95 percent are USD 12,500 or smaller. ProCredit microbanks are spread across Eastern Europe, Latin America, and Africa. Recently, ProCredit was in the news as TIAA-CREF, one of the largest pension funds in the United States purchased USD 43 million of preference equity in the company.

Continue reading “European Microfinance Company Access Holding AG Announces Intent to Go the ProCredit Way. Various Development Banks and Omidyar Tufts Microfinance Fund Purchase Equity in the Newly Founded Company.”

Several deals involving the XacBank, a Mongolian microfinance institution (MFI), were reported in the latest addition of the CGAP-MIX MCM Newsletter. Two of the transactions, one in which shares in the MFI were sold to the Triodos-Doen Foundation and the Triodos Fair Share Fund and another involving a loan from the European Bank for Reconstruction and Development (EBRD), have already been covered by MicroCapital (see additional resources below). The third deal was a 4-year USD4 million loan from the Global Commercial Microfinance Consortium (GCMC).

Continue reading “Global Commercial Microfinance Consortium Delivers Loan to Mongolian Microfinance Institution XacBank”

The CGAP-MIX MCM Newsletter reported recently that the Microfinance Bank of Azerbaijan (MFBA) recently received a USD2 million loan from the Triodos-Doen Foundation and the Triodos Fair Share Fund. This was the second loan to the microfinance bank by Triodos-Doen, after its loan of USD1.5 million in August 2005, (page 17) which carried an interest rate of LIBOR +5%. There is no other available information on the terms of the latest loan.

Continue reading “Dutch Triodos-Doen and Triodos Fair Share Fund Loan USD2 Million to Microfinance Bank of Azerbaijan”

The Philippines government launched a new microfinance institution called First Micro-Finance Bank with funding from the Catholic Church. According to a news release, its organizational structure and lending policies are modeled on the Grameen Bank.

Continue reading “Philippines Government and Catholic Church Launch $350,000 Microfinance Insitution”

The CGAP-MCM Newsletter recently reported that FINCA International LLC, Russia (ZAO FINCA) received a USD2 million loan from the reponsAbility Global Microfinance Fund. The investment in FINCA Russia was the fund’s first transaction in Russian rubles and currently composes 2.5% of the funds portfolio. Previously, the fund has also invested in two other Russian microfinance institutions (MFIs), the Russian Women’s Microfinance Network (RWMN) and FORA.

Continue reading “Swiss reponsAbility Global Microfinance Fund Loans USD1 Million Russian Microfinance Institution, ZAO FINCA”

Another deal coming to us this month courtesy of the CGAP-MIX Capital Markets MCM Newsletter, Uganda Microfinance Limited (UML) recently received a $240,000 line of credit from Incofin. UML was established in 1997 as a commercial microfinance institution by a local Ugandan and an American citizen. According to year end 2005 data from Microfinance Information eXchange (MIX), it has 31,145 clients who have taken out loans totaling $11.3 million. In addition, it has total assets worth $16.5 million, return on assets of 4%, and a debt to equity ratio of 295%.

Continue reading “Uganda Microfinance Limited Recipient of $240,000 Credit Line from Incofin”

Another deal coming to us this month courtesy of the CGAP-MIX MCM Newsletter, the Fundación para Alternativas de Desarrollo (FADES) of Bolivia received a $500,000 loan from the responsAbility Global Microfinance Fund.
Continue reading “FADES of Bolivia Receives $500,000 Loan from the ResponsAbility Global Microfinance Fund.”

News coming to us courtesy of the CGAP-MIX MCM Capital Markets Newsletter, Planters Bank received a $2 million loan from ShoreCap International. Planters Bank is a private development bank founded in 1961 in Manila, Philippines. According to its website, its products are targeted specifically to small and medium enterprises. As of year end 2005, it had outstanding loans of $440 million and assets worth $740 million. In addition, its debt to equity ratio was 218% and net income was $6.9 million.

Continue reading “The Philippines’ Planters Bank Gets $2 Million Loan From Microfinance Investor ShoreCap International”

Published by the International Relations and Security Network, October 5, 2006, 4 pages, view here: http://www.isn.ethz.ch/news/sw/details.cfm?ID=16752

In the article, “Capturing Remittances in Central America”, author Sam Logan presents a short exposition about the role microfinance may play in channeling worker remittances into the formal financial sector. This is the second in a three-part series presented by the International Relations and Security Network’s (ISN) publication, Security Watch, on the impact of microfinance programs in the region containing the Andes, Central America, and the US-Mexico border area of northern Mexico.

