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> Posted by Stephanie Dolan
We have seen this before: controversy around small loans making big money for a select few. An article in today’s New York Times examines the SKS IPO, and raises some familiar, difficult questions:
Can an institution built to serve a public good also be highly profitable? How profitable is too profitable, and where does the money raised from an IPO really go?
Today SKS, an Indian MFI and one of the largest in the world, finds itself at the center of a firestorm of such questions as it will soon raise up to $350 million through a stock offering.
Another question often asked during an IPO relates to compensation for investors; in the case of SKS, this includes a broad swath of players, including commercial funds like Sequoia, individual venture capitalists, non-profits like Unitus, and members of SKS’s senior management. Compensation for management can make for a particularly heated conversation: how can you do good and become rich? (According to the Times, SKS CEO Vikram Akula has already sold nearly $13 million worth of shares, and still retains stock options worth up to $55 million)
The Center for Financial Inclusion addressed precisely this question through the paper, “Aligning Interests: Addressing Management and Stakeholder Incentives during Microfinance Institution Transformations”, published with Calmeadow Foundation in 2009. The paper examines methods that have been used to recognize and align the interests of MFI leaders, investors, donors, and staff during institutional transitions as well as mergers. A common practice includes giving CEOs or members of senior management the opportunity to purchase equity shares in the new institution; this not only gives them a stake in the future success of the institution but can include future incentives for reaching social benchmarks – like reaching more low-income clients, expanding its products and services, and even targeting new markets and regions.
For more on this topic, check out our “Aligning Interests” paper. But, to be sure, there are no easy answers to these questions.
> Posted by Sergio Guzmán and Michelle Romeu
According to Paul Krugman, “Productivity isn’t everything, but in the long run it is almost everything.” So says the new book The Age of Productivity, just published by the Inter-American Development Bank (IDB). This book draws attention to the low levels of productivity in Latin America, and asks: What are some of the root causes of low productivity in Latin America? Can increased access to financial services increase productivity? In the world’s current financial state, can higher productivity—in any region—contribute to the bettering of the economy as a whole?
One productivity barrier is too little credit. Without credit, productive parties have difficulties expanding, and improving their margins of productivity. Why, then, is credit so unattainable? In the Center’s paper, “Mexico’s Prospects for Full Financial Inclusion,” research showed that the cost of borrowing in Mexico was significantly higher than several other countries including Bangladesh and India. These high interest rates are a result of high labor costs and taxes (including a 15 percent tax on interest paid). Read the rest of this entry »
> Posted by Michelle Romeu
In her latest Huffington Post blog, Elisabeth Rhyne explores the ways in which financial inclusion could be brought to a new demographic: persons with disabilities.
Can a person with a disability living in a developing country become the valued client of a financial institution? According to Harvard Law professor Michael Stein, 650 million people around the world, nearly 10 percent of humanity, have a disability, and over 80 percent of these people live in developing countries. Yet, in research studies, fewer than 1 percent of the clients of microfinance institutions, dedicated to serving the world’s financially excluded people, were found to be persons with disabilities. One of the last great human rights struggles is only now starting to penetrate the world of low-income finance.
But how best to make progress in disability inclusion?
In June, the Center for Financial Inclusion at ACCION, in conjunction with the Disability and Development team of the World Bank, brought disability activists together with leaders from microfinance in a roundtable entitled, “A New Financial Access Frontier: People with Disabilities” to begin a dialogue. Disability activists and microfinance professionals are two tightly knit communities with their own vocabularies and their own ways of seeing the world so it is not surprising that at times heated debate preceded agreement on clear objectives.
Read more >.
> Posted by Anita Gardeva
Word of the Week – Agent Banking: Also known as correspondent banking, this is a model for delivering financial services whereby a bank partners with a retail agent (or correspondent) in order to extend financial services in locations for which bank branches would be uneconomical.
Agents can be both banking (small MFIs or credit unions) and non-banking correspondents (such as post offices, gas stations, and corner grocers). Agent banking is a delivery channel that holds high potential for closing the location gap.
Spotlight Fact: One of the most successful examples of agent banking took place in Brazil with Banco Bradesco and the national postal system. Between 2002 and 2008, this model helped transform nearly 6,000 post offices into banking branches which in five years would reach more than 5.5 million customers (the majority of which were previously unbanked) with a wide range of financial services (including credit, savings, and transfers). In its first five years of operation this model also ensured that the 1,590 Brazilian municipalities which previously were not served by banks now all have a banking outlet within their boundaries. (From Microfinance for Bankers and Investors by Elisabeth Rhyne.)
Suggested Resources:
- Banking Agents 101
- “Banking through Networks of Retail Agents” (Ignacio Mas and Hannah Sieked, CGAP, May 2008)
For more financial inclusion terms, visit the Center’s interactive Financial Inclusion Glossary.
For more information, sign up for updates from the Financial Inclusion 2020 campaign.
Flickr Credit: takomabibelot
> Posted by Stephanie Dolan
Can you ever have too much of a good thing? When it comes to money, most people say “no”. However, microfinance investors are finding the opposite to be true – an over-abundance of liquidity was highlighted by the recently-released MicroRate study, “State of Microfinance Investment” as a primary challenge facing microfinance funds (also called “microfinance investment vehicles” or “MIVs”).
But first, the good news: despite the worldwide recession, MicroRate’s report indicates that investors remain extremely interested in – and optimistic about – microfinance, with MIV assets growing by $1.2 billion to $6 billion in 2009. According to the report, there are now at least 88 MIVs in existence, a number that has seen continued year-over-year growth.
In fact, MIVs were so successful in raising money that they are now facing difficulty placing their new funds. Herein lies the dilemma: funds now hold extremely high, even unsustainable amounts of liquidity, at a time when the MFIs’ demand for funding has declined. With the economic crisis and slowing growth rates, MFIs no longer need quite as much funding to finance their loan portfolios and operations. Read the rest of this entry »
> Posted by Michelle Romeu
The State Department invites you to a dialogue on mobile banking, part of the Tech@State event series, to be held on Monday August 2nd.
When: Monday August 2nd, from 8:00am – 12:30pm
Where: The George C. Marshall Center, at the U.S. Department of State
The discussion will cover issues facing the mobile banking sector today, including:
- How do we scale the mobile frontier, leveraging technology and partnership for sustainable development and financial inclusion?
- What do case studies reveal about success and failure?
- What are the applications of mobile money and its implications for U.S. foreign policy?
Guests speakers include, among others, