A recent article from LiveMint.com highlighted the results of ‘State of the Sector 2009,’ a study of 230 microfinance institutions (MFIs) in India performed by ACCESS Development Services, “a not-for-profit organization that offers consulting services to MFIs” [1,2,3]. According to the report, “one out of three microfinance institutions (MFI) in India made losses in fiscal 2009,” which ended on March 31, 2009 [1]. Additionally, 42 percent of MFIs with a loan portfolio at or below INR 5 crore, the equivalent of over USD 1 million, reported losses in the same fiscal year [1]. On the other hand, 80 percent of MFIs with a loan portfolio above INR 50 crore, the equivalent of over USD 10.7 million, were profitable [1]. The article cites operating costs for smaller MFIs, which can be as high as 60 percent of total costs, as an explanation [1]. In terms of repayment, the report claims that the MFIs in the study recovered 99 percent of loans [1]. Overall, the MFIs in the study nearly doubled their loan portfolio in fiscal year 2009, reaching INR 11,734 crore, the equivalent of over USD 2.5 billion, and added 8.5 million borrowers, resulting in a total of 22.6 million borrowers [1].
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MICROCAPITAL BRIEF: MoneyGram International to Extend Money Transfer Services to Two Cooperative Banks in India, Abhyudaya Co-op Bank Limited and Thane Janata Sahakari Bank Limited
MoneyGram International, a U.S. financial services company, will soon extend its money transfer services to two cooperative banks in India, Abhyudaya Co-op Bank Limited and Thane Janata Sahakari Bank Limited [1,2,3,4]. This brings the total number of banks in India offering MoneyGram’s money transfer services to 18, with Abhyudaya and Thane Janata Sahakari being the first cooperatives to do so [1]. MoneyGram has offices in New Delhi and Mumbai, and this deal will extend the company’s reach to “smaller cities and towns in the states of Maharashtra, Karnataka, and Gujarat” [1]. According to the World Bank, Indian remittances in 2008 totaled USD 52 billion [1].
MICROCAPITAL BRIEF: Indian Microfinance Technology Provider ‘Financial Information Networks and Operation’ (FINO) Receives $15m in Equity Capital from HSBC Private Equity, Intel Capital, and the International Finance Corporation (IFC)
Financial Information Networks and Operation (FINO), an Indian company that provides technological products to microfinance institutions (MFIs), banks, and insurance companies, has received a INR 70 crore infusion, the equivalent of over USD 15 million, in private equity funding from HSBC Private Equity, the equity investment arm of the Hong Kong bank; Intel Capital, the investment arm of the American semiconductor producer; and the International Finance Corporation (IFC), the investment arm of the World Bank [1,2,3,4,5]. Details of how much was invested by each organization were not made available. Rishi Gupta, Chief Financial Officer of FINO, has stated the capital will be used to help “meet the demand” for various products including servers and biometric cards that store transaction records [1]. The transaction was advised by Avendus Capital, an investment bank based in India [1,6]. In an apparently separate transaction, HSBC and Intel have purchased the stake of FINO formerly owned by Legatum, an investment group based in Dubai [1,7]. Legatum originally bought this stake in 2007 for USD 4.5 million, as reported by MicroCapital [1,8]. According to Mr. Gupta, HSBC and Intel purchased the stake for a “far higher,” though unspecified, price [1]. The percentage stake that HSBC and Intel now have is also unspecified.
MICROCAPITAL BRIEF: Grameen Koota, India-Based Microfinance Institution (MFI), Receives Rs 27.5 Crore ($5.88m) in Equity Capital
Grameen Koota, an India-based microfinance institution (MFI) that is a division of Grameen Financial Services Private Limited, has raised equity capital worth INR 27.5 crore, the equivalent of over USD 5.88 million [1,2].
The funds were raised through investments from four funds: Italy’s MicroVentures SpA, Luxmbourg’s MicroVentures Investments (an affiliate of MicroVentures SpA), Belgium’s Incofin, and Aavishkaar Goodwell, an “Indian-Dutch joint venture” [3,4,5]. This is Grameen Koota’s second round of equity funding, after receiving an equity investment in 2008 of INR 9.2 crore, the equivalent at the time of over USD 2.3 million, from Aavishkaar Goodwell [6]. According to Suresh Krishna, the Managing Director of Grameen Koota, this investment will be used to increase the MFI’s number of borrowers in the Indian states of Karnataka and Maharashtra, to expand lending to the states of Andhra Pradesh, Tamil Nadu, and Madhya Pradesh, and to “invest in technology development” [1,7].
KNOW A MICROFINANCE REGULATOR: Regulators of Microfinance in Bangladesh, India, Brazil, Bolivia, Egypt And Kenya
The following regulators are profiled in this brief:
Bangledesh – Microcredit Regulatory Authority (MRA), located at: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microcredit+Regulatory+Authority+%28MRA%29
India – National Bank of Agriculature and Rural Development (NABARD), located at: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=National+Bank+of+Agriculature+and+Rural+Development+%28NABARD%29
Brazil – Central Bank of Brazil (BCB), located at: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Brazil+%28BCB%29
Bolivia – Superindendent of Banks and Financial Entities (SBEF), located at: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Superindendent+of+Banks+and+Financial+Entities+%28SBEF%29
Egypt – Central Bank of Egypt (CBE), located at: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Egypt+%28CBE%29
Kenya – Central Bank of Kenya (CBK), located at: http://docs.google.com/Doc?docid=0Adr0wzXJKlP0ZGZiN3dwYnFfMzlocDhnZHZmNQ&hl=en
MICROCAPITAL BRIEF: International Finance Corporation (IFC) to Provide Kotak Mahindra Bank of India with Trade Financing Line of $51m to Lend to Small and Medium Enterprises (SMEs) Involved in International Trade
The International Finance Corporation (IFC), the investment arm of the World Bank, is set to provide a trade financing line of USD 51 million to Kotak Mahindra Bank, an Indian commercial bank, to lend to small and medium enterprises (SMEs) involved in international trade [1,2,3]. The line is part of the IFC’s Global Trade Finance Program, a USD 3 billion program intended to allow banks to “deliver trade financing by providing risk mitigation in new or challenging markets where trade lines may be constrained” [4]. Kotak Mahindra is the first Indian bank to be supported under this program [1]. MicroCapital has reported on the participation of other banks in this program, including Bank Respublika of Azerbaijan [5]. Dipak Gupta, the Executive Director of Kotak Mahindra Bank, has stated the importance of the line in allowing the bank to provide “a wider base of short-term foreign-currency trade finance products” [1].
MICROCAPITAL BRIEF: Indian Microfinance Institutions Wary of Housing Lending
Livemint.com, an affiliate of The Wall Street Journal, reports that only two microfinance institutions of seven surveyed have forayed into housing finance. Default worries are holding back the others, who generally loan to groups, not individuals. A senior official at SKS Microfinance Ltd, who did not wish to be identified, was quoted as saying, “It’s a different and a difficult ball game. We do not know yet how to price it…defaults would be high.” On a pilot basis, Madura Micro Finance Limited is offering 100 customers up to the equivalent of USD 2200 for the purchase or construction of a house. Whereas self-help group loans are priced at up to 21 percent interest, the housing loans are set at 18 percent to attract customers.
MICROCAPITAL BRIEF: State-Run ‘National Bank for Agriculture & Rural Development’ (NABARD) of India to Finance Microfinance Institution (MFI) Ratings
The National Bank for Agriculture & Rural Development (NABARD), a state-run development bank in India, will encourage investment in microfinance institutions (MFIs) by offering funding to regional rural banks and cooperative banks to purchase ratings of MFIs [1,2]. The scheme will last until March 31, 2010 [1]. With the scheme, NABARD hopes to “encourage proper standards, systems and safeguards, efficiency and transparency” amongst MFIs [1]. NABARD has agreed to reimburse up to INR 300,000, the equivalent of over USD 6,000, to banks for the first rating performed by Crisil, M-CRIL, ICRA, CARE and Planet Finance or another approved agency [1]. Eligible MFIs to be rated must have loans outstanding worth a minimum of INR 5 million, the equivalent of over USD 107.7 thousand, and a maximum of INR 100 million, the equivalent of over USD 2.1 million [1].
MICROCAPITAL.ORG BRIEF: International Finance Corporation (IFC) Set to Invest $7.5m in AU Financiers of India
The International Finance Corporation (IFC), the investment arm of the World Bank, plans to invest USD 7.5 million (INR 350 million) in AU Financiers Pvt Ltd., a non-banking financial company (NBFC) headquartered in Jaipur, India. AU Financiers, which raised USD 4.3 million (INR 200 million) earlier this year from private equity fund Motilal Oswal Venture Capital, is planning to raise an overall funding of USD 14 million (INR 650 million). Further financial details are unavailable. The company provides microfinance, agri-finance, insurance, vehicle financing and personal loans to rural and semi-urban areas in the Indian states of Rajasthan, Maharashtra and Gujarat and plans to expand its services to other states. According to the IFC project description, AU Financiers “will fund its growth and expansion through a mix of equity capital, bank loans and securitization assignments.”
MICROFINANCE EVENT: National Conference on Microinsurance on December 10-11, 2009 in New Delhi, India
Event Name: National Conference on Microinsurance
Event Description: The goal of this conference is to facilitate discussions between practitioners, regulators, actuaries, and researchers on issues related to the provision of microinsurance in India, while especially focusing on more vulnerable states with lower Human Development Indices (HDI). Specific topics to be discussed include: (1) Microinsurance issues and innovations regarding weather, health, and other livelihood products, (2) Distribution models: relevance and operational challenges, (3) Role of microinsurance in financial inclusion, and (4) Role of policy makers in facilitating proper environment.
MICROCAPITAL.ORG BRIEF: IFMR Capital and Equitas Micro-Loan Securitization Allows for Mutual Fund Investment in Indian Microfinance Sector
The micro-loan securitization with pass-through certificates (PTCs or securities), completed by the Institute for Financial Management and Research (IFMR) Capital and Equitas Micro Finance India Pvt Ltd, has created an opportunity for mutual funds to invest in the Indian microfinance sector. IFMR Capital is a non-banking finance company based in Chennai, India, and Equitas is a microfinance institution (MFI) also based in Chennai.
MICROCAPITAL BRIEF: International Finance Corporation (IFC) Takes $1.1m Equity Stake in Belstar, Microfinance Division of Hand in Hand of India
International Finance Corporation (IFC), a member of the World Bank Group, has agreed to provide equity of USD 1.15 million to Hand in Hand’s microfinance arm, Belstar Investment and Finance Limited. Hand in Hand is an NGO that is involved in efforts such as reducing child labor and malnutrition and improving solid waste management. The financing is intended to enable Belstar to obtain support from other investors and IFC Advisory Services will help Belstar improve risk management, staff training and product range.
MICROCAPITAL.ORG BRIEF: The Life Insurance Corporation of India Extends Microinsurance Policies to Cover All Workers in 255 Rural Indian Villages
All 11,500 workers under the National Rural Employment Scheme (NREGS) in the Saikul area of Manipur, India, are now registered microinsurance policyholders under the Life Insurance Corporation of India (LIC). NREGS, enacted by the Indian Parliament in 2005, works to improve financial inclusion in rural areas, especially for people living below the poverty line. The 11,500 workers, spanning across 255 villages, will receive a total of Rs 150 million (USD 3.2 million) upon maturity of the insurance policies, which range between 5 to 15 years.
MICROCAPITAL BRIEF: Nokia Expects Huge Growth in Mobile Payments in India, Other Emerging Economies
Mobile phone maker Nokia is one many players positioning itself for an anticipated surge in the mobile financial services industry. “This is one of the biggest opportunities out there for mobile. The potential is enormous, but it is a very complex business,” Teppo Paavola, head of Nokia’s Money service told Reuters recently. Nokia has invested in privately-owned Obopay and is scheduled to rollout its service, which is based on SMS (text messaging), with several banks early in 2010. The global mobile financial services market is estimated to become worth USD 27 billion by 2014.
MICROCAPITAL BRIEF: India Financial Inclusion Fund (IFIF) Raises USD 90m in 15 Months for Microfinance Investments
The India Financial Inclusion Fund (IFIF), an equity fund that invests in companies that provide financial services to low-income clients, has, after its final closing, raised USD 90 million worth of capital in the last fifteen months, according to Mona Kachhwaha, the Director of Investments at Caspian Advisors Private Limited, the adviser to IFIF [1,2,3]. The fund will be used to invest in microfinance institutions (MFIs), companies that provide low-cost housing, and other “firms that enable the provision of financial services to the poor” such as “business correspondents to banks and technology companies in [the] sector” [1]. It includes commitments from companies such CDC Group, a “UK government-owned fund” that invests in funds intended for emerging markets [1,4,5,6]. MicroCapital reports on early IFIF fund-raising from CDC Group and other sources can be found in the bibliography [5,6].
MICROCAPITAL.ORG BRIEF: Reserve Bank of India Recommends Formation of Umbrella Organizations for Credit Unions
The Reserve Bank of India (RBI) published a report on the research findings about whether there is a need to establish a national umbrella trade association for Urban Cooperative Banks (UCBs), commonly known as credit unions. The report also discovered that the broad range of UCBs in terms of type, range of services and economic viability leads to a lack of cohesion in the industry resulting in their relative inability to compete against commercial banks. The recommendation of the report is that an umbrella trade association would provide a shared infrastructure, such as a common ATM network, which would enable UCBs to achieve economies of scale. In addition, an umbrella trade association would provide an emergency liquidity facility and a “Revival Fund” for struggling UCBs.
MICROCAPITAL BRIEF: Indian Microfinance Institutions Make Dent in Housing
Poor people in India looking to buy a home may face many obstacles, such as having no history of filing tax returns. Because traditional lenders are often unwilling to lend to customers in such situations, housing developers are partnering with microfinance institutions to provide mortgages to small shop owners, taxi driver, vegetable vendors and others who might earn around USD 200 per month.
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.