Continue reading “Capturing Remittances in Central America by Sam Logan”

News coming to us courtesy of the CGAP-MIX MCM Newsletter, Pragathi Mutually Aided Cooperative Credit and Marketing Federation Ltd, a India based Non Governmental Organization received a 6yr USD 654,600 loan from Oikocredit.

Continue reading “Oikocredit grants 6yr USD 654,600 Loan to Indian Microfinance Organization Pragathi Mutually Aided Cooperative Credit and Marketing Federation Ltd”

As reported by the CGAP-MIX MCM Newsletter, FINCA Kosovo has recently received a USD400,000 loan from the responAsibility Global Microfinance Fund. This marks the fund’s second investment in Kosovo’s microfinance sector- the first being an investment in Agency for Finance in Kosovo (AFK), which alone composed .37% of the net asset value of the fund’s portfolio.

Continue reading “responsAsibility Global Microfinance Fund Loans FINCA Kosovo USD400,000″

Another deal coming to us this month courtesy of the CGAP-MIX Capital Markets MCM Newsletter, the Kenya Women Finance Trust (KWFT) received a $600,000 line of credit from Incofin. KWFT is a microfinance institution based in Nairobi, Kenya, and was founded in 1982. It provides loans to women by forming groups of borrowers, or Kiwas, which promote loan repayment. According to year end 2005 data from the Microfinance Information eXchange (MIX), KWFT has 62,790 borrowers and a total loan portfolio of $20.1 million. In addition, it has assets of $33.1 million, debt to equity at 211% and return on assets of 3.61%.

Continue reading “Microfinance Institution Kenya Women Finance Trust Receives $600,000 Line of Credit from Incofin”

Another deal coming to us this month courtesy of the CGAP-MIX MCM Newsletter, the Asociación Fondo Nicaraguense Para el Desarollo Comunitario, better known as Prestanic, Nicaragua, received a $400,000 loan from the responsAbility Global Microfinance Fund.
Continue reading “Prestanic of Nicaragua Receives $400,000 Loan from the ResponsAbility Global Microfinance Fund.”

Since the Baath Party government fell in 2003, Iraq’s economy has been in turmoil. One of the key problems that has plagued the country in recent years is unemployment resulting from the change in government as well as the near-civil war conditions raging on the ground.

One of the ways in which outsiders, including international NGOs and the US government, have tried to help the recovery and fix the problem of high unemployment is by assisting in the creation of local microfinance institutions. Prior to the US invasion, no microfinance activity existed in Iraq, outside of local moneylenders and rotating credit organizations. The large state-owned banks required collateral for loans, thereby excluding 95% of Iraqis from the financial system. In 2003, the Coalition Provisional Authority (CPA) provided a $10 million grant to the development of microfinance programs. This money was managed by ACDI/VOCA, a Washington-based NGO which provides technical assistance to microfinance institutions (MFIs). According to the United Nations Capital development Fund (UNCDF), the majority of the funds were used up by March 2004. By May, the CPA allocated another $10 million to developing microfinance and in the south of the country. There is very little public information as to how this money was disbursed.

Continue reading “Iraq’s Microfinance Sector: A Survey”

News coming to us courtesy of the CGAP-MIX MCM Newsletter, Adarsha Welfare Society, an Indian Non Governmental Organization received a 6yr USD436,400 loan from Oikocredit.
Continue reading “Oikocredit Grants 6 Year USD 436,400 Loan to Indian Microfinance NGO Adarsha Welfare Society”

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”

Another deal coming to us this month courtesy of the CGAP-MIX Capital Markets MCM Newsletter, the Dakahlya Businessmen’s Association for Community Development (DBACD) received a $2.5 million loan from BNP Paribas, thanks to a $2 million guarantee from the Grameen-Jameel Initiative. Egypt-based DBACD is a non-profit microfinance provider that began in 1995. It has individual and group microloan programs targeted at families that earn less than $4 per day. At July 2006, according to the Microfinance Information eXchange (MIX), DBACD had 63,288 clients and a loan portfolio worth $9.7 million. Debt-to-equity was 64.6%, while assets stood at $18.4 million and had a return of 4.9%.
Continue reading “Egyptian Microfinance Institution DBACD Extended $2.5 Million Loan from BNP Paribas; $2 Million Guaranteed by Grameen-Jameel Initiative”