by the MicroCapital Team -

Dutch Triodos Fair Share Fund Lends $1.25 Million to Peruvian Microfinance Institutions EDPYME EDYFICAR and EDPYME Crear Arequipa S.A.

Peruvian microfinance institutions (MFIs) EDPYME EDYFICAR and EDPYME Crear Arequipa S.A. received $750,000 and $500,000 loans respectively from the Triodos Fair Share Fund.

The Triodos Fair Share private fund—launched by the Netherlands’ Triodos Bank to invest in MFIs that are at least two years old—had an å¥8.2 million portfolio at the end of 2004. MIX Market states that the fund’s loans range from $200,000 to 1 million for a period no more than 5 years, and that there are “usually no formal guarantees.” Interest rates on the loans to MFIs “must be sufficient to cover potential devaluation against the Euro plus to cover costs of 8%.”

With total assets of approximately $50.36 million, EDPYME EDYFICAR provides loans to microentrepreneurs on an individual and group basis while EDPYME Crear Arequipa S.A., with assets totaling approximately $12.52 million, only offers individual loans. In 1997, CARE Peru transformed into EDPYME EDYFICAR. The MFI’s loan portfolio grew from $3.835 million in 1998 to $47.2 million in January 2005. Founded by NGO Habitat Arequipa Siglo XXI in 1992, EDPYME Crear Arequipa’s loan portfolio increased from $1.31 million in 1998 to $10.578 million as of January 2005. EDYPME Crear’s loans range from $100 to $10,000 with “terms between 6 and 24 months.”

Additional Resources

1) Consultative Group to Assist the Poor (CGAP): “Microfinance Capital Markets Update” is the best source for monthly updates on debt and equity deals in microfinance.
2) “Funds: Triodos Fair Share Fund.”
3) “Microfinance and Fair Trade: Triodos Fair Share Fund.”
4) MIX Market: “EDPYME EDYFICAR.”
5) MIX Market: “EDPYME Crear Arequipa S.A.”
6) “EDYPME Crear Arequipa: Financial Data.”
7) “EDYPME EDYFICAR: Financial Data.”
8) MIX Market: “Triodos Fair Share Fund: Fund Instruments.”

by the MicroCapital Team -

Microfinance Institution Swaziland Development Finance Corporation (FINCORP) Lands $3 Million Loan from OPEC for Microcredit Investment

The Swaziland Development Finance Corporation (FINCORP), formerly known as the Enterprise Trust Fund, received a $3 million loan from the Organization of Petroleum Exporting Countries (OPEC) Fund in September. Microfinance institution (MFI) FINCORP, which was founded by the government in 1995, provides “individual loans along with wholesale lending.” In April 2004, FINCORP had a gross loan portfolio of approximately $15.17 million and total assets of about $15.62 million.

FINCORP’s recent investor, the OPEC Fund, is an “intergovernmental development finance institution” headquartered in Vienna, Austria. In 2004, the OPEC Fund had $528.624 million in committed investment and $287.722 million in disbursed investments to the private and public sectors. Typically, these monies are directed to public and private sector project and program financing, technical assistance, and research—among other areas. Since the fund’s inception in 1976 by OPEC’s member states, the OPEC Fund’s cumulative total committed investments stand at $7.474 billion and total disbursed investments stand at $4.925 billion, as of the end of 2004.

Additional Resources
1) Consultative Group to Assist the Poor (CGAP): “Microfinance Capital Markets Update” is the best source for monthly updates on debt and equity deals in microfinance.
2) “Investment: Swaziland Development Finance Corporation.”
3) MIX Market: “FINCORP: Financial Data.”
4) “OPEC Fund for International Development.”
5) “OPEC Fund Headquarters.”
6) “The OPEC Fund for International Development: Annual Report 2004.”
7) “OPEC Fund at a Glance.”

by the MicroCapital Team -

The Swiss ResponsAbility Fund, Oikocredit, and MicroVest Make $5.8 Million Microfinance Investment in Fund Opportunity Russia

Fund Opportunity Russia (FORA), “the largest non-bank microfinance organization in Russia,” recently received a $2 million loan from the Swiss ResponsAbility Fund, $1.8 million from Netherlands based Oikocredit, and $2 million from U.S. MicroVest. FORA’s total assets were $16.39 million as of December 2004 and it was founded by Opportunity International Network, a US non-profit “network.” Opportunity has 48 member MFIs that post a combined total loan portfolio of $241.55 million. FORA is therefore larger than the average Opportunity member with a total loan portfolio to microentrepreneurs of approximately $15.28 million. Founded by Swiss financial service companies Credit Suisse, Raiffeisen Banking Group, Baumann & Cie Banquiers, and the Andromeda Fund, the Swiss based ResponsAbility Fund seeks investment opportunities with both financial returns and social benefits. The fund’s assets in April 2005 were about $11.44 million. The ResponsAbility Fund typically provides loans from $50,000 to $1.5 million for a maximum of five years and at a rate equal to “LIBOR plus full cost plus full risk” to MFIs.

FORA’s second investor, Oikocredit, is an investment fund seeking “social investment opportunities in the South”. Oikocredit’s assets were at $304.66 million at the beginning of 2005, and it provides loans at a minimum of $50,000 and a maximum of $5 million to microfinance institutions (MFIs) for a maximum of ten years. Its “near market rates are equal to LIBOR plus partial cost plus partial risk.”

The third investor into FORA, MicroVest, is an investment firm that provides debt and equity capital to MFIs. With total fund assets at $14.4 million as of July 2005, MicroVest’s loans go from $500,000 to $3 million for a maximum of 30 years. No guarantees are required and its rate terms are “LIBOR plus partial cost plus partial risk, or LIBOR plus full cost plus full risk.”

Additional Resources

1) Consultative Group to Assist the Poor (CGAP): “Microfinance Capital Markets Update” is the best source for monthly updates on debt and equity deals in microfinance.
2) MIX Market: “FORA: Financial Data.”
3) MIX Market: “FORA: General Information.”
4) MIX Market: “ResponsAbility Fund: Fund Description.”
5) MIX Market: “ResponsAbility Fund: Fund Instruments.”
6) “Oikocredit: About Us.”
7) MIX Market: “Oikocredit: Fund Instruments.”
8) MIX Market: “Oikocredit: Fund Description.”
9) MIX Market: “MicroVest I: Fund Description.”
10) MIX Market: “MicroVest I: Fund Instruments.”
11) MicroCapital Blog: “Microfinance Networks (wholesale transnational): Defined and Listed.”
12) “Opportunity International Network: What We Do.”
13) “2004 Annual Report: Opportunity International.”
14) “ResponsAbility: Founding Institutions.”

by the MicroCapital Team -

Dutch Hivos-Triodos Fund Makes Investments Totaling $650,000 into Microfinance Insitutions EDPYME Nueva Vision, EDPYME Crear Tacna, and Sociedad Cooperativa de Ahorro y Credito AMC

The Netherlands headquartered Hivos-Triodos Fund (HTF) recently loaned approximately $650,000 to three Latin American microfinance institutions (MFIs). Peruvian MFIs EDPYME Nueva Vision, with a 2004 year end portfolio of about $3.8 million, and EDPYME Crear Tacna, holding 2004 year end total assets of approximately $7.37 million, received $150,000 and $300,000 respectively, while El Salvadorian MFI Sociedad Cooperativa de Ahorro y Credito AMC de R.L (AMC), with total assets in 2004 of approximately $6.45 million, received $200,000. The three MFIs each direct money to micro-businesses in semi-urban and rural areas within their countries.

The Hivos-Triodos Fund, which was formed out of a joint initiative between the Humanist Institute of Development Cooperation (HIVOS) and Triodos Bank, provides loans to MFIs. MIX Market states that the HTF’s loans range from $150,000 to $1 million for a maximum of five years and there are “usually no formal guarantees required.” “Interest rates must be sufficient enough to cover potential devaluation against the Euro plus to cover minimal costs of 8%.” The fund had a 2004 year end portfolio totaling å¥17 million.

Additional Resources

1) Consultative Group to Assist the Poor (CGAP): “Microfinance Capital Markets Update” is the best source for monthly updates on debt and equity deals in microfinance.
2) “Funds: Latin America—Peru.”
3) “Hivos-Triodos Fund Foundation.”
4) “HTF (The Hivos-Triodos Fund).”
5) MIX Market: “EDPYME Crear Tacna (EDPYME Crear Tacna).”
6) “Sociedad Cooperativa de Ahorro y Credito AMC de R.L.”
7) “Funds: Latin America—El Salvador.”
8) MIX Market: “EDPYME Crear Tacna: Financial Data.”
9) MIX Market: “Cooperativa AMC: Financial Data.”
10) “Hivos-Triodos Fund Foundation: Annual Report 2004.”
11) MIX Market: “Hivos-Triodos Fund: Fund Instruments.”

by the MicroCapital Team -

Four Groups Syndicate a $35 million Fund for African Microfinance Investment

Four organizations have joined forces to create a $35 million syndicate fund for microfinance investment in Africa. The fund will loan money to African microfinance institutions (MFIs), and by coordinating lending, seek to lend more efficiently.

