by the MicroCapital Team -

MICROCAPITAL STORY: CGAP Releases Notes on Regulation of Branchless Banking in India

CGAP has partnered with the UK Department for International Development (DFID) and the GSM Association, a global trade association representing over 700 mobile phone operators from 218 countries, to conduct diagnostic reviews of the regulatory environment for branchless banking approaches in Pakistan, Kenya, South Africa, the Philippines, India, Russia and Brazil. The report on India, summarized here, was released this month. MicroCapital covered the release of the Kenya report in a story dated November 26. 2007, and the Pakistan report can be downloaded from CGAP.

by Sophie Kim -

MICROCAPITAL STORY: Forbes’ Special Feature on Private Investment in Microfinance Includes Top 50 Microfinance Institutions

Forbes, a American business and financial news magazine, presented the list of top 50 microfinance institutions (MFIs) of 2007 in its special feature on the private investment in the microfinance industry.

by Elizabeth Nelson -

MICROCAPITAL STORY: Inter-American Development Bank (IDB), Andean Development Corporation (CAF), and Economist Intelligence Unit (EIU) Present “Microscope,” New Index to Compare Microfinance Climates Across Countries

A new index commissioned by multilateral financial institutions Inter-American Development Bank (IADB or IDB) and Andean Development Corporation (Corporación Andina de Fomento or CAF) debuted in El Salvador at the 10th Inter-American Microenterprise Forum (October 3-5). The IDB and CAF commissioned the index, called “Microscopio” or “Microscope,” from the Economist Intelligence Unit (EIU), a specialized service of The Economist that provides country, industry and management analyses. Microscope uses 13 criteria relating to investment climate, regulatory framework and degree of institutional development for microfinance to rate the favorability of conditions in a country for microfinance. The index is designed to allow for comparison between countries and analysis of the strengths and weaknesses of the business climate for microfinance in each country.

by Steven Craig -

MICROCAPITAL STORY: Citi Foundation and Pakistan Poverty Alleviation Fund Announce 2007 Micro-entrepreneurship Awards Program in Pakistan to Highlight Microfinance

The Pakistan Poverty Alleviation Fund (PPAF), a Pakistani organization dedicated to assisting poor and rural communities in Pakistan, and Citi Foundation, a philanthropic outreach arm of Citigroup, announced they will hold for the third consecutive year an awards program dedicated to micro-entrepreneurship. The program, “Citi-PPAF Microentrepreneurship Awards Programme 2007,” will recognize the efforts made by micro-entrepreneurs to improve the quality of life for their families and their communities. It is designed to demonstrate the impact of microfinance on micro-entrepreneurs and poverty reduction.

by the MicroCapital Team -

NEWS WIRE: IFC Continues Promoting Microfinance in Mexico by Investing in New Microfinance Bank, Banco Amigo

Source: International Finance Corporation, Adriana Gomez

Article available here.

IFC, the private sector arm of the World Bank Group, today signed an agreement with Banco Amigo S.A., a newly established microfinance bank in Monterrey, Mexico. IFC will provide financing to help the bank expand its products and services to low-income entrepreneurs and women-owned small businesses.

by the MicroCapital Team -

MICROCAPITAL STORY: Dutch Oikocredit Makes 20 Loans to Microfinance Institutions (MFIs) Worldwide Totaling Approximately USD 19.7 Million in One Month’s Time

This story comes to us here at MicroCapital.org courtesy of the May 2007 CGAP-MIX Capital Markets Update Newsletter. Oikocredit of the Netherlands made twenty seperate loans to microfinance institutions (MFIs) worldwide between March 22, 2007 and April 25, 2007. The most recently disbursed portion of this USD 19.7 mn in funding from the Dutch-based Oikocredit went to the Centro de Apoio aos Pequenos Empreendimentos (CPAE) of Brazil via a USD 308,417 loan on April 25, 2007. The CPAE reported to the MIX market, the microfinance information clearinghouse, at the end of 2005 as having a gross loan portfolio of USD 3.8 mn and USD 4.5 mn in total assets. Its capital to asset ratio during the same time period was 57.74% and its ratio of debt to equity was 73.18%.

Continue reading “MICROCAPITAL STORY: Dutch Oikocredit Makes 20 Loans to Microfinance Institutions (MFIs) Worldwide Totaling Approximately USD 19.7 Million in One Month’s Time”

by the MicroCapital Team -

PRESS RELEASE: Global Microfinance Leader PlaNet Finance Opens First U.S. Office in New York City

NEW YORK, May 15 /PRNewswire-USNewswire/ — PlaNet Finance, an international non-profit organization dedicated to alleviating poverty throughout the world through the development of microfinance, announced today the opening of its first U.S. office, in New York City.

