In an article entitled ‘Debunking Myths About The Poor And Financial Services’ in the Wall Street Journal [1], Mr Suyash Rai, a Senior Manager with IFMR Trust [2], and Ms Sona Varma, Senior Advisor with IFMR Trust, attempt to address what they perceive to be ‘a number of popularly held misconceptions about role of finance in the lives of the poor’. IFMR Trust is a private trust with the mission of ensuring complete access to financial services for individuals and enterprises in India. It does not supply data to the MIX Market portal, an online database that houses financial and other information on MFIs around the world [11].
Search Results for: measure
MICROCAPITAL.ORG STORY: Article in US Banker Magazine Refers To Microfinance Banana Skins Report 2009 And Analyses The Impact Of Global Financial Crisis On Microfinance Sector Based On Observations By Citi Microfinance, CGAP And ShoreBank International Ltd.
A recent article in the US Banker journal [1] sets out some observations about the much discussed topic of the impact of the global financial crisis on the microfinance sector. Reporter Mr Joseph Rosta makes references to the ‘Microfinance Banana Skins 2009’ [2], a publication by British-based think tank CFSI [3] that measures the risks facing the microfinance sector, and reiterates the view held by some market participants that the sector ‘could face a fall in growth and funding because of the global recession and declining investor confidence’. The survey, which forms the basis of the Banana Skins 2009 report, is based on interviews with more than 400 microfinance lenders, investors, regulators and analysts in 82 countries. The report states that of the top 10 risks now facing the microfinance sector, nine are directly or indirectly related to the economic meltdown, including the two biggest: credit risk and liquidity.
MICROFINANCE PAPER WRAP-UP: Emerging Markets in Microinsurance, by Arthur D. Little
Published August 2009 as #135 of reports released by Arthur D. Little, 4 pages, available for registered ADL website users at: http://www.adl.com/reports.html?&no_cache=1&view=421
MICROCAPITAL.ORG STORY: Controversial Reuters Blog On Microfinance Investments Generates Comments And Criticisms
In a blog by Felix Salmon controversially entitled ‘Don’t invest in microfinance’ [1], Mr Salmon carries on the recent debate about the viability of investing in the microfinance sector. The blog was initiated soon after a series of provocative articles on the Wall Street Journal [2] that likened the increasing valuations of MFIs in by participants in the private equity sector to a ‘bubble’ that was not sustainable. Mr Salmon notes in his blog that it is ‘much better that microfinance organizations grow a little more slowly, and much more organically, either by getting grants rather than loans, or by funding themselves locally’ rather than to grow rapidly using private-equity backed microfinance dollars. He stated that whilst private equity funding was ‘the only way to scale up quickly’, he added that ‘speed is the enemy of quality’. Mr Salmon further noted that a lot of institutional investors reap their profits from taking on board the significant foreign currency risks that are inherent in most microfinance investment transactions. He added that these significant profits will mean that the new organizations that have started to offer hedging services to MFIs are unlikely to be hugely successful. Foreign currency hedging in microfinance is an issue that has been covered in previous Microcapital.Org stories [3], [4]. He ended the blog with a blanket statement that ‘western do-gooders’ should provide funds to grassroots organizations and added that ‘if [investors] want to make a profit, they should stick to more conventional investments’. He also noted that the participation of institutional investors in the microfinance sector has at times exacerbated the problem of over-indebtedness
NEWS WIRE: India: Reserve Bank Working Group Sees Major Role for Branchless “Business Correspondent” Model
Source: Financial Express.
MEET THE BOSS: Interview with the CEO of OpenRevolution, a Mobile Financial Services Network (Mobile Banking Services) for Microfinance Institutions, Individuals, Merchants, and Micro-Entrepreneurs
OpenRevolution develops mobile banking services in emerging markets. Through partnerships with local mobile network operators and microfinance organizations, OpenRevolution seeks to expand financial access in communities underserved by traditional banking institutions and to develop an integrated set of mobile financial products tailored to the needs of individuals, merchants and micro-entrepreneurs.
Allen Gilstrap, Chief Executive Officer, OpenRevolution
MICROCAPITAL STORY: Indian Venture Capital/ Private Equity Funds Turn to Investing in Microfinance Institutions in India
Venture Capital/ Private Equity funds in India are now looking at investments in Indian microfinance institutions (MFIs), reports The Times of India, an Indian daily owned by The Times Group [1]. The release quotes undisclosed industry observers as predicting that around INR 1000 crore (approx USD 200 million) will be invested by VC/ PE funds in the Indian microfinance space in 2009 alone. Presence of a good management structure coupled with the business scalability demonstrated by several MFIs has been indicated as some of the ‘essential elements’ favoring VC/ PE funding [1]. In addition, the social angle to the business, scope for high growth and opportunity for exit for investors are also projected as factors favorable to potential investors [1].
MICROCAPITAL.ORG PAPER WRAP-UP: The Subsidy Dependence Index (SDI) vs. Financial Self-Sufficiency (FSS) by Scott Gaul
By Scott Gaul, Product Development Manager, published by the MixMarket Microbanking Bulletin, Issue 18, Spring 2009, pages 15-19, available at:
http://www.themix.org/sites/default/files/MBB%2018%20Spring%202009.pdf
According to the report in the Spring 2009 MixMarket Microbanking Bulletin, microfinance practitioners have sought a single simple way to evaluate the performance of microfinance institutions (MFIs). The report notes that the most commonly used (yet incomplete) indicator to model an MFI’s performance to date has been Financial Self-Sufficiency (FSS). On the other hand, the Subsidy Dependence Index (SDI) has been viewed as an alternative measure that more accurately reflects and MFIs reliance on subsidies (relative to its peers). The MixMarket attempts to investigate some of the similarities and differences between the Subsidy Dependence Index (SDI) and the Financial Self-Sufficiency (FSS) and compare these two indictors by utilizing data obtained from the microbanking bulletin (MBB) during 2003-2007.
The report explores when to use SDI or FSS and the distinction between the two models boils down to ‘where is your bottom line?’ While this may be a simple accounting treatment the report notes that the ‘bottom line’ may differ for policy-makers and MFI management and staff.
MICROCAPITAL STORY: Blue Financial Services in South Africa to Continue Microfinance Growth in Africa But Lessens Pace
Blue Financial Services, the South Africa based microfinance institution (MFI) will remain focused on expansion in Africa and will begin operations in more African countries this year, according to a press release on AllAfrica.com. In this regard, the release quotes Blue’s CEO Dave van Niekerk as saying that Blue’s plans in Africa come despite a slowdown in the ‘pace of its expansion due to the global financial crisis.’ [1]. Per information currently available, Blue’s immediate plans also include the setting up of a branch in Ghana over the next 2 months [2]. (AllAfrica.com is a news and information portal owned by AllAfrica Global Media, a multi-media content service provider, systems technology developer and distributor of African news and information worldwide.)
MICROCAPITAL.ORG STORY: Nigerian Central Bank Warns Of Increase In Non-Performing Microfinance Loans, Poor Corporate Governance And Commits To Impose Sanctions On Errant Officials At Microfinance Banks
In a recent report on the Nigerian news portal, Business Day Online [1], entitled ‘CBN to sanction erring directors of microfinance, mortgage banks’ [2], it was reported by Hope Moses-Ashike that the Central Bank of Nigeria (CBN) [3] has threatened to dismiss and prosecute senior officers and operators at microfinance institutions and primary mortgage banks who have been found to have engaged in malpractice. CBN officials expressed displeasure over improper conduct by chairmen, directors, senior management staff and auditors at microfinance institutions and other financial institutions in the country. They warned the operators from Lagos, Ondo, Ogun, Osun, Edo, Ekiti, Oyo and Kwara who attended a weekend meeting for financial institutions in Lagos that the Nigerian police and the Economic and Financial Crimes Commission (EFCC) [4] will be invited to intervene anytime any indication of malpractice is discovered.
MICROCAPITAL EVENT: Microfinance India Summit 2009, October 26-28, 2009 in New Delhi, India, Organized by ACCESS Development Services
Event Name: Microfinance India Summit 2009
Event Date: October 26-28, 2009
Event Location: New Delhi, India, TAJ Palace Hotel
See Our Comprehensive Event Calendar Here: http://microfinanceassociation.ning.com/events
MICROCAPITAL.ORG PAPER WRAP-UP: Elevated Food Prices – Impact on Microfinance Clients by Zaved Ahmed and Camilla Nestor
By Zaved Ahmed and Camilla Nestor, Grameen Foundation, published by the MixMarket Microbanking Bulletin, Issue 18, Spring 2009, pages 14-16, available at:
http://www.themix.org/sites/default/files/MBB%2018%20Spring%202009.pdf
According to the report in the Spring 2009 MixMarket Microbanking Bulletin, food prices in developing countries remain elevated (above international market prices) and continue to negatively impact microfinance clients. Amazingly enough, approximately 1 billion people (nearly one-sixth of the world’s population) subsist on less than USD 1 per day. Both Ahmed and Nestor of the Grameen Foundation note that increasing food prices have the greatest effect on the poor populations that spend between 70 and 80 percent of their household income on food.
MICROCAPITAL STORY: Malaysia Allows International Banks To Provide Microfinance
It was reported in the Malaysian Star newspaper recently that the Ministry of Finance in Malaysia has allowed international banks with operations in Malaysia to provide microcredit. Datuk Seri Ahmad Husni Hanadzlah, the country’s Finance Minister, was quoted as saying that international banks would be permitted to open ten branches nationwide for this purpose. He was also quoted as stating that the main purpose of the new policy was to help ‘small players’ grow their businesses. Datuk Seri Ahmad Husni Hanadzlah further added that the recent move was an additional boost to the Malaysian Ringgit 150 million (approximately USD 42 million) that was recently allocated to the ‘Tekun’ fund to assist small entrepreneurs. According to Malaysia’s Daily Express report, the Tekun Fund, a fund set up to assist small businesses in the rural and agricultural sectors, was allocated the cash injection to help the fund overcome financial difficulties.
MICROCAPITAL STORY: The Economist Magazine Reviews Studies Of The Impact Of Microfinance By The Poverty Action Lab
A recent report in The Economist magazine reviews two papers which focus on the social impact of microfinance. The papers are “The Miracle of Microfinance? Evidence from a Randomised Evaluation” by Abhijit Banerjee, Esther Duflo, Rachel Glennerster and Cynthia Kinnan and published by CGAP (which has been covered in a previous Microcapital Paper Wrap-Up), and “Expanding Microenterprise Credit Access: Using Randomized Supply Decisions to Estimate the Impacts in Manila” by Dean Karlan and Jonathan Zinman and published by the Poverty Action Lab, a centre within the Economics Department of the Massachusetts Institute of Technology whose aim is to reduce poverty by ensuring that policy is based on scientific evidence.
MICROCAPITAL STORY: PS Microfinance Bank in Nigeria Exposed as Unlicensed and Fake, Bank Closes Operations Abruptly, Several Depositors Lose Huge Amounts of Money
Nigeria based PS Microfinance Bank Limited has closed operations abruptly, leading to heavy financial loses for several of its depositors, as per a press release on The Guardian – Nigeria. According to the release, the bank collected money from ‘almost every trader’ in the Akute area in Nigeria with the promise of providing attractive loans. Following the collection of money, the bank officials are said to have closed down not only their rental office in the Akute region but also their head office in the Ogba region of Nigeria. Officials of the bank have reportedly ‘gone into hiding’ and have been unreachable to both their clients and the press. As stated, the victims of the bank’s fraudulent activities are mostly traders including several women and the total loss for the depositors is estimated to be in the range of millions of Naira; an exact figure of the total amount defrauded by the bank is not currently available. Presently, PS Microfinance Bank does not maintain a web presence nor does it appear to report to MIX, the microfinance information clearinghouse; it is however unclear if a website was in fact existent for the bank prior to its closure.
MICROCAPITAL PAPER WRAP-UP: Asset and Liability Management for Deposit-Taking Microfinance Institutions, Kara Bloom
Asset and Liability Management for Deposit-Taking Microfinance Institutions, by Kara Bloom, Published by CGAP, June 2009, Available at: http://www.cgap.org/gm/document-1.9.34818/FN55.pdf
The author acknowledges that financial risk can yield high profits, but urges microfinance institutions (MFIs) to maintain proper asset and liability management (ALM) to find a level of risk the institution can bear. As the financial activity of MFIs grows more complex and funding increasingly comes from commercial sources, the careful examination of the balance sheet can help MFIs measure and evaluate risk. Risk, in this case, is defined as a mismatch between assets and liabilities. In this paper, the author examines three types of risk: liquidity, interest rate, and foreign exchange. Although each type of risk is distinct, ALM strategies for all types include gap analysis to match assets and liabilities over time and volatility analysis to determine the typical fluctuations in the discrepancy between assets and liabilities. The multifaceted approach to ALM proposed by the author includes an official risk-management strategy written by the MFI based on the institution’s own priorities, matching tables for assets and liabilities, and the institution a special committee for ALM. The author provides several matching tables as examples of how to compare assets and liabilities.
MICROCAPITAL STORY: Gambia Association Accountants (GAA) Conference Focuses on Developing the Microfinance Capability of The Gambia
The theme of the recent Gambia Association Accountants (GAA) conference was ‘Development of Microfinance Capability in the Gambia’. Extracts of a discourse delivered at the conference discussed how the government of the Gambia has taken measures aimed at ‘further deepening and building more resilient and sustainable microfinance institutions (MFIs)’ in recent years. The government has drafted a bill to regulate and supervise microfinance activities, reviewed microfinance policy guidelines and the Financial Institutions Act, and approved various microfinance projects.
MICROFINANCE STORY: The European Bank for Reconstruction and Development (EBRD) Lends $10M from Its Microfinance Program to Minsk Transit Bank (MTB) of Belarus
The European Bank for Reconstruction and Development (EBRD), a multilateral development institution that fosters private sector investment in 30 countries in Central Europe and Central Asia, is lending USD 10 million to Minsk Transit Bank (MTB), a commercial bank established in 1994 and based in Minks, Belarus. According to Moody’s, MTB reported total assets of USD 150 million in 2007. MTB is one of six EBRD partner banks in Belarus. The five-year loan to MTB will be used to lend to privately-owned micro, small, and medium-sized businesses (MSMEs). As stated by the EBRD, the funding is to help small businesses in the country weather the crisis.