The contributors are no strangers to microfinance investment. Most significantly, the Dutch social investment society OikoCredit is one of the world leaders in microfinance investment with a loan portfolio of E60 million. Also on board is Stromme Microfinance, a Norwegian Christian charity that has funded NGOs and churches since 1976. Less information is available on the other two contributors. Jitegemee Trust, which was created as a joint venture between the Kenyan and Dutch governments, is dedicated to providing aid to arid regions. The European Union and Kenyan government fund the Micro Enterprise Support Programme Trust (MESP). The MESP provides monetary and institutional support for MFIs. But it appears to be typical of quasi-governmental agencies that try to do everything from making loans to developing products to providing technical assistance to public policy.

The syndicate will be based in Kenya, which is home to 56 MFIs in addition to the four commercial banks involved in microfinance. The United Nations Capital Development Fund estimates that 1.1 million Kenyans depend on informal organizations for financial services, while another 3.8 million are served by MFIs, banks, and NGOs. Kenya’s largest MFIs are Equity Bank with a loan portfolio over $40 million and K-Rep Bank with a portfolio of $27 million.

In addition, the syndicate will consider loan applications from MFIs throughout Africa. Africa is home to untold thousands of MFIs—only nine have loan portfolios of $30 million or more—but the need is still immense. According to a Microfinance Information Exchange report on African microfinance, only 1.5% of Africa’s population has access to financial services.

Additional Resources

1) Consultative Group to Assist the Poor (CGAP): “Microfinance Capital Markets Update” is the best source for monthly updates on debt and equity deals in microfinance.
2) “Group Raises Sh2.6bn to Fund Small Business”
3) “Overview of the Outreach and Financial Performance of Microfinance Institutions in Africa”
4) Microfinance Information Exchange

by the MicroCapital Team -

Papua New Guinean Bank and Microlender Form Agreement, as Another Commercial Bank Enters Microfinance Investment

Papua New Guinea’s largest bank—Bank South Pacific (BSP)—and PNG Microfinance, a Papua New Guinean microfinance institution, signed an agreement recently, in which BSP acquired $1.37 million equity (40%) in PNG Microfinance. The other sixty percent of the company is owned by PNG Sustainable Development Program (PNG SDP), a Papua New Guinean non-profit, which initially created PNG Microfinance. Subscribed equity in the institution could reach up to $5.15 million in the near future, with the International Financial Corporation also planning on taking up a stake. Established in 2004, PNG Microfinance provides credit and financial services to micro and small businesses. It has almost 35,000 depositors, $1.55 million in total savings, and 1,400 active borrowers.

Additional Resources

1) Consultative Group to Assist the Poor (CGAP): “Microfinance Capital Markets Update” is the best source for monthly updates on debt and equity deals in microfinance.
2) Main article discussed in entry, The National: “BSP Buys 40pc of PNG Microfinance.”
3) “IFC Projects.”

by the MicroCapital Team -

PlaNet Finance Lands Another Big Bank: ABN AMBRO Bank to Award Excellence in Indian Microfinance

After a busy year of successes, PlaNet Finance announced a partnership with ABN AMBRO Bank, the 20th largest bank in the world measured by “tier 1 capital (equity capital and disclosed reserves) to establish an award to Indian microfinance organizations. The Microfinance Process Excellence Awards (MPEA) is made up of 18 awards which will be given to small, medium, and large—so-called “Flint, Flame, and Fire” categories—microfinance institutions throughout India.

Additional Resources

1) “Microfinance Process Excellence Awards 2006.”
2) “Corporate Profile.”
3) “MPEA 2006.”
4) “Tier 1 Capital.”
5) “MPEA 2006: Number of Awards.”

by the MicroCapital Team -

Another Big Player Joins Microfinance Investment

Commercial microfinance made headway last month when Societe Generale, one of Europe’s leading financial institutions with almost $400 billion under asset management, participated in the launch of the investment company MicroCred with a $3.65 million investment. MicroCred is an initiative of PlaNet Finance, a French nonprofit committed to microfinance. Societe Generale’s investment represents 10% of MicroCred’s capital.

