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.
Search Results for: colombia
MICROCAPITAL STORY: International Finance Corporation makes USD 70 Million Investment in Central American Microfinance Operator, Grupo Mundial
The International Finance Corporation (IFC), a member of the World Bank dedicated to private sector development, has invested USD70 million in the financial conglomerate Grupo Mundial. The investment comprises a USD 30million equity investment for about a 7 percent stake in the group and a USD 40million long term loan facility.
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.
MICROCAPITAL STORY: Inter-American Development Bank’s Multilateral Investment Fund to Invest up to USD 17.2 million in new ProCredit Holding Banks to be Launched in Latin America
The Inter-American Development Bank’s (IDB) Multilateral Investment Fund (MIF) announces plans to invest up to USD 10 million in a project to establish new microfinance institutions (MFIs) in
Banco Bilbao Vizcaya Argentaria SA (BBVA) Invests USD 259.94 mn in Latin American Microfinance Institutions Caja Nor, Caja Sur, Corporacion Mundial de la Mujer and Medellin
Forbes Magazine reported a 200 million euro, approximately equal to USD 259.94 mn, investment in microfinance made by Banco Bilbao Vizcaya Argentaria SA (BBVA), a Spanish financial institution engaged in private, retail and wholesale banking and asset management. BBVA Chairman Francisco Gonzalez said in a press conference that the funds will be lent through local strategic partners such as Caja Nor and Caja Sur in Peru, Corporacion Mundial de la Mujer in Bogotá, and Medellin in Colombia. BBVA is also working to develop similar relationships with microfinance institutions in Mexico. According to Gonzalez, BBVA is also planning on extending their microfinance operations beyond Latin America, though there was no particular region or timeline mentioned.
CGAP Announces Its 9 Technology Picks
CGAP, the World Bank associated microfinance agency, announced its nine technology partners. Quoting the CGAP press release, the chosen nine are as follows:
Project Ideas Selected from Concept Notes Received:
1. Colombia: Credibanco VISA provides credit and debit card transaction acquiring to banks in Colombia through 53,000 points of sale and a telecommunications network that connects in real time to 17 principal cities of the country and 385 municipalities.
CGAP is planning a project with Credibanco to test whether a third party provider can use its merchant network to provide financial services on behalf of banks. Credibanco also plans to extend its existing merchant network to reach 250 additional municipalities that are currently unserved by bank branches. Banking agents in these municipalities will offer a full set of financial services on behalf of VISA member banks using POS and card-based technologies.
The Gates Foundations Grants $6.7 Million to the World Council of Credit Unions (WOCCU) and $2 Million to WOCCU’s Worldwide Foundation for Credit Unions
The Bill & Melinda Gates Foundation granted $6.7 million to the World Council of Credit Unions (WOCCU) and $2 million to WOCCU’s Worldwide Foundation for Credit Unions. WOCCU will use the money to implement a Credit Union Growth Program in Africa and
BlueOrchard Finance and Morgan Stanley Partner in $106 Million Landmark Financing Deal for Microfinance Investment
BlueOrchard Finance and Morgan Stanley concluded a $106 million structured finance deal, backed by a pool of loans to 22 microfinance institutions (MFIs) from 13 different nations: Mongolia, Bosnia, Colombia, Peru, Bolivia, Mexico, Nicaragua, Ecuador, Azerbaijan, Albania, Georgia, Russia and Cambodia. These BlueOrchard Loans for Development (BOLD) represent the first public collateralized debt obligation (CDO) of loans for MFIs; before now, most MFIs subsisted on charitable donations from the West.
Why the Big Banks are Investing in Microfinance
Microfinance institutions are garnering attention from some of the world’s leading commercial banks. Citigroup, ABN AMRO, Barclays, and more are all seeking direct and indirect exposure to the microfinance market, and with good reason- there’s money to be made there.
Retail Microfinance
Some of the large banks are partnering with or acquiring microfinance portfolios to expand their existing book of business. In a recent notable acquisition, Grupo Aval purchased Megabanco of Colombia for US$358 million. The sale of Megabanco at auction was consummated primarily on the strength of its microcredit loan portfolio. At 6 times the book value of the company, this was the most expensive bank sale ever in Colombia. In contrast, U.S. bank stocks tend to trade at multiples between 1x and 2x to book value.
The premium paid for microfinance portfolios comes largely from larger banks’ desire for access to new markets. Citigroup’s 2005 annual report shows significant revenue growth in both Mexico and Asia, regions in which the company provides retail microfinance services. Microfinance is a means by which large corporations can expand into the untapped, informal economies of the world; and these markets are by no means small. According to the Population Reference Bureau, the population of the “Less Developed” world (i.e. potential microfinance customers) numbered over 5 billion people.
Wholesale Microfinance
Commercial banks are also taking a less direct approach to the microfinance market, offering wholesale loans to microcredit lenders. This approach lessens the risks to the commercial bank, particularly if the loan is not made in the local currency. This practice allows the banks to participate in the informal markets without the burden of a volatile emerging market currency. In addition, the commercial banks do not have to cope with the difficult daily operations of a microfinance institution.
Goodwill
Beyond the tangible benefits of increased market share, the microfinance business can generate “goodwill,” which can carry over to the firm’s other enterprises. “As microfinance is regarded as a positive and laudable cause by most governments, large development organizations and the general public, the involvement of banks may enhance their reputation.” (12)
Involvement in the microfinance industry by commercial banks is a logical economic choice, both for its direct revenue-generating potential, and as “advertising” for other business lines. Those banks that can successfully shepherd their microfinance arms into mature businesses stand to get a piece of the world’s last untapped markets.
Additional Resources
1) ING: “A Billion to Gain? A study on global financial institutions and microfinance,” February, 2006.
2) MicroCapital Blog: “Citigroup Leads the Way in Microfinance Investing for Commercial Banks,” April 3, 2006.
3) MicroCapital Blog: “International Banks and Their Expanding Role in Microfinance Investing,” March 30, 2006.
4) MicroCapital Blog: “London-Based Barclays Bank Expands Reach into Microfinance Investing Through Partnership in Ghana,” April 4, 2006.
5) MicroCapital Blog: “Colombian Financial Group Banks on Microfinance Investment: Banco de Bogota Wins Auction for Megabanco and its Microcredit Portfolio with $358 Million Bid,” March 20, 2006.
6) U.S. Securities and Exchange Commission
