by the MicroCapital Team -

MICROFINANCE EVENT: “The Role of Donors and the Crisis” – A Microfinance Learning and Innovation Seminar from the US Agency for International Development (AID), January 7, 2009

THE ROLE OF DONORS AND THE CRISIS

JANUARY 7, 2009, WASHINGTON, DC, and ONLINE

Conan French of the US Agency for International Development (USAID) will moderate this discussion among Kate McKee of CGAP (Consultative Group to Assist the Poor), Sandra Adams of the Grameen Foundation and April DuBois of Opportunity International on the effect of the global financial crisis on the role of donors, and the possible implications for microfinance institutions and their clients. “The Role of Donors and the Crisis” will take place at 4 pm eastern US time on January 7 at the offices of QED Group in Washington, DC, and will be broadcast as a webinar in order to enable remote participation. There is no charge to attend. To participate in person, RSVP by email. To participate remotely, register online. No telephone number is offered.

This is the second seminar in a mini-series on the impact of the current crisis on the microfinance industry. In the coming months, a number of topics relating to the current financial crisis will be covered, including its effects on savings, remittances and microinsurance. After this event, materials will be posted at the microLINKS “After Hours” webpage.

by the MicroCapital Team -

GUEST EDITORIAL: “Coping with a Crisis” by Christian Ruehmer, Reprinted From Europe and Central Asia’s Microfinance Centre (MFC)

The world of developed financial markets seems broken. Eighteen months ago the “subprime crisis” started, and a few banks were failing. Since then, bad news on the markets has been published daily. However, over the last weeks, the situation escalated with banks failing on a daily basis, Iceland’s financial system collapsing and liquidity disappearing completely.Logo

What do microfinance institutions (MFIs) have to do with this? According to studies, microfinance is uncorrelated with other financial markets. Portfolios grow fast and public interest increases. Investors were chasing MFIs to allocate their funds and conferences were organized all over the world. Microfinance is deemed to be different. The worst-case expectation is that the crisis might slightly increase funding costs and provisions.

by Jeffrey Erfe -

MICROCAPITAL EXCERPT: “The Battle for the Soul of Microfinance,” by Financial Times Senior Columnist Tim Harford

What follows is an excerpt from Tim Harford’s piece “The Battle for the Soul of Microfinance,” which appeared in the Financial Times’ Weekend Reportage section on December 6, 2008.  Mr. Harford, a Senior Columnist at the Financial Times, has written an excellent introduction to the competing commerical and altruistic motivations behind microfinance–and the current disputes they have generated–that have come to dominate so much of the industry today.  The full piece also cites several interesting studies whose findings may affect microfinance institutions’ (MFIs) procedures for vetting micro-loan applicants or their manipulation of interest rates resulting from either profit-driven or philanthropic motives.  The full article is available online to those who have registered for free with the Financial Times.

by Lori Curtis -

MICROCAPITAL STORY: Are Microfinance Operations Boosting Asian Banks Against Financial Shocks?

The CEO and Managing Director of Sri Lanka’s Hatton National Bank, Rajendra Theagarajah, stated that large populations and microfinance in Asia have provided a “buffer” against the global financial crisis. An article in Sri Lanka’s Daily News reported on a speech Theagarajah gave at the Lanka Business Report-Lanka Business Online CEO Forum, stating that Asia has been able to withstand shocks to the global financial crisis due to a strong banking sector, the market available as a result of large populations, and investing in microfinance instead of focusing on subsidies. Theagarajah highlighted countries such as Cambodia, Indonesia and Bangladesh as having banks which have previously invested in microfinance and as a result have had extremely high profit margins. The banks to which he was referring were not identified, nor the role played by microfinance in any profit increases. He also stated that banks in Asia have adopted measures since the 1997 Asian Financial Crisis that are further protecting them from feeling strong negative impacts of the current crisis.

by Lori Curtis -

MICROCAPITAL STORY: New Insights Into The Impact of The Global Credit Crisis Envisage A Slow in Growth for Microfinance According to Reuters, World Bank, ACCION and YES Bank

Two stories on how the global financial crisis will impact microfinance were released this week, by Reuters and the World Bank. These reports are only the latest in a slew of reports and analyses on how microfinance will be impacted by the credit crisis, ranging from extremely cautious pessimism to undaunted optimism. While these new reports remain mostly speculative, with little documented evidence of actual changes, they offer fresh insights by experts in the microfinance industry into whether any impacts have been experienced a few months into the credit crisis. As there have been a myriad of articles on the topic, this article highlights the unique or new information addressed in the two reports, with a list of past articles on the topic listed in the Additional Reading section below for further information.

by Jeffrey Erfe -

MICROCAPITAL PAPER WRAP-UP: Innovations in Microfinance in Southeast Asia, by Gilberto M. Llanto and Ryu Fukui

Written by Gilberto M. Llanto and Ryu Fukui and based on secondary research carried out by the authors, released in July 2003 by the Philippine Institute for Development Studies as Discussion Paper No. 2003-11, 18 pages, available on November 16, 2008 at: http://econpapers.repec.org/paper/phddpaper/dp_5F2003-11.htm