During the next five years, PlaNet Finance will guide MicroCred in creating or investing in 15 microfinance institutions (MFIs).

Although the Societe Generale investment is tiny compared to its other activities, it is important as the microfinance industry welcomes another large commercial investment house to the field.

Additional Resources

1) PlaNet Finance Press Release: "Societe Generale Displays its Commitment to Microfinance Alongside with PlaNet Finance by Entering the Capital of MicroCred."

2) Societe Generale Group

3) PlaNet Finance

4) MicroCapital Blog: "Big Deal in Tajikistan Illustrates Meager Deal-Flow in Microfinance Investment."

by the MicroCapital Team -

Big Deal in Tajikistan Illustrates Meager Deal-Flow in Microfinance Investment

In a developing country of just 7 million people, with one of the lowest GDPs of the former Soviet Union, one would guess that a significant microfinance deal would be done by a European development bank, not by a commercial entity. This recent transaction, the fourth in a series worth a net total of $9.5 million, pales in comparison to the scale of transactions on the world financial markets. It also pales to the current total worldwide foreign direct investment (FDI) in microfinance, which is approximately $1.9 billion. Microfinance investment now represents .5% of worldwide annual FDI.

The fact that quasi-governmental development banks in a small and poor (even by regional standards) country like Tajikistan can place 4 simultaneous investments in the microfinance industry would have been unheard of not many years ago. Growth of foreign investment in microfinance has accelerated in recent years, signaling an emerging asset class, although 90% of this investment is from public sources like these Tajikistan deals.

Yet, despite growing foreign investment in microfinance, meager deal-flow plagues the industry. Only subsidized investment banks survive on such slim deals.

For this reason, we urge you to do business with the best microfinance funds that are pooling regional investments to provide market-rate returns. Only the growth of these funds will cultivate the deal-flow necessary for Wall Street to enjoy an asset class and the global poor to enjoy financial services.Additional Resources1) Analysis of recent growth trends of both domestic and foreign sources of MF investment funding
2) Excellent springboard for articles related to the market for foreign investment in microfinance 3) Time: "Why Micro Matters: Wall Street is Figuring Out How to Profitably Package Tiny Loans to Third World Entrepreneurs."
4) For more in-depth articles that discuss the commercialization of microfinance, visit the MicroCapital website(Tajikistan-specific sources) 5) UN-sponsored paper that discusses the investment climate in Tajikistan6) Findings of study that investigated various economic factors in Tajikistan7) Paper discusses current FDI climate in Tajikistan, as well as need for further investment for economic growth 8) European Bank for Reconstruction and Development’s (EBRD’s) involvement in Tajik microfinance institution9) TMSEF May 2005 Newsletter (EBRD-sponsored Tajik Micro and Small Enterprise Financial Facility)

by the MicroCapital Team -

IFC and PlaNet Finance Partner to Launch a New Global Investment Company For Microfinance Institutions

The non-profit organization PlaNet Finance just announed the launch of PlaNet Bank, a new global investment company for microfinance institutions. The International Finance Corporation (IFC) was the lead investor with $7.3 million. The new investment vehicle intends to “create or invest in 15 microfinance institutions over the next five years,” with at least 60% of these envisioned microfinance institutions (MFIs) in Africa.

The bank will be capitalized at $38 million, signifying a substantial addition to the worldwide microfinance investment climate, in which commercial and (mostly) quasi-commercial investment approximate $1.9 billion. Last year, the launch of a fund of a similar size caused a significant spike on our MicroCapital Index. Though not in our index, PlaNet Bank is now in the top tier of microfinance investment vehicles in terms of asset footings.

The IFC is one of the world’s largest investors in commercial microfinance, with a worldwide microfinance portfolio of more than $260 million. PlaNet Finance has invested over $300 million generally, $220 million of which was allocated to microfinance.Additional Resources1) Press Release: "IFC Invests in New Africa-Focused Microfinance Initiative."
2) International Finance Corporation (IFC) Summary of the PlaNet Bank project3) PlaNet Finance’s Annual Report FY 2004

by the MicroCapital Team -

Hewlett-Packard Announces Open Source Software to Be Available to the Microfinance Industry

Last week, Hewlett-Packard (HP) and Accion International announced the global release of an elaborate software that will perform rural loan transaction over mobile phones. The Remote Transaction System (RTS) is a “cost-effective means of tracking loan information” that will soon have an open source aspect. The announcement culminates the collaborative efforts of HP and multiple microfinance entities working to develop the software.

