Microfinance Focus January 31, 2011: A session “Financial Inclusion: Beyond Microfinance” held at the  Davos World Economic Forum 2011 discussed various challenges faced by the microfinance sector, including the recent controversy over microfinance, scaling new models and services and consumer protection and government regulation.

The session was moderated by Nicholas D. Kristof, Columnist, The New York Times, USA.  Leaders participated in the event included Jon Fredrik Baksaas, President and CEO, Telenor Group, Norway, Geoff Davis, CEO, White Hat Ventures, USA; Young Global Leader, Anne Hastings, Managing Director, Fonkoze, Haiti; Social Entrepreneur, Neal Keny-Guyer, CEO, Mercy Corps, USA, Rachel Kyte, Vice-President, International Finance Corporation (IFC), Washington DC; Global Agenda Council on Emerging Multinationals, Vikram Pandit, CEO, Citi, USA, abd John Rwangombwa, Minister of Finance and Economic Planning of Rwanda.

According to the discussions of the meet, around three billion people of the world’s population lacked access to basic financial services, so extending banking facility to these individuals had the potential to transform economies and improve livelihoods. Also one of the most promising means to do so required expansion of mobile banking services that could become tools for saving money, transferring funds and accessing credit.

The meet also suggested that savings and remittances were important for underserved populations and accessing savings accounts increased the ability of the world’s poor in building houses, paying for education and engaging in basic commerce. Similarly improving remittance processing could also help in promoting financial inclusion.

However, expansion of the services was not without risks as the recent controversy surrounding excessive microfinance lending in India demonstrated. Regulation could play a role in improving oversight and verifying financial information. According to the discussions, in the absence of regulation, the responsibility fell on the microfinance and financial services industry to self-regulate. If these providers could effectively generate their own guidelines, they would be more likely to avoid stringent rules imposed from the outside.

Furthermore, the meet also highlighted the fact that one of the biggest challenges of improving financial inclusion was achieving economies of scale. Focusing on SMEs could also greatly increase financial inclusion, but until today microfinance services had not focused on this goal.

Key Highlights of the Discussion :

1. Mobile banking offers one of the most promising options for providing financial services to the world’s unbanked population.
2. Saving money and processing remittances are among the biggest needs for financial services with underserved populations.
3. Stringent regulation is likely to deter the banks and telecommunication businesses from promoting financial inclusion at a time when their participation is greatly needed.
4. Nonetheless, government engagement and oversight can help improve protection for both lenders and creditors.
5. Achieving economies of scale is one of the biggest challenges related to financial inclusion, and in the future, greater attention should be paid to extending credit to small and medium enterprises (SMEs).
6. Financial inclusion requires not just access to banking services, but a broader, ecosystem-wide set of changes that often requires cultural shifts.

Microfinance Focus January 31, 2011: According to a report released by the Asian Development Bank (ADB), the People’s Republic of China (PRC), new laws were needed to support microcredit institutions, financial cooperatives, and informal finance that were key in meeting financing needs in rural areas.

The recently launched report titled Rural Finance in Poverty-Stricken Areas in the People’s Republic of China stressed on the fact that the PRC required to reform its rural financial system in order to tackle poverty in the countryside and allow agriculture and local businesses to play a strong, long-term role in the domestic economy. 

Additionally, it also saw recommendations of repealing of laws that hindered establishment of a competitive financial market, including private banks, in the countryside. Although the PRC had seen rapid reforms in its financial sector in recent decades, reform in the rural financial sector still lagged, exacerbating the economic gap between rural and urban regions.

“It’s essential to nurture rural financial institutions in PRC so that farmers and local businesses have access to investment and finance and can contribute to local development,” said Ying Qian, Lead Professional for regional cooperation in ADB’s East Asia Department, and one of the editors of the book.

“A new rural financial system will make sure that all citizens share the benefits of the country’s rapid economic development,” he added.

The report also said that rural customers were best served by institutions that understood their needs well and closely monitored borrowing. Demand for rural finance until now had largely been met by local branches of large urban banks at high cost and high risk. Practices that worked well in PRC’s cities often did not work as well in the vast countryside where individuals, small businesses and farms need different kinds of financial products and may have fewer or different assets.

Microfinance institutions, as well as the many informal financial outlets that served rural customers such as Buddhist temples, provided competition to local banks and, being more flexible could often better meet local financing and investment needs.

Microfinance Focus January 31, 2011: A group of 40 global investors met at a recently concluded Responsible Finance Forum in The Hague for promoting responsible finance for Investors in Inclusive Finance.

The event was organized by the Dutch Ministry of Foreign Affairs in The Hague, Netherlands, BMZ, CGAP and IFC. The United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development, Her Royal Highness Princess Maxima of the Netherlands was among the ones present at the event.

The event saw investors stating their commitment towards a fair treatment and protection of the interests of the clients in inclusive finance- low income households and small and medium-enterprises. They also asserted their goal of supporting and investing in those financial service institutions that offered responsible micro-finance, including a wide range of quality services to clients together with embracing transparency and sustainability.

James Gifford, Executive Director of Principles for Responsible Investment, said “Micro investments are one of the most important mechanisms to help us achieve the UN Millennium Development Goals. Principles for Investors in Inclusive Finance make an important first step to mainstream microfinance in a way that safeguards all stakeholder interests.”

Microfinance Focus, January 31, 2011: The Nigerian Deposit Insurance Corporation (NDIC) recently announced that it completed arrangements to commence payments of seven depositors out of a hundred and three microfinance banks (MFBs) that were closed by the Central Bank of Nigeria (CBN) on September 24, 2010.

The initial round of payments would ensure that 87 depositors out of the 103 closed MFBs would have had the opportunity by the Nigeria Deposit Insurance Corporation to file and collect insured amounts.

According to a report by the NDIC the verification and payment to the depositors commenced on January 17, 2011 with Adif Microfinance Bank, Birnin Kudu Microfinance Bank, Ezumuzo Microfinance Bank, Impact Microfinance Bank, Milestone Microfinance Bank and Trinity Microfinance Bank. However, verification and payment for customers of Integrated Microfinance Bank (IMFB) started on January 24 and is still ongoing.

Microfinance Focus January 29, 2011: Chase, part of JPMorgan Chase and Company recently donated a $3 million grant to Opportunity Fund, the Bay Area’s non-profit small business lender. Opportunity Fund will use the capital to launch a “GreenforGreen” loan program, which helps small businesses reduce energy costs and provides eco-sustainable, green products and services to businesses all over the Bay Area.

“With each Opportunity Fund loan helping a business owner keep or add an average of 2.4 jobs, this additional loan capital will go a long way towards developing our green economy and contribute towards the Bay Area’s economic recovery.” said Eric Weaver, founder and CEO of Opportunity Fund

He added, “By funding thousands of local businesses, the program will boost an additional $15 million into the local economy as these loans generate spending, wages and tax revenue.”

Chase has partnered with top-tier CDFIs for more than 20 years and remains a national leader in financing CDFIs. Over the last three years, Chase provided over $1 billion in loans, grants and investments to CDFIs and their affiliates

“This is one more way we are helping small businesses survive and grow in this challenging economy,” said Peter Barker, Chairman of JPMorgan Chase in California. “Our grant ultimately will help give small businesses access to the credit they need to create jobs and continue to develop momentum in our thriving Bay area green economy.”

Microfinance Focus January 29, 2011: Yunus Centre and ID group, a French company recently signed a deal for the production of functional clothing for children from the age group of 0 to 5 years under social business in Bangladesh.

The business which is planned to start production by the year end will also provide technical training to the rural poor to generate employment. Additionally, a day care centre for children under another social business would also be set up, Yunus Centre said in a statement.

Chief Executive Officer Jean-Luc Soufflet of ID Group and Nobel Laureate Muhammad Yunus signed the deal when Soufflet with a five-member delegation, visited the Grameen Bank to discuss future prospects and collaborations with the microcredit agency.

In a six-day visit, the group focused mainly on the development and progress of currently running social businesses in Bangladesh and gaining a deeper understanding of further investments in clothing in the country.

The ID Group has four different brands namely Okaidi, Obaibi, Jacadi and Veronique Delachaux that produce children clothes with 860 retail outlets in 55 countries across the globe.

The delegation visited Grameen Shikkha-OKWorld Pre-school Project financed by OKWorld, a concern of ID Group in Manikganj district where students learn through games and toys in a joyful environment and other social business projects of Grameen in Bogra.

Microfinance Focus January 28, 2011: The Japanese government has sanctioned a grant of US$ 183,947 to fund South Cotabato’s poverty alleviation program for provision of micro-credit capital and for augmentation of income and poverty alleviation in South Cotabato.
The program will be formally launched on February 1, 2011 at the South Cotabato Gymnasium, under the auspices of the South Cotabato Foundation, Incorporated (SCFi).

“This credit assistance will benefit 930 micro-entrepreneurs from Banga, Polomolok, Tantangan and Koronadal City, all of South Cotabato,” said SCFI Executive Director Belen Fecundo.
She added, “The microfinance program covers provision of savings and credit service for entrepreneurial activities, agricultural production, processing and manufacturing and service providing aimed at expanding and improving livelihood and income-generating activities.”

Microfinance Focus January 28, 2011: In a recent development, the Reserve Bank of India has invited views and comments of all stakeholders and the public at large on the Malegam Committee report on microfinance institutions (MFIs). Comments/suggestions/views may be forwarded to the Chief General Manager-in-Charge, Rural Planning and Credit Department, Reserve Bank of India or emailed latest by February 13, 2011.

It may be recalled that the Reserve Bank had appointed a Sub-Committee of its Central Board of Directors to study issues and concerns in the MFI Sector. The Sub-Committee submitted its report on January 19, 2011.  The report was placed on the RBI website on the same day.

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Microfinance Focus January 28, 2011: Amro Abouesh from Tanmeyah, a growing financial services provider in Egypt and the official sponsor of the Middle East Alternative Investments Summit 2011, recently shared his thoughts on the benefits of investing in microfinance and the details investors should take into account before allocating capital.
Explaining the unique financial and social benefits of microfinance investing he said, “This is a low risk, fixed return alternative asset class where the risks to the portfolio are diversified over a very large number of clients. Secondly, microfinance is a fast-growing business and thirdly, if the institutional investor has any desire or obligation for socially responsible investing, this is a profitable asset class to look at.”

He explained that as far as microfinance portfolios were concerned, the arrears were always within the range of two to five per cent of the standard portfolio. When compared to standard lending portfolios of other segments, it was very low. Consumer risk profiles were much higher that that at 10 per cent or more and corporate lending profiles higher.

“Before investing in any asset class, whether microfinance or otherwise, investors should examine the investment at the company level – the practices of the microfinance organization, their profile or the quote of the portfolio, risk profile of the portfolio compared to global and local benchmarks, how the portfolio is managed and funded and how secure the funding is.These are the main elements to be looked at,” he said.

Explaining his views on the current scenario he said, “There has been a lot of bad press due to microfinance lending malpractices in India. Investors should not develop a negative perception of this sector based on a unique case in India. This is a fast-growing industry with a lot of potential, which can be managed in a very prudent way.”