“A Simple Poverty Scorecard for Nicaragua;” by Mark Schreiner; January 2013; 189 pages; available at http://www.microfinance.com/English/Papers/Scoring_Poverty_Nicaragua_2009_EN.pdf
This document introduces an “easy-to-use” poverty scorecard based on household expenditure data from Nicaragua’s 2009 Living Standards Measurement Survey.
“Regulatory Options to Curb Debt Stress;” by Gabriel Davel; published by CGAP (Consultative Group to Assist the Poor); March 2013; 29 pages; available at: http://www.cgap.org/publications/regulatory-options-curb-debt-stress
This report highlights how the dynamics of credit markets can lead to cycles of credit growth and accumulation of consumer debt followed by widespread default and contraction.
“Microfinance and Patriarchy: A Drift Away from Serving Women;” published by Knowledge @ Wharton; 2013; 3 pages; available at: http://knowledge.wharton.upenn.edu/createpdf.cfm?articleid=3169
This report highlights the importance of gender equality in the provision of microfinance and focuses on the negative impacts of patriarchal attitudes on lending practices.
By Craig Churchill, Aparna Dalal and Josh Ling; published by International Labour Organization, Microinsurance Innovation Facility; 2013; 8 pages; available at: http://www.ilo.org/public/english/employment/mifacility/download/brnote15_en.pdf
This paper examines the challenges faced by microfinance institutions (MFIs) that provide microinsurance products to low-income individuals and businesses.
“Microfinance Mapping Project – Uganda;” published by Haverford College; 2012; 10 pages; available at: http://ds.haverford.edu/wp/mappingmicrofinance/files/2012/07/Microfinance-Mapping-Project-Uganda.pdf
IntelleCash Microfinance Network, a subsidiary of the India-based social-sector advisory firm Intellectual Capital Advisory Services (Intellecap), reportedly has purchased a 56-percent stake in Arohan Financial Services, an Indian microfinance institution (MFI), for INR 520 million (USD 10 million).
The European Bank for Reconstruction and Development (EBRD), a development finance institution headquartered in London, and Crédit Agricole Serbia, a subsidiary of financial institution Crédit Agricole of France, have recently partnered to accept warehouse receipts as collateral for loans totaling EUR 20 million (USD 27.4 million) to agribusinesses in Serbia.
The Microfinance Information Exchange (MIX) has announced the launch of new services on its MIX Market website starting in July 2010, including mid-year data for select microfinance institutions (MFIs) and more comprehensive and up-to-date country profiles. According to MIX Market, eventually these services may only be available to paying subscribers, but the date of any such change is not specified.
HSBC Amanah, the global Islamic banking division of HSBC group, has partnered with Islamic Relief, an international development and relief organization, to offer Islamic Microfinance in Pakistan. Islamic microfinance, just like Islamic banking, will provide financial services to devout Muslims in accordance with the Shariah, the Islamic law. HSBC Amanah will provide both training and funding for Islamic Relief’s microfinance projects, starting in Rawalpindi, Pakistan.
Mercy Corps, a global relief organization, announced the creation of a ‘bank of banks’ (BoB), a commercial bank that will partner with other microfinance institutions (MFIs), in Indonesia. The MAXIS (Maximizing Financial Access and Innovation at Scale) program, developed by Mercy Corps to build BoB and provide technical asistance, received USD 19.4 million from Bill & Melinda Gates Foundation‘s Financial Services for the Poor initiative. The total capital supporting the creation of Indonesia’s first microfinance wholesale bank adds up to approximately USD 33 million, with funding from investors such as International Finance Corporation (IFC), a member of the World Bank Group, and the Hivos-Triodos Fund, a joint initiative of the Humanist Institute for Development Cooperation (Hivos) and Triodos Bank, based in Netherlands.
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