Banking software tailored to microfinance of course exists, but there is no industry standard. The World Bank microfinance unit (CGAP) lists over 50 such applications on its website, 15 of which are reviewed. To date, however, no one has tried an open source approach. Because most of the world’s 10,000 microfinance institutions (MFIs) are unprofitable, the firms that make the software products for MFIs are under-funded and often subsidized themselves. Revenue has historically been insufficient to support a better product, leaving the microfinance industry in need of an efficient, standardized approach to banking software.

The RTS innovation will hopefully succeed on both accounts, allowing for the creation of an industry standard and also achieving a “breakthrough in the scale of microfinance services,” because only open source might be affordable for all those tiny, cash-strapped microfinance institutions out there.

Will this open source development create an industry standard? A standard is certainly needed. Banking software taken downstream to service microfinance is just too expensive to buy and maintain for most micro-lenders, while on the other hand, the new products from technology firms focused on microfinance are limited in the face of microfinance market challenges, namely varying language, regulation, maintenance (infrastructure is scarce) and of course, cost.

Might an open source solution be affordable? Establishing a standard will depend on how cost-effectively on-site technicians can manage the application. Open source is not by definition cheaper of course. It is all about execution.

Again and again in the emerging microfinance market we are left with the same conclusion: many of the pieces are in place for an asset class, now it is up to local talent to see it through.

Additional Resources1) HP News Release
2) More in depth article by the UN Capital Development Fund’s Microfinance Matters
3) Sevak Solutions, which holds the rights to the RTS technology and licenses these rights to interested parties

by the MicroCapital Team -

Weather Derivatives: Saving Lives With High Finance

Inspired by Wall Street, the World Food Program is creating weather derivatives, a sophisticated financial instrument that would insure Ethiopian farmers against harvest failures caused by droughts. Applying high finance to the risk that millions lose their lives to drought guarantees that funds will reach Ethiopia within a few weeks. Market mechanisms are a more cost-effective way to protect people from drought. Microfinance leaders BASIX and ICICI are using similar products successfully.

Additional Resources

1) “Can Insurance Break Ethiopia’s Vicious Cycle Of Hunger?”2) World Bank (WB): “Piloting Weather Insurance in India.”
3) Subscription only: “Basix India Distributes Agri-Insurance.” India Business Insight. Dec 2003. pg. 53

by the MicroCapital Team -

Will Documentation Kiosks in Rural India Increase Access to Credit?

An American company, Wyse Technology is working with Indian consulting company Comat Technologies to bring computer kiosks to 5000 villages around the Indian state of Karnataka. The ICICI Bank, Indian government, and the International Finance Corporation (IFC), which is a division of the World Bank (WB), will also participate. Six to ten networked terminals containing information about education, healthcare and land records will be set up in each village.

Some say simple projects to legally document property ownership will enable millions of villagers to access credit. However, the jury is still out on this theory. After property rights advocate and economist De Soto researched and published this theory, several quantitative studies contradicted his results. It is safe to assume that the security of private property under the law will increase access to credit by stabilizing the economy in general. The question before us is how best to achieve this property security in the context of the developing world. The current kiosk initiative may help us answer this important question if it can deliver property documentation efficiently to the general public in India.

Additional Resources

1) Main article discussed in entry: "Group Plans Kiosks for Rural India.”
2) “Thailand, China Eye Property Rights As Growth Key.” Reuters News 30 Jan 2003. Valisno, Jeffrey
3) "Thousands of Poor to Get Lots in Gov’t-Owned Land.” 21 Jan 2005. Field, Erica4) “Do Property Titles Increase Credit Access Among the Urban Poor? Evidence from a Nationwide Titling Program.” Working Paper. Harvard University: Jan 2004. Field, Erica
5) Review of de Soto’s “The Mystery of Capital.” Journal of Economic Literature. Dec 2001. Vol 39, No 4, pg. 1215-1223. Bishop, Matthew
6) Financial Times: "A Little Credit Can Go Far."
7) BBC News: "Insuring Ethiopians Against a Poor Harvest."
8) Center for International Private Enterprise: "An Interview with Hernando de Soto."
9) Cato Institute: "Hernando de Soto’s Biography."