by Christopher Maggio -

MICROFINANCE PAPER WRAP-UP: Banks and Microbanks, by Robert Cull, Asli Demirgüç-Kunt & Jonathan Morduch

Written by Robert Cull, Asli Demirgüç-Kunt & Jonathan Morduch, Published by the Financial Access Initiative in September 2009, 54 pages, available at: http://financialaccess.org/sites/default/files/CP%20Banks%20and%20Microb…

This paper is intended to determine whether or not the presence of banks in 38 developing countries affects the profitability and outreach of microfinance institutions (MFIs). In other words, does competition from larger banks cause MFIs to lose some of their more “profitable” customers, resulting in a smaller average loan size and depressed profits? A smaller average loan size, as well as an increase in women customers as a result of competition, would be indicators of a greater depth of outreach in terms of “poor and excluded groups,” according to the authors. Bank penetration is measured in both “branches per capita” and “branches per square kilometer.” Data from 328 MFIs was used for this study.

by Hio Kyeng Lee -

MICROCAPITAL.ORG BRIEF: Reserve Bank of India Publishes Changes to Microfinance Law

The Reserve Bank of India (RBI) publishes a circular which memorializes changes to India’s Micro, Small and Medium Enterprises Development (MSMED) Act of 2006.  Last month, RBI published several circulars which detailed changes to several aspects of MSMED Act.  The first change is that rural loans granted by India’s Regional Rural Banks (RRBs) are subject to the MSMED Act and its priority treatment of microfinance industry.  The second change incorporates the provision of credit to MFIs for the “investment in plant and machinery.”  The final change is that loans granted by RRBs for “retail trade” are subject to MSMED Act. The MSMED Act provides for special treatment of MFIs with the goal of promoting, developing and enhancing competition in the microfinance industry. 

by Kenny Kline -

MICROCAPITAL.ORG STORY: The 2009 Social Performance Reporting Awards for Microfinance Are In

To qualify for the award, an MFI must meet certain standards developed by the Social Performance Task Force. The Social Performance Task Force (SPTF) was formed in March 2005 by CGAP, the Argidius Foundation, and the Ford Foundation to define social performance for the microfinance industry and address questions relating to social performance measurement and management. The SPTF consists of over 350 leaders from the microfinance field, including practitioners, donors and investors, national and regional networks, technical assistance providers, rating agencies, academics and researchers.

by Radhika Chandrasekhar -

MICROCAPITAL.ORG STORY: Algeria Launches Microfinance Projects to Prevent Recidivism Among Ex-convicts

The Ministry of National Solidarity, an office of the Algerian government, announced last week that it plans to provide microfinance loans to Algerian prisoners who will complete their sentences in the next six months. These microcredit loans aim to help ex-prisoners start their own businesses, which may aid them financially and ease their process of reintegrating into society. On a larger scale, the government hopes that this initiative will help reduce high recidivism rates among ex-convicts in Algeria. [1]

by Hio Kyeng Lee -

MICROCAPITAL.ORG STORY: Developments in International Consumer Protection and Their Relevance to Microfinance Industry

Recent events in the global financial sector have provided the impetus for the launch of the Smart Campaign, a consumer protection campaign focusing on fair lending within the microfinance industry. Although consumer protection practices exist among many microfinance institutions, the Smart Campaign has given these principles an international focus. The architects of Smart Campaign can eventually draw from a dense tapestry of consumer protection laws, regulations, policies already developed in many countries. The challenge will be to adapt existing consumer protection laws, regulations and policies to the specific characteristics of microfinance activities.

by Hio Kyeng Lee -

MICROCAPITAL.ORG STORY: Developments in the Past Year of Microfinance Regulation Coverage by Microcapital.org

     Microfinance regulation has provided rich fodder for reporting over the past twelve months of coverage by Microcapital.org.  Nearly twelve months ago, in November 2008, Microcapital.org reported on the World Economic Forum’s Inaugural Summit on the challenges posed by regulatory frameworks as policy makers grappled with the question of how to advance microfinance.  Since that time, there have been a number of international agencies as well as developed country governments involved in researching and collaborating on guidelines for the strengthening of microfinance regulation. On the other hand, there have also been doubts about the relevance of regulation to microfinance sector:

by Diya Chopra -

MICROFINANCE PAPER WRAP-UP: Advances in Measuring Social Performance for Microfinance Institutions by Micol Pistelli

Written by Micol Pistelli, Manager of Social Performance at MIX for Workshop 8 at the IDB Foromic 2009 (Inter-American Forum on Microfinance) in Arequipa, Peru. Published October 2009 by the MIX, 2 pages, available at: http://www.themix.org/publications/executive-summary-social-performance-standards-presentation-2009

by Christopher Maggio -

MICROCAPITAL.ORG STORY: The Central Bank of India, A Nationalized Commercial Bank, Signs Deal with Government of Orissa and State-Owned Industrial Promotion and Investment Corporation (IPICOL) for Rs 25,000 Crore (USD 5.3 Billion) Line of Credit for Micro, Small and Medium Enterprises (MSMEs) Over 5 Years

The Central Bank of India, a nationalized commercial bank has plans to extend Rs 25,000 crore, the equivalent of over USD 5.3 billion worth of credit over five years to micro, small and medium enterprises (MSMEs) in the east coast state of Orissa [1,2]. The credit comes after the Central Bank signed a deal with the government of Orissa and the Industrial Promotion and Investment Corporation (IPICOL), a state-run organization that “[operates] the State incentive schemes to large and medium industries under the Industrial Policy of the Government” [3,4]. Prior to this, the Central Bank of India had only made investments worth Rs 3,000 crore, the equivalent of over USD 644.8 million, in the Orissa state [1].

by Radhika Chandrasekhar -

MICROFINANCE EVENT: Microfinance in the World Today: Opportunities, Challenges and Seeds of Hope by OikoCredit and the Center for Social Value Creation, November 2, 2009, College Park, Maryland, US

Event Name: Microfinance in the World Today: Opportunities, Challenges and Seeds of Hope

Event Description: Conference

Event Location: College Park, Maryland, United States

by Christopher Maggio -

MICROFINANCE PAPER WRAP-UP: Turning Principles into Practice: A Nicaraguan MFI Commits to Consumer Protection, by the Microfinance Gateway

Written by the Microfinance Gateway, Published on the Microfinance Gateway in July 2009, available at: http://www.microfinancegateway.org/p/site/m/template.rc/1.26.10904/

This article covers the steps taken by Banex, a Nicaraguan microfinance institution (MFI), to ensure that the Client Protection Principles put together by ACCION’s Center for Financial Inclusion and the Consultive Group to Assist the Poor (CGAP) are put into practice [1,2,3,4]. The principles were formed following the initial public offering (IPO) of Compartmos, a Mexican MFI, led to speculation over whether MFIs are taking profits into consideration more than the best interest of their clients [5]. The Client Protection Principles are as follows:

by Hio Kyeng Lee -

MICROCAPITAL.ORG STORY: The Smart Campaign Industry Leaders Call For Key Consumer Protection Initiatives

On October 20, 2009, Vikram Akula of SKS Microfinance in India,  Elizabeth Littlefield of CGAP at The World Bank and  Kurt Koenigsfest of BancoSol in Bolivia spoke during a panel discussion on how to instill consumer protection principles within the microfinance industry.  Elisabeth Rhyne, managing director of the Center for Financial Inclusion at ACCION International, made introductory remarks and Robin Ratcliffe, Director of the SMART Campaign, moderated the discussion.[1]

by Chinq Yee Chong -

MICROCAPITAL.ORG STORY: Braking Securitizations – India’s Economic Times Reports That The Reserve Bank of India Proposes To Ask Originating Banks To Hold Loans On Their Balance Sheets For 6 Months To Stem ‘Reckless Securitizations’ And Suggests That Holding Periods Should Be Tailored For Banks Originating Microfinance Loans

A recent article in India’s Economic Times entitled ‘The Reserve Bank of India may ask banks to hold securitised debt for six months’ [1] by Gaurav Pai noted that the Reserve Bank of India (RBI) [2] may ask Indian banks to retain originated debt on their loan books for six to seven months before selling or securitising those loans to other market players. A securitisation is a financing technique under which loans originated by a bank are sold to another market participant, usually a special purpose vehicle (SPV) for an agreed price. The SPV funds the purchase of the portfolio of loans from the originating bank by issuing debt instruments to investors. These debt instruments are often known as ‘asset backed securities’ as they are typically backed or collateralised by the portfolio of loans.

by Zoran Stanisljevic -

MEET THE BOSS: Discussions on Successful Due Diligence When Evaluating Microfinance Investment Vehicles’ (MIV’s) Financial Viability: Interview with Christina Leijonhufvud, Managing Director, Social Sector Finance Group (SSF)/Investment Bank (IB) at JP Morgan (Part III of a Three Part Series)

Ms. Leijonhufvud is Managing Director of the Global Social Sector Finance Group at JPMorgan. The SSF unit leverages JP Morgan’s products and skills to help bring financial services to microfinance and social enterprises around the world.  The scope includes capital markets, structured products and principal investments.  The unit seeks to achieve a double bottom line of social benefit and financial returns. According to JP Morgan, potential demand for sustainable financial services is immense, at an estimated USD 300 billion. JPMorgan utilizes its global IB platform to raise capital to support poverty alleviation initiatives in developing economies

Ms. Leijonhufvud has led J.P. Morgan’s Social Sector Finance unit since its inception in late 2007. A double bottom line initiative that brings financial services and financing to microfinance institutions and other enterprises serving the base of the economic pyramid, Social Sector Finance also focuses on engaging the firm’s employees in these sectors. Outside J.P. Morgan, Ms. Leijonhufvud serves on the Advisory Board for the Center for Financial Inclusion, has been a consultant to Ashoka-Innovators for the Public in their social financial services venture, and has lectured widely on financial globalization and emerging markets risks. Ms. Leijonhufvud has held various risk management positions at J.P. Morgan, including as head of Country Risk Management & Advisory, Credit Portfolio Market Risk Management, Emerging Markets Market Risk Management, and Industry Concentrations. Prior to joining J.P. Morgan in 1996, Ms. Leijonhufvud worked at the World Bank as Country Officer, helping develop reform programs and borrowing strategies for the former Soviet Republics of Central Asia. In 1991, she served on the Economic Reform Committee for the Government of Kazakhstan. Ms. Leijonhufvud earned a M.Sc. degree in Economics from the London School of Economics, a M.A. degree in International Affairs from George Washington University, and a B.A. in Sociology from UCLA.

by the MicroCapital Team -

MEET THE BOSS: Interview with Richard Weingarten, Managing Director of the Norwegian Microfinance Initiative (NMI)

The Norwegian Microfinance Initiative (NMI) is a partnership between the Norwegian public and private sectors that will invest in microfinance institutions (MFIs) in developing countries. NMI will also provide professional assistance and technical support for these institutions. NMI will invest through two investment funds: the NMI Global Fund, which invests primarily in microfinance investment vehicles (MIVs) focused on investments in Africa, Asia and Latin America, and the NMI Frontier Fund, which invests primarily in emerging MFIs in Sub-Saharan Africa and South Asia. Investors have committed NOK 600 million (approximately USD 100 million) to the two funds. Professional and technical assistance will be provided through the NMI Professional Assistance Facility, funded by Norad, Norway’s international development agency. Investors and strategic partners of NMI include Norfund (a development finance institution owned by the government of Norway) and four private sector financial services institutions: Ferd, KLP, DnBNOR, and Storebrand.

MicroCapital: What is the background of NMI?

Richard Weingarten: The Norwegian Microfinance Initiative is a new partnership between the government of Norway (through Norfund, Norway’s development finance institution), and four private sector financial services firms. Those four firms are Storebrand, a large insurance company; KLP, a large insurance and pension fund manager; DnBNOR, the largest bank in Norway, through Vital, its insurance subsidiary; and Ferd, which is a large private equity firm. This is a true public-private partnership in the sense that the private sector partners contributed capital equally with the public sector. Total capital is about USD 100 million. One of the main purposes of the partnership was for NMI, as a special Norwegian initiative, to become a significant contributor and participant in the international microfinance community.

by Hio Kyeng Lee -

MICROFINANCE PAPER WRAP UP: Microfinance Consensus Guidelines: Guiding Principles on Regulation and Supervision of Microfinance, written by Robert Peck Christen, Timothy R. Lyman, Richard Rosenburg

     In surveying the landscape of microfinance regulation, the authors make a threshold distinction between prudential and non-prudential regulations. Prudential regulations have dual objectives, the soundness of the financial sector as a whole and the protection of individual deposits. They are typically complex, burdensome to meet and require the oversight of a central financial authority. The current discussion surrounding microfinance regulation has emphasized prudential regulations. The authors believe that in certain circumstances, however, “the most pressing issues are non-prudential – how to enable MFIs to lend legally.” (pg. 4.). Non-prudential regulations are concerned with “conduct of business” and can often be regulated by existing authorities within their respective spheres of influence. In other words, non-prudential regulations may prove adequate to the task where prudential concerns are not at issue. A non-exhaustive list of issues that can be addressed with non-prudential regulations include: permission to lend; fraud and financial crime prevention; interest rate limits; limitations on ownership, management, and capital structure; tax and accounting treatment of micofinance; and feasible mechanisms of legal transformation. This distinction is more than academic because regulations require the dedication of supervisory resources which are themselves scarce. By carefully calibrating prudential versus non-prudential matters, a government may effectively mobilize scarce resources and promote microfinance development.