Search Results for: "USAID"
PAPER WRAP-UP: The Potential Market for Insurance Among Poor Households
By Warren Brown and Michael J. McCord, published by USAID MBP’s Virtual Conference on MicroInsurance, October 2000, 9 pages, download here.
This paper focuses on two main questions: 1) What is known about poor households’ interest in using insurance to reduce risk, and 2) What, from the providers’ perspective, are the boundaries or limitations on where insurance can and cannot be provided for poor households? Are there ways to overcome some of these boundaries?
Paper Wrap-Up: “Microinsurance Note 3 – Partnerships: microfinance Institutions and Commercial Insurers”
Produced by Michael J. McCord and Jim Roth of the MicroInsurance Centre for USAID as part of the Microinsurance Note series. Available here.
When Compartamos, a Mexican microfinance institution (MFI), announced it was looking for an insurance partner it had several international firms fighting for its business. This paper presents a model for the structure of such relationships in the provision of microinsurance products. It claims efficiency in transactions and operations are essential to reduce premium costs while expanding coverage, suggesting MFI’s “might be the perfect intermediary for insurers to reach the low income market” as they have already developed financial relationships in this area.
Microfinance Centre Announces Microfinance Innovation Award for Microfinance Institutions Central and Eastern Europe and the New Independent States
The Microfinance Centre, an international network of 104 microfinance institutions (MFIs) throughout Central and Eastern Europe (CEE) and the New Independent States (NIS) announced its creation of an award to recognize innovations, products, application of technology, social performance, and delivery mechanisms in MFIs. Its partner institutions include the Consultative Group to Assist the Poor (CGAP), United States Agency for International Development (USAID), Citigroup Foundation, Microsave, and the International Organization for Development Co-operation (ICCO).
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The Canadian International Development Agency, allocates USD 16 mm to the Microfinance Investment Support Facility (MISFA) in Afghanistan
Josée Verner, Minister of The Canadian International Development Agency (CIDA) plans to distribute USD 16 mm to Microfinance Investment Support Facility for Afghanistan (MISFA), an Afghani national micro-credit program. CIDA’s, goal is to support sustainable development in developing countries in order to reduce poverty and to contribute to a more secure, equitable, and prosperous world. MISFA, was created by the Government of Afghanistan, World Bank Group, and the Consultative Group for the Poor in 2003 to provide poor Afghans with access to loans and financial services. MISFA currently funds 13 microfinance institutions serving over 300,000 Afghans, most of whom are women. In the past MISFA has received funds from the CIDA, USAID, and the UK Department for International Development. MISFA uses these funds to provide loans to microfinance institutions operating in Afghanistan, such as FINCA Afghanistan, BRAC, AKDM, CARE, CHF, and Women for Women. Originally operating within the country’s Ministry of Rural Reconstruction and Development, it became an independent entity in 2004. MISFA does not report to the MIX Market, the microfinance information clearinghouse and no other information is publicly available about its performance.
EBRD Loans Armenian Inecobank USD 5 Million in Microfinance Investment to Be Used for Small Business Lending
The European Bank for Reconstruction and Development (EBRD) recently announced that it will be lending USD 5 million to Armenia’s CJSC Inecobank, which will be used for “on-lending to local micro and small enterprises.” EBRD, with support from United States Agency for International Development (USAID) will also contribute technical training to improve the bank’s lending operations. In 2005, the EBRD lent Inecobank USD 1 million to start up its microlending branch. The head of the EBRD’s Armenia office, Michael Weinstein, mentioned that the loan will “facilitate growth in the banking sector and support mico and small enterprises’ access to finance.”
Iraq Holds First National Microfinance Summit
The first microfinance conference in Iraq, the Iraq National Microfinance Summit, recently took place in the northern Iraqi city of Arbil. The conference was organized by the IZDIHAR project. Over 100 participants, including local practitioners and government officials, gathered to discuss the current state of the industry. According to Greg Howell, Global Development Alliance Advisor for the U.S. Agency for International Development (USAID) in Iraq, the discussions centered around how donors can contribute to expanding microfinance operations in the country.
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Iraq’s Microfinance Sector: A Survey
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.
Australia’s Overseas Aid Agency Contributes $2.2 Million to Papua New Guinea’s Bougainville Microfinance Scheme
Russian Microfinance Center Becomes Member of European Microfinance Network
The Russian Microfinance Center (RMC) joined as an Associate Member of the European Microfinance Network (EMN). The Center was established in 2002 with help from the USAID-sponsored Russia Microfinance Sector Support Program. It provides a range of services for the Russian market, including training for microfinance practitioners, consulting for all stakeholders, and information dissemination. MIX Market classifies the RMC as a microfinance “Program Developer and Service Provider”.
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Kenya’s Microfinance Bill to Regulate Microfinance Institutions Goes to Parliament
Kenya’s long-awaited Microfinance Bill will soon be put to the test in Parliament. With more than 200 microfinance institutions operating throughout Kenya, the country does not have one uniform regulatory system. Microlenders may be created under a myriad of Acts: the Non Governmental Organisations Co-ordination Act, the Building Societies Act, the Trustee Act, the Societies Act, Co-operative Societies Act, the Companies Act, the Banking Act, and the Kenya Post Office Savings Bank Act. The Nairobi-based Association for Microfinance Institutions (AMFI) is the only “opt-in” regulatory body in the country that sets rules about ownership, governance and accountability. It began in 1999 and is currently funded by a three-year USAID grant.
U.S. Agency for International Development’s IZDIHAR Project Grants $250,000 for a New Microfinance Institution in Iraq
The U.S. Agency for International Development (USAID) has granted $250,000 in start-up capital for a microfinance institution (MFI) established by IZDIHAR, a three-year, USAID-funded private sector development project in Iraq. This initial capital base will be used to disburse loans of up to $5,000 to Iraqis in communities suffering high unemployment after the dismantling of the former Iraqi army as well as women and other underprivileged groups. Civilian Military Operations officers from the Multi-National Force åö Iraq will also provide support and training for the new MFI. MicroCapital recently reported on USAID’s embrace of microfinance in Iraq to rebuild the nation’s economy.
Microcredit, a Nuclear Bargaining Chip?
The United States National Nuclear Security Administration reported that it has removed 139 pounds of weapons-grade nuclear material from and Uzbekistan reactor to a secure storage site in Russia. This move was atypical of U.S. åö Uzbekistan relations; the two have been at odds since last year when Uzbek forces opened fire on antigovernment demonstrators in the northeastern part of the country.
Interestingly, cooperation in the matter came about after a concerted humanitarian effort by the United States. In the past year, USAID has been responsible for approximately US$4 million in health programs in Uzbekistan; and US$2 million in economic aid targeting microcredit for small businesses.
Additional Resources
1) New York Times: “Uzbeks Ship Bomb-Grade Waste to Russia,” April 20, 2006.
2) USAID
3) MicroCapital Blog: “Microfinance Investments Seen as a Cornerstone in the Rebuilding of Iraq- USAID Laying the Foundations for Growth,” April 20, 2006.
Deutsche Bank Leads New Global Commercial Microfinance Consortium, a $75 Million Microfinance Investment Fund
Just recently, a group of private and public sector institutional investors and economic development agencies launched the
Investors include Merrill Lynch, AXA Group, HP, and the Calvert Social Investment Foundation. For a full list of investors visit: “Leading Institutions Investors and Development Agencies Launch the Global Commercial Microfinance Consortium.” Deutsche Bank, a full global financial services company with å¥972 billion in assets, led the arrangements to establish the fund and also facilitated its sale.
This Consortium is “microcapital” at its best. First, expert management by Deutsche Bank’s long-established and well-respected microfinance unit provides the leadership. Second, the investor group mixes mainstream investment banks, rational development agencies, and flagship social investment foundations. Third, the role of government as guarantor uses your tax dollars to support (not execute) for-profit, private innovation. Fourth, the fund investment in MFIs is well-diversified across countries, regions and types of MFIs.
With such leadership and innovation, we might one day soon establish a secure asset class for the investing public.
Additional Resources
1) Main article discussed in entry, Thames Techwire: “Group Unveils å¥63 Million ‘Micro-Entrepreneur’ Fund.”
2) “Leading Institutional Investors and Development Agencies Launch the Global Commercial Microfinance Consortium.”
3) “Global Commercial Microfinance Consortium.”
4) U.S. Agency for International Development (USAID) Press Release: “USAID, Private-Sector Partners Create Global Fund for Small Entrepreneurs and Low-Income Families: Agency Provides $15 Million Credit Guarantee to Fund Aimed at Alleviating Poverty."
European Bank for Reconstruction and Development Makes $2 Million Investment in Kyrgyzstani Microfinance Institution Bai Tushum
Bai Tushum, a Kyrgyzstan microfinance institution (MFI), was recently provided with a $2 million loan from the European Bank for Reconstruction and Development (EBRD)—the “largest single investor in the region” between central Europe and central Asia. Member countries, the European Community, and the European Investment Bank own the EBRD, which has “subscribed capital totaling å¥20 billion.” The bank finances its loans by borrowing funds in international capital markets, and subsequently providing loans to public and private enterprises including banks, industries, and businesses. In 2004, the EBRD had invested over $1.37 billion in financial institutions supporting local enterprises.
In 2003, loan recipient Bai Tushum received an “A” rating for financial and economic performance standards designed by the World Bank’s microfinance unit (CGAP). The Microfinance Centre for Central and Eastern Europe and the
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) “About the EBRD.”
3) “About the EBRD: Ownership and Funding.”
4) “USAID Success Stories Archive: USAID Supported Microfinance Insitution First in Kyrgyzstan to Receive ‘A’ Rating.”
5) MIX Market: “Bai Tushum: Financial Information.”
6) MIX Market: “Bai Tushum: General Information.”
7) “EBRD: Annual Report 2004.”
8) “MFC Spotlight 12: Overview of the Microfinance Industry in the ECA Region in 2003.”
"Flat" Interest Rates: Just Another Way to Swindle the Global Poor Using Your Tax and Charitable Dollars
Flat interest rates are the current controversy raging on the microfinance community listserv. This is a highly widespread and dubious practice in microfinance. Flat rates cost the borrower more than the standard declining interest rate – but the micro-enterprise owner is often in the dark about this reality. With flat interest rates, each month’s interest is charged on the original amount of the loan. Declining interest rates vary in that interest is charged according to how much of the original loan remains in the borrower’s hands, which shrinks as successive payments are made. Although common in microfinance, flat interest rates are not the banking standard in the developing world, so often when a microfinance institution quotes a 2% monthly interest rate to its customers, the actual rate of interest is much higher. How much higher depends on the term of the loan, but the actual rate can easily be twice as high.
Because clients are often illiterate and financially inexperienced (or too trusting of the local NGO), flat interest rates sound appealing. And in addition to the larger interest payments that come with flat rates, they are easier for microfinance institutions to calculate. For these reasons, flat interest rates have been seized upon, but at the expense of the unsuspecting borrower.
Bottom line: not only are customers deceived, but microfinance institutions that use the standard declining rate are at a significant disadvantage. Equally insidious, microfinance institutions quote these flat rates to donors who fall for the same trick as the micro-enterprise owners.
Not surprisingly, there are plenty of defenders of flat rates in the donor community. The reasons range: "German mortgages are written using flat rates too;" "a top microfinance institution in India, ICICI, uses flat rates;" "small microfinance institutions do not have the infrastructure to calculate declining rates." While all this may be true, it is a well-known fact in the microlending trenches that flat rates deceive customers. Of course, there are many examples of firms responsibly using flat rates, but that is not the point. The point is that your tax and charity dollars are often being used to gouge the global poor.
Additional Resources
1) US Agency for International Development (USAID): "Calculating Effective Interest Rates on Microcredit Loans."
2) Consultative Group to Assist the Poor (CGAP): "Microcredit Interest Rates."3) Information from the Consultative Group to Assist the Poor (CGAP) regarding potential disparity between flat and declining interest rates in terms of annual return on loans