Since its founding nine years ago in Paris, PlaNet Finance has grown to work in 60 countries including Madagascar, Mexico, Argentina, Israel, Mexico, Brazil, Senegal and China.

by the MicroCapital Team -

Mexican Microfinance Microbank Compartamos Set to Price IPO

Thanks to Gray Ghost Funds for passing along this April 19 except from Latin Finance Daily. Finally, the big news is public:

“Mexico’s Banco Compartamos is set to become the first Latin American microfinance institution to raise equity capital when it prices an IPO on the Mexican Bolsa today, Thursday. Carlos Danel, co-executive director at Compartamos tells LatinFinance that the offering of secondary shares will allow some shareholders to partially monetize their stakes in the bank. The offer, which comprises an international 144a Reg S tranche and a Mexican retail tranche, should price in the range of 30 to 40 pesos a share, and could raise as much as $400 million, according to a source close to the deal. Credit Suisse is global coordinator and bookrunner of the 144a Reg S tranche, pitched at qualified institutional buyers in the international market. Banamex and Banorte are handling sales to Mexican retail. Danel, who has been meeting with investors in Mexico, Brazil and Europe, says the price range has already been revised upwards from 28 to 35 pesos per share. An equity banker away from the deal says the price adjustment indicates pent up demand for a name in a sector and country that has scarcity appeal. Mexico has logged just one equity deal so far this year, a $217.17 million follow-on offering for steel manufacturer Grupo Simec, compared to Brazil’s 19 deals totaling $6.26 billion, according to Dealogic. This is the first equity offer for a Latin American microfinance institution, but not the first from emerging markets. Indonesia’s Bank Rakyat raised $480 million in equity in October 2003, through UBS and Bahana Securities.”

by the MicroCapital Team -

Newsweek Rightly Predicts Microfinance Backlash, But Throws Baby Out with Bathwater

To read the below Newsweek article, you might think there is no difference at all between a good micro-banker and a bad one.

Newsweek tells us that poverty is undone by savings, not by lending. We know that. Good micro-bankers have maintained for years that microfinance should be savings led, not credit led. Newsweek tells us that there is no evidence that microcredit itself undoes poverty. We know that. Responsible micro-bankers have transparently identified this lack of hard, conclusive data for years. Newsweek tells us that micro-lending by state-owned Chinese and Brazilian institutions are not well managed. You don’t say? Again, we know that. For decades, good microbankers have been demanding that governments not engage in banking of any kind because politics distort markets and increase poverty. Newsweek cites irresponsible micro-lending to condemn microfinance. Responsible journalism would condemn the governments and all the “me-too” efforts for damaging microbanking.

It goes without saying that Newsweek skewers Mr. Yunus and the Grameen Bank, citing bad loan portfolio quality åö the worst insult you can level at a microbank åö without citing any evidence whatsoever.

Nonetheless, Newsweek is right that a backlash against microfinance is coming. Anyone and everyone is indeed “jumping in” to microfinance and a backlash is therefore inevitable. Everyday, there are more and more clueless and irresponsible individuals and organizations piling on. Does this mean that experienced, professional, and dedicated microbankers are wrong too? No.

As we articulate again and again here at MicroCapital, microfinance suffers from usury, amateurism, manifest destiny, corruption, and waste, among other nastiness. As the frenzy increases, these massive flaws will result in serious meltdowns and the corresponding backlash.

What can be done? Our advice is the same as always: Manage risk.

The below is the profiteering Newsweek article quoted in full:

Continue reading “Newsweek Rightly Predicts Microfinance Backlash, But Throws Baby Out with Bathwater”

by the MicroCapital Team -

HSBC Shows Interest in Expanding Microfinance Investment Activity

Headquartered in London, HSBC is a large international banking network which includes 9,500 offices in 76 countries in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa. At year-end 2005, HSBC reported total assets of approximately $1.5 trillion.

Currently, HSBC is engaged in several microfinance pilot projects with microfinance institutions (MFIs) in Brazil, India, Mexico, the Philippines, and Russia. Projects vary from wholesale lending to project support – with the total capital designated for these projects under $62.5 million. For example, Opportunity International and HSBC are piloting the “Opportunity Card” in partnership with three Philippine MFIs. The project is aimed at helping Philippine migrant workers send money they earn abroad back to their families in the Philippines in a less expensive way. This remittance pilot project has workers send money through an HSBC website and has designated family members access the money through any Cirrus (MasterCard) enabled ATM network. If successful, this project will be expanded to other remittance channels.
Continue reading “HSBC Shows Interest in Expanding Microfinance Investment Activity”

by the MicroCapital Team -

International Banks and Their Expanding Role in Microfinance Investing

A new report by ING Bank, “A Billion to Gain? A study on global financial institutions and microfinance” takes a look at the emerging role of international commercial banks in the microfinance industry. ING Group is a Dutch company providing worldwide financial services including banking, insurance and asset management to clients in more than fifty countries. As of January, 2006 ING was ranked as the 13th largest financial institution in the world.
In the past year, spurred in part by the UN’s declaration of 2005 as the Year of Microcredit, many major international banks have announced initiation or expansion of microfinance-related activities. This has left some to wonder åö why the shift and what’s in it form them? Microfinance is a win-win situation åö it enables these banks to reach new markets while also creating a sense of goodwill. Over the course of the next several weeks åö we will be highlighting the microfinance activities of these major international players. To start things off, we’ll take a look at ABN AMRO VN. Headquartered in Amsterdam, ABN AMRO ranks 11th in Europe and 20th in the world based on tier one capital. ABN AMRO has 3,000 branches in more than 60 countries, and total assets of EUR 880.8 billion as of December 2005. Currently, ABN AMRO provides microfinance credit services and technical services with geographical focus both in Brazil and India.
Continue reading “International Banks and Their Expanding Role in Microfinance Investing”

by the MicroCapital Team -

MicroCapital Paper Review: “Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America”

