Microfinance Focus, December 30, 2011: “Muhammad Yunus International Centre for Microfinance and Social Business” was recently inaugurated at the Okan University in Istanbul, Turkey. The Centre will provide an independent and open platform for addressing development challenges faced by poor people in Asia.

Nobel Laureate Professor Muhammad Yunus, Founder of Okan University Mr. Bekir Okan, Turkish Minister of European Union Affairs, Egemen Bağış, and the Minister of Family and Social Policies Minister Fatma Sahin, representing the Prime minister of Turkey signed a charter on the occasion.

Founder of Okan Univesity also announced a donation of US$2million to take care of the initial costs of the Centre.

The Centre will conduct applied research in Social Business and Microfinance, and it will engage in efforts to disseminate the research in the academic as well as practitioner communities, especially involving young students and people. The Centre will promote and disseminate Professor Yunus’ philosophy with a special focus on social business. Each year Professor Yunus will give a lecture on social business at the Centre.

This partnership with the Okan University is expected to be a hub of research and practical applications as well as hands-on training for academics and researchers.

During the ceremony, the Turkish Prime Minister HE Recep Tayyip Erdoğan sent a message to Professor Yunus offering all the hospitalities to hold the 2012 Global Social Business Summit in Turkey.

 

Microfinance Focus, December 30, 2011: Deputy Governor of Reserve Bank of India (RBI), Mr. H. R. Khan visited microfinance institution Bandhan in Howrah, West Bengal. He was accompanied by two other senior officials of RBI, Kolkata.

Mr. Khan in his speech appreciated the work being done by Bandhan Financial Services and was pleased to learn about the organization’s credit plus programs. He emphasized on the need of development activities like these and highly appreciated the efforts being taken by Bandhan.

He further added that besides financial support, these underprivileged population need assistance in other significant fields such as education, health and the like.

Bandhan also hosted a three day exposure visit for Relief Society of Tigray (REST), an Ethiopian organization this month. It hosted a similar visit for Baoshang Bank, China after receiving a request from China Microfinance Association. The two day exposure visit took place in November in New Delhi.

 

Microfinance Focus, December 30, 2011: The United Nations General Assembly has declared 2012 as the International Year of Cooperatives, highlighting the contribution of cooperatives to socio-economic development, particularly their impact on poverty reduction, employment generation and social integration.

With the theme of “Cooperative Enterprises Build a Better World”, the Year seeks to encourage the growth and establishment of cooperatives all over the world. It also encourages individuals, communities and governments to recognize the agency of cooperatives in helping to achieve internationally agreed upon development goals, such as the Millennium Development Goals

The United Nations General Assembly Resolution encourages all member States, the United Nations and all relevant stakeholders to take advantage of the IYC to promote cooperatives and raise awareness of their contribution to social and economic development and promote the formation and growth of cooperatives.

The resolution also invites governments and international organizations, in collaboration with cooperatives and cooperative organizations, to promote, the growth of agricultural cooperatives through easy access to affordable finance, adoption of sustainable production techniques, investments in rural infrastructure and irrigation, strengthened marketing mechanisms and support for the participation of women in economic activities.

Microfinance Focus, December 29, 2011: Microfinance institution Equitas has launched Tele Healthcare delivery for its members and their families in association with the HealthNet Global Limited.

Funded by Fem Sustainable Social Solutions (FEM S3), HealthNet will be using Apollo Hospitals physicians to address healthcare and reach out to over a million families anytime anywhere. The Consult 4 Health and Call 4 Health products were developed by CIRM (Centre for Insurance and Risk Management) exclusively for Equitas clients.

Consult 4 Health is a Tele Medicine solution that provides interactive healthcare in real-time online utilizing modern technology and telecommunications. For a nominal charge of Rs. 50, it allows the patients to consult an Apollo physician over video for immediate health care.

It will be available at Equitas Branch Offices to provide easy access to members and their families.

Mr. P.N. Vasudevan, Managing Director, Equitas said, “It is our endeavor to improve the quality of lives of our members and their families. Healthcare is a source of significant financial stress for this segment, particularly who lack access to quality healthcare. Tele Healthcare is going to address the most critical part of our members’ lives which is often neglected due to lack of resources and access. This initiative with Health Net Global using Apollo physicians will bring a revolution by providing healthcare to the doorstep of our members and the best Medical Care anytime anywhere. We will roll-out our services from Chennai and gradually go Pan India.”

By Graham A.N. Wright,

Microfinance Focus, December 29, 2011: Throughout time, all around the world, households have saved as insurance against emergencies, for religious and social obligations, for investment and for future consumption. The importance the poor attach to savings is also demonstrated by the many ingenious (but often costly) ways they find to save. But for a variety of reasons, most informal mechanisms fail to meet the needs of the poor in a convenient, cost-effective and secure manner. As a consequence, when poor households’ are provided a safe, easily accessible opportunity to save, their commitment to saving, and the amounts they manage to save, are remarkable.

This has led to growing interest in savings, Vogel’s (1984) “forgotten half” of microfinance. As a result of the new attention to savings services, a great deal of time and energy is being spent by Central Banks, donors, consultants and MFIs on developing systems for regulating and supervising MFIs offering savings services. With the advent of e-/m-banking, much of the savings-focused agenda is driven by the role that mobile phone-based financial services might facilitate a secure and convenient opportunity for the poor to save. E-/m-banking seems to provide an opportunity to address the key challenges of convenience/access, security and liquidity.

Convenience/access, Security and Liquidity

It is clear that most poor people do not have access to formal sector banks for reasons that include the:

1. Geographic distance from the financial institution;

2. Terms and conditions governing the available financial services it offers;

3. Disrespectful manner in which the staff treat poor clients;

4. Intimidating appearance of the financial institution; and

5. Complexity of the paper work and the difficult process necessary to make a transaction.

The poor look for some system to provide the security and accessibility necessary to save. Acceptable degrees of security are relative, dependent on the available programme, and are never 100%. Almost every poor person has been in, or knows of, a failed Rotating Savings and Credit Association [RoSCA] or crooked deposit collector, but the accessibility of a regular opportunity to save in a disciplined manner is what makes RoSCAs and deposit collectors so popular worldwide.

Access is markedly different from liquidity, and often considered more important by poor people who have little time to make their transactions.  While many authors have stressed that “liquidity is the key to local savings mobilisation”, it is important to note that in many circumstances the poor have a strong “illiquidity preference”.  This “illiquidity preference” is in response to the poor’s self-imposed need for structured and disciplined savings mechanisms that prohibit them from withdrawing in response to trivial needs and allow them to fend off the demands of marauding relatives requesting “loans” or assistance.

E-/m-banking as a Solution

There is growing consensus that e-/m-banking offers a unique opportunity to address mainstream banks’ two major barriers to serving the low-income market: the need for a branch infrastructure and managing high volumes of low value transactions. In addition, e-/m-banking systems hold the promise of being able to extend centralised banking systems deeper into rural communities.1

Despite this, the many examples of failed e-/m-banking initiatives provide ample warning that offering e-/m-banking solutions is not an easy proposition. Only very few of these initiatives have failed because of technological problems – the technology and security requirements are broadly understood and available. Where e-/m-banking products have often failed is because they have not adequately addressed the customers’ needs. Too often the financial institutions have focused on the technological solution or the savings that it can generate for their business, without considering the needs of the customers or the intermediary agents who usually have to provide the service to them.

M-PESA as the Solution?

M-PESA remains the role-model for e-/m-banking solutions for the poor – it was the first mobile money system to take-off and achieve substantial scale. According to several industry experts, by design or by default, a substantial proportion of the Kenyan population is using M-PESA as an addition to bank savings accounts, and less frequently, as a full-scale substitute. The current pricing structure of M-PESA with its free deposits, does offer a tremendous opportunity for un- or under-banked people to build up what Stuart Rutherford would call “useful lump sums”. In this sense it provides a very valuable service to facilitate saving up for future needs.

The worry among financial inclusion proponents and banks is that poor people will use M-PESA as a full scale substitute for formal institutions.  One expert calls this “low equilibrium financial inclusion” – or put simply, “poor quality, high cost and potentially high risk, financial inclusion”. Users of M-PESA do not get access to structured savings (such as recurring deposit) products, they cannot access loans and other financial services like insurance and pension plans from Safaricom, they do not receive interest on their savings balances, they do not receive a statement of their transactions, and often lack privacy because of the close involvement of agents. And with the standard charges of Ksh.30 (US $0.35) for transfer, and Ksh.25 (US $0.29) for cash out, the costs of transacting on the M-PESA platform remain quite high for low-value transactions.2

The biggest benefit for customers is that they need not travel to a bank branch or an MFI’s designated point for transacting into their accounts. They can just deposit money into M-PESA account at the nearest M-PESA agent and transfer from M-PESA to their bank account. It brings to them the following benefits:

 Cost savings on travel expenses, opportunity cost of losing wages or turnover etc. (It should be noted, clients may need to pay transfer and withdrawal fees to the telco which may lessen the benefit).

 Convenience of transacting whenever/wherever: M-PESA agents are ubiquitous and if a customer already has sufficient balance in his/her M-PESA account for the loan repayment, then he/she does not even need to go to an agent.

 Reduced risk of carrying cash. M-PESA agents are nearer than the bank/financial institution’s branch.

But despite the opportunities and benefits offered by M-PESA, it remains primarily a remittance/payment mechanism and not a savings platform. Relatively few M-PESA customers are using it to save – for two key reasons:

1. The wallet is over-liquid: With the omnipresence of agents and other M-PESA users, it is too easy to spend money held on a mobile phone … thus the M-PESA wallet is seen as a transaction account rather than a savings account )(an important distinction).

2. Safaricom is not a bank: Most respondents in the MicroSave research noted that Safaricom, which runs the telco-led M-PESA system, is a communications company, not a bank … and thus by implication, not to be trusted with precious savings. And, of course, they do not get access to the banking services and security outlined above.

Banks at the Centre of E-/M-banking

It is clear that while e-/m-banking systems can indeed offer unprecedented convenience, poor people want more than the wallet plus remittance/payments product mix that the vast majority (usually telco-led models) provide.  Banks with a commitment to serving the low income market now have the real opportunity to do this on a commercial basis and further extend their customer base. A well-managed network of agents could provide the safe, convenient and accessible local banking service that so many poor households want.

By diversifying the range of services offered through the agent channel beyond the basic transaction wallet and remittance/payment system, banks can drive the volumes and revenue streams to make the channel profitable. The latent demand for commitment savings is clear. Well structured and incentivised recurring deposit products could yield substantial stable balances and thus float for banks. In a similar vein, bancassurance products, which are largely used by poor households as long term savings mechanisms, are also likely to be a popular use of the agent channel. Over time banks can begin to offer automated overdraft/ emergency loan facilities on the basis of individual account holder’s transaction history.

This type of client-responsive product mix is likely to create the level of activity necessary to make the agent channel sustainable for both banks and the agent network manager, as well as for individual agents themselves … thus creating true and meaningful financial inclusion.

References:

1 This was clearly demonstrated (again) in recent MicroSave research into the widespread dormancy in “No Frills Accounts” in India – see India Focus Note 63 “Why People Do Not Use Present Banking Systems – A Case For BCs” and India Focus Note 62 “Responding to High Dormancy Levels in No Frills Accounts”

2 See Briefing Note # 6 “The Relative Risks To The Savings Of Poor People” and forthcoming publications on loss of savings in India to be posted on www.MicroSave.net.

3 For more on M-PESA, see Briefing Note # 93 “Innovation Adaption on M-PESA Rails”; Briefing Note # 94 “M-PESA Rails Advantages  Disadvantages”; and Briefing Note # 95 “Do the M-PESA Rails Contribute to Financial Inclusion?”

4 See India Focus Note 65 “Successful Banking Correspondents Need a Compelling Product Mix”

5 See Briefing Note # 100 “Banks Can Deliver m-banking Sustainably”

Author: Graham A.N. Wright, is Programme Director, MicroSave India

(Disclaimer:The opinions expressed are solely those of the author and do not necessarily represent opinion of Microfinance Focus. Microfinance Focus does not take any responsibility for correctness of the data presented by contributors.)

Microfinance Focus, December 28, 2011: Rating agency CRISIL has downgraded the rating of microfinance institution, Bhartiya Samruddhi Finance Ltd (BSFL) to ‘CRISIL C’ from ‘CRISIL BB-’ and has removed its rating on the debt instrument and bank facilities of BSFL from ‘Rating Watch with Negative Implications’.

The downgrade reflects BSFL’s weakened financial flexibility, with severe strain on liquidity, posing a threat on the long-term sustainability of the company’s operations. The ratings also reflect BSFL’s reduced net worth and weak overall capitalisation.

A CRISIL note says that BSFL liquidity has considerably weakened because of the non-availability of additional bank funding as well lack of fresh capital infusion into the company since the Andhra Pradesh crisis.

BSFL is actively looking at rescheduling its loans and has submitted a proposal to all its bankers in early December 2011. The company is in negotiation with its existing bankers and is looking at alternative scenarios for restructuring its existing outstanding debt; this, however, is yet to be finalised, it says.

The company estimates that the finalisation of a proposal concerning the rescheduling its term loans will take at least four to six weeks.

In the interim, CRISIL believes than it will be exceedingly difficult for BSFL to meet its debt obligations in a timely manner. Although BSFL has been servicing its debt in time so far, the net cash position of the company was stretched in December 2011. BSFL has a high likelihood of delaying or defaulting on the repayment of its loans as per the original schedule.

CRISIL will continue to monitor the timeliness of BSFL’s debt repayment and the impact of the terms of the final restructuring of the outstanding loans on the company’s credit risk profile.

BSFL is an NBFC-MFI which provides microfinance (credit and insurance) services and knowledge-based technical assistance.

BSFL’s total assets under management were Rs.9 billion as on September 30, 2011 compared to Rs.12.5 billion as on March 31, 2011. The company reported a net loss of Rs.1.3 billion for the six months ended September 30, 2011, compared to a profit after tax of Rs.302 million for the six months ended September 30, 2010.

Microfinance Focus, December 28, 2011: David Roodman’s book ‘Due Diligence: An Impertinent Inquiry into Microfinance’ will be launched in Washington on January 5, 2012. The event is part of a collaboration between The MasterCard Foundation, CGAP, and the Center for Global Development to support the publication of the book.

Microfinance experts including Nancy Birdsall, Center for Global Development, Daryl Collins, Bankable Frontier Associates, Martin Holtmann, Microfinance, Global Financial Markets Department IFC, Michael Schlein, ACCION International and Richard Rosenberg, Senior Advisor, CGAP will be present for the book launch and discussion.

David Roodman, a senior fellow at the Center for Global Development currently focusing on microfinance wrote Due Diligence through an “open book” blog, where he shared questions, discoveries, and chapter drafts.

In his book, Roodman says that while financial services are no more likely to lift people out of poverty than clean water and electricity, the microfinance movement has built thriving industries that deliver valuable services to millions of poor people. The challenge going forward is to help microfinance play to its strengths. In general, that calls for putting less money into microcredit, to avoid credit bubbles and increase the incentive for microfinance institutions to take savings deposits.

Microfinance Focus, December 28, 2011: International Finance Corporation (IFC) is supporting Indian microfinance institution Utkarsh to grow its operations, primarily in the low-income states of Uttar Pradesh and Bihar, to increase access to finance and microfinance services in relatively under-served areas.

With IFC’s support, Utkarsh is working to diversify its products, develop sound internal systems and processes, and introduce a system of social audit. The company aims to reach an estimated 250,000 women borrowers by June 2013.

“We work intensively in the low-income states of Uttar Pradesh and Bihar, which are high priority areas for the government of India,” said Govind Singh, Managing Director and CEO, Utkarsh Micro Finance Private Limited. “With IFC’s support we expect to expand significantly into areas where the need for microfinance is highest.”

IFC supported Utkarsh in its start-up phase by providing both investment and advisory services. The MFI is headquartered in Varanasi, Uttar Pradesh.

“We are helping Utkarsh strengthen internal systems and develop operational tools that can help them reach more clients in a sustainable manner,” said Jennifer Isern, who leads IFC’s Access to Finance work in South Asia. “This project also aligns with our strategy of supporting growth and expansion to provide access to financial services among India’s low-income segment.”

Microfinance Bank, December 28, 2011: Belgian investment management company, Incofin has recently extended a USD $1 million loan to Forus Bank – a Russian Microfinance Bank.

After Incofin’s Impulse Fund provided a USD 2 million (RUB 60 million) loan to the bank in March, the VDK MFI Loan Portfolio now supplies a USD 1 million loan, a release said.

Forus Bank covers almost the entire economically active western region of the Russian Federation and offers a wide variety of loan products including 9 different micro loans, business loans and employee loans.

The microloans mainly target the low-income strata of urban microentrepreneurs with a loan average of USD 4,000. SME loans focus on the higher-income strata with an average loan balance of USD 32,000.

Incofin was also present at the 10th edition of the Russian National Conference on Microfinance that was held on November 16-18, 2011 in Moscow.

In addition, The Dutch development bank FMO signed an agreement for funding of capacity development (CD) projects for microfinance institutions of Incofin’s Rural Impulse Fund I and II. The projects will run between December 2011 and November 2013. The previous CD contract between FMO and Incofin ended in November 2011.

Microfinance Focus, December 27, 2011: The Central Bank of Philippines, Bangko Sentral ng Pilipinas (BSP) has approved the first two applications by rural banks to engage in microinsurance services.

The approval authorizes Bangko Mabuhay and Mallig Plains Rural Bank to present, market and sell microinsurance products in their branches and offices

The approval validates the potential of rural banks, with a network of over 2,700 offices nationwide, subject to certain prudential rules and regulations, to serve as distribution points for authorized microinsurance products offered by licensed providers.

At present, there are nearly 50 other rural banks that have signified their interest to provide microinsurance services. The BSP has given the initial clearance for these banks to apply for the necessary provisional license from Insurance Commission.

The BSP institutionalized microinsurance regulations as a means to further promote an inclusive financial system. This means that more Filipinos will benefit from a wide range of financial products and services as a means to address their various needs. Insurance is one such product and this is particularly useful as a mitigant to the many uncertainties and shocks.