A three-day microfinance conference put on by Citigroup, a private financial services company, the Foundation for Development Cooperation (FDC), a not-for-profit international development organization, and the Banking with the Poor Network (BWTP), a not-for-profit regional microfinance network, wrapped up in Jakarta, Indonesia on September 7. This event is part of a USD 570,000 grant given by the Citi Foundation to the FDC and BWTP earlier this year with the purpose of expanding microfinance services across ten Asian countries during 2007 and 2008.
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NEWS WIRE: Microfinance Group Reveals Future Plans
PAPER WRAP-UP: Microfinance: An Emerging Asset Class for Equity and Debt Investors, by Marco Coppoolse
By Marco Coppoolse. A White Paper Published by Microcapital in August 2007. 10 pages. Available at www.microcapital.org/downloads/whitepapers/Emerging.pdf
Mr Coppoolse supports the nascent microfinance asset class in two ways with his whitepaper, which was published by MicroCapital today. First he shows the strength and potential of the sector with some innovative research on nine of the leading MFIs (microfinance institutions) in the world. In the process he introduces a new performance indicator, “comparable return on equity” (CRoE) to be used alongside current indicators to help advise potential equity and debt investors on their microfinance investment decisions.
The conclusions are that the industry show high growth and high returns on a global basis, is still underleveraged, has high expense ratios, has good asset quality and has returns of a global nature that show no geographic bias.
NEWS WIRE: Microlending Gives Hope to the HIV Positive
A microcredit program created by Thailand‘s ‘Mr. Condom’ allows the HIV positive to start businesses and earn a living.
(Fortune Magazine) — When Narisara Panya’s husband died of AIDS seven years ago after returning to Thailand from a construction job abroad, it was devastating. With only a small plot of land that didn’t always yield enough food for their two children, 44-year-old Narisara – who became HIV positive herself – needed an income.
The Citigroup Foundation Makes a USD 570,000 grant to the Foundation for Development Cooperation and the Banking with the Poor Network Spread over 2 Years
In a joint press release, The Citigroup Foundation announces a two-year USD 570,000 grant to the Foundation for Development Cooperation (FDC) and the Banking with the Poor Network (BWTP). The grant will be used to expand the reach of microfinance services across ten Asian countries including India, Indonesia, the Philippines, Sri Lanka and Vietnam. The money will be used to promote public-private partnerships and industry best practices to stimulate the development of more internationally recognized and financially sustainable microfinance institutions (MFIs) in Asia.
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Boosting the Quality of Life in Viet Nam’s Rural Economy, through Agricultural Science
A recent loan in the amount of USD 30 mm from Asian Development Bank (ADB) will be pledged to the agricultural sector in Vietnam in an effort to produce sustainable growth for the nation. The Ministry of Agriculture and Rural Development of Vietnam is the executing agency for the project, and with financial support from the ADB, both organizations hope to improve the quality of life for the Vietnamese people. The ADB was established in 1966, and is committed to reducing poverty in the Asia and Pacific region through sustainable economic growth, social development, and good governance.
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Should You Invest in the South Asian Microfinance Market? World Bank, MIX, and CGAP Report Highlights Microfinance Performance and Transparency in South Asia
The World Bank, the Microfinance Information eXchange (MIX), and the Consultative Group to Assist the Poor (CGAP) recently published a report highlighting the performance and transparency of the South Asian microfinance industry. The report is comprehensive åö pulling data from 125 South Asian institutions and close to 600 microfinance institutions (MFIs) worldwide.
The South Asian microfinance industry underwent major advances under the United Nations International Year of Microcredit 2005 initiative and is home to several of the fastest growing MFIs in the world. Overall, this sector has achieved massive credit outreach driven by record productivity and efficiency and a wide range of financial service offerings targeted to the poor. This sector is highly efficient both in terms of cost per borrower and cost per unit of loans outstanding. “Each dollar in loans costs just fourteen cents to maintain, compared with nearly twenty-six cents (p.13) in sub-Saharan
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Why Are So Few Micro-banks Profitable?
There are about 300 commercially viable microfinance institutions (MFIs) worldwide. The total investment portfolio for these institutions is estimated to be $3.5 billion and is growing at a rate of 20-30% per year. Those MFIs, however, are rarities among the 10,000 MFIs operating today. So what separates the few commercially viable MFIs from the huge host of laggards?
MFIs are hindered by internal and externally constraints. Internally, microfinance institutions must overcome:
Lack of professional capacity: MFIs are located in developing countries, and recruiting experienced management staff and loan officers can be challenging.
Lack of expertise: While the World Bank’s microfinance research organization has developed best practices standards for MFIs, the vast majority of MFIs lack the wherewithal to access and implement these standards.
Inherent challenges of serving the poor: There is a large demand for financial services in rural markets, which are difficult to serve because of transportation costs and a lack of infrastructure. Rural residents rely heavily on agriculture for income, which can be unpredictable and make lending risky.
Lack of portfolio diversity: When MFIs focus on providing one type of service—for example, a focus on loans for agricultural development to the rural poor—they are more exposed to risk. To protect themselves from risk, MFIs must provide a wide variety of services.
Externally, MFIs are constrained by the following factors:
Abundant donor capital: MFIs have little incentive to become profitable if donations sustain them. Donations eliminate the incentive to abide by best practices standards and become more efficient. When MFIs receive funding from outside donors, their focus shifts to catering to what the donors want, not what the customers want.
Government Regulations: Interest rate regulations prevent MFIs from recouping their costs and force opaque reporting.
Unfair Competition: Donor-subsidized MFIs and government programs often charge below market rates and undercut those striving for profitability.
Corruption: When local and national governments suffer from corruption and bureaucratic incompetence, it hinders the ability of all businesses—including MFIs—to run efficient operations.
Inherent challenges of emerging markets: An absence of ‘soft infrastructure’ in the developing world such as credit bureaus, human resources agencies, and market research firms severely complicates doing business.
Additional Resources
1) “Commercial Microfinance: The Right Choice for Everyone?”
2) "The Impact of Interest Rate Ceilings on Microfinance." CGAP. May 2004
3) “Expanding Commercial Microfinance in Rural Areas: Constraints and Opportunities.”
4) “Microcredit Interest Rates.”
5) Subscription only: "Strategies That Fit Emerging Markets." Harvard Business Review: June 20056) “The Influence of Donors on Microcredit Sustainability: A Case Study of the Three Microcredit Programs in Vietnam.”