To access this article visit: “Great Expectations: Microfinance and Poverty Reduction in Asia and Latin America”

Authors: John Weiss and Heather Montgomery

Published by: Asian Development Bank Institute, September 2004

Quantitative Information: This article compares the development and status of microfinance within two regions: Asia and Latin America. The authors suggest Asia is more effective at reaching the poor, whereas Latin America is more advanced in developing microenterprise åö using the average loan balance per borrower of US$581 in Latin America versus US$195 in Asia to back their argument. Moreover, the article cites a Mix Market, a World Bank information clearing house on microfinance, report that only 10% of Latin American MFIs specified that they were targeting “very poor clients.”

Qualitative Information: Introduced as evolving for different purposes, microfinance within Latin America åö initially having a greater focus on commercial profitability åö is contrasted against Asia and the ideals of the Grameen Bank, a famous Bangladeshi microfinance institution (MFI). The authors propose that although NGOs are still important players within Latin America, there is a significant trend toward the commercialization of microfinance and thus MFIs’ focus on profitability. The article suggests that rural, impoverished regions particularly within larger countries such as Brazil, Mexico, and Argentina are under-addressed, but neither provides examples to support these statements nor distinguishes the types of MFIs and their target markets. While the authors agree that there are indications that MFIs have an impact on borrowers within Latin America, MFIs remain unsuccessful at reaching the poorest åö although they offer little propositions for MFIs to both achieve profitability and successfully touch the pooråÐest. They do, however, suggest more studies are needed on the impact and cost effectiveness of microfinance programs.

by the MicroCapital Team -

Lula Sheds Light on Government’s Approach to Expanding Microcredit Services

In a recent interview in Forbes, Brazil’s President Lula expressed interest in bringing small and micro businesses into the tax system. Historically, this economic sector has remained outside the country’s notoriously cumbersome bureaucracy. However, by creating a business climate that is more “favorable, safe and free” of bureaucratic impediments, Lula thinks joining the tax base will become a more attractive option.
This new approach to widening the tax base seems to have a brighter side: improving the government-sponsored microfinance services. Brazil’s financial services for the poor are in desperate need of expansion. While microfinance has been on Lula’s agenda for years, Brazil continues to struggle in terms of market penetration. Of the 8 million micro enterprises in Brazil, overall market penetration is a meager 2%. This is in stark contrast to other countries in the region, which drastically exceed the absolute number of people served, even as much smaller markets. The demand for microfinance services in Brazil is particularly high due to the acute income inequality, which leaves 34% of the population below the poverty line.
Brazil consistently ranks as the country with the largest number of entrepreneurs per capita in the world (p. 4), calling into question why the market remains so underserved. Reasons specific to Brazil abound, but the sheer size and population of the country is enough to send most prospective micro lenders running (p. 4). Additionally, the un-chartered nature of the country’s microfinance landscape intimidates (p. 4). Lacking an established microfinance market fueled by NGOs or otherwise, the climate is ripe for government involvement. In spite of the government’s efforts, which certainly strive to harmonize the private and public sectors, just over 10% of the 120+ microfinance institutions have more than 1,000 clients, with a combined loan portfolio of barely $60 million. Of these microfinance institutions, the 30 most solvent are funded by Brazil’s central bank.
The microfinance climate in Brazil is unique, as an array of local, state and federal institutions combine to promote micro lending. Brazil’s enormous development bank, BNDES, which has already disbursed $8.5 billion in 2005, leads this by working as a second-tier institution with micro lenders by making loans to regulated microfinance institutions (MFIs) and by providing technical assistance. The central bank’s role in stimulating private sector activity seems to work as management is left to the actual microfinance institutions. In fact, the central bank loans to so-called ‘societies,’ which are strictly regulated private institutions designed by the central bank. They are run by boards composed entirely of individuals from the private sector. In return, the ‘societies’ are required to raise matching funds from private investors that equal one-third of the loan portfolio. This has even resulted in going beyond Brazilian borders to attract such needed private capital. The central bank views its role as temporary, having a catalytic effect for now but only intended to tide over the microfinance institutions until they are sustainable. Let’s hope Mr. Lula’s new push to tax micro and small business owners does not topple the success to date.

Additional Resources
1) Main article discussed in entry, Forbes: "Interview with Brazilian President Lula."2) Inter-American Development Bank (IDB): "Return of the State." 3) Microcapital Institute: "The Commercialization of Microfinance in Latin America." 4) "Understanding Microfinance in the Brazilian Context."5) World Bank (WB): "Access to Financial Services in Brazil."