Gilberto M. Llanto and Ryu Fukui describe the “emerging innovations” in microfinance observed through 2003 in Southeast Asian markets, innovations that made it possible for microfinance institutions (MFIs) to reach a greater number of poor households in a sustainable manner.  These innovations help reduce MFIs’ transaction costs and risks and enabled poor households to smooth their investment and consumption patterns.  While the paper also argues for government support of microfinance (p. 13-14), the rest of this paper wrap-up summarizes the nature and extent to which these three innovations have strengthened Southeast Asian microfinance.

by Iyanna Holmes -

MICROCAPITAL STORY: SKS Microfinance Raises $75.4m in Equity Capital in Transaction Led by Sandstone Capital

SKS Microfinance Pvt. Ltd. has announced the closing of a fourth round of equity financing in which it raised Rs 366 crore, approximately USD 75.4 million.  The transaction was led by Sandstone Capital, a U.S. hedge fund based in Boston, MA.  Also participating in the transaction were existing investors Kismet Capital and SVB India Capital Partners, an affiliate of Silicon Valley Bank.  Edelweiss Capital was the investment banker to the issue.

by Lori Curtis -

MICROCAPITAL STORY: Outdated Regulatory Frameworks and Inadequate Business Models Identified as Key Challenges to Financial Inclusion at World Economic Forum’s Inaugural Summit on the Global Agenda

The redesign of regulations, development of innovative business models that promote inclusion, financial literacy, expansion of delivery channels, and lowering of transaction costs were highlighted as key challenges for expanding the inclusivity of the global financial system by the World Economic Forum‘s Global Agenda Council On Financial Empowerment. The inaugural Summit on the Global Agenda recently assembled 700 of the world’s leaders from academia, business, government and society to set priorities on key global challenges, the outcomes of which will be integrated in the World Economic Forum Annual Meeting 2009 for further discussion.

by Lori Curtis -

MICROCAPITAL STORY: Cambodian Credit Bureau To Be Launched for Regulating Banking and Microfinance

Regulators in Cambodia are planning the creation of the nation’s first credit bureau to link the country into a national financial database, it was reported in the Phnom Penh Post. The credit bureau would act as a registry for the details of all loans which would be submitted by microfinance institutions (MFIs) in Cambodia. While the report did not specify which authorities will launch the credit bureau, The International Finance Corp, a member of the World Bank Group, and the National Bank of Cambodia, Cambodia’s Central Bank, made statements regarding the need for the bureau and the desired date for the launch, which is in April 2010, while Angkor Microfinance Kampuchea (AMK) and ACLEDA Bank also spoke about the benefits of regulation in the microfinance sector. The motivation for the creation of a credit bureau has been brought on by the global credit crisis as its effects expand to Cambodia, combined with the rapidly growing banking sector.

by the MicroCapital Team -

MICROCAPITAL STORY: How Far Will the Credit Crunch Affect the Microfinance Industry?

At the Worldwide Microfinance Forum, 1st-2nd October in Geneva, the investment managers and financial specialists of the industry met to discuss how they could improve their returns. The mood was upbeat, with a general agreement that this emerging sector has a growing and buoyant future ahead of it, despite the panic and events that were unfolding in the mainstream financial world as the conference took place.

by Scott Everett -

MICROCAPITAL STORY: Blog Action Day 2008 focuses on Poverty, Microfinance

Blog Action Day (BAD08) is an annual nonprofit event focused on uniting the world’s bloggers, podcasters, and videocasters to post about the same issue on the same day. The goal is to raise awareness and generate a global discussion on one issue. The theme this year was poverty and the event took place on October 15th. Beginning this year the organizers will be compiling a selection of the best posts from the day into a short report for distribution to NGOs and the public, to showcase some of the innovative ideas and actions that came out of the dialogue. The event generates a huge influx of web searches on the theme and organizers estimate that 13 million individuals visited over 12 thousand participating blogs.

by the MicroCapital Team -

GUEST EDITORIAL: Ties to Capital Markets Challenge Microfinance Institutions

Once relatively insulated from the world’s financial system, the microfinance industry is finding itself more closely tied to the capital markets than ever before. As a result, it is far from being immune to the current financial crisis, and some microfinance institutions (MFIs) are beginning to see their cost of borrowing go up as a consequence of the global credit crunch.

by Scott Everett -

MICROCAPITAL STORY: Remittances and Microfinance in 2008

Remittances, the portion of international migrant workers’ earnings sent back from the country of employment to the country of origin, play an important role in the economies of many developing countries. An annual statistical report done by the World Bank shows that remittances account for 5% of the GDP for low-income developing countries as of 2006. Although this figure might seem small, many countries in particular have a much higher percentage of their GDP based in Remittances; Guyana, Haiti and Honduras are all close to 25%.  The Philippines, Nicaragua, Nepal, Guatemala and El Salvador are all in the 10-20% range. Jack Kimball of Reuters points out that “remittance cash may be as much as 50 percent higher than current estimates due to informal transfers.” Global remittances from foreign workers make up an estimated $300 billion a year, three times as much as the foreign aid paid out by governments in the developed world. The biggest share of this, over $42 billion, comes from immigrants working in the United States. But what these numbers really reflect is that millions of families and individuals in these countries have come to depend on remittances as a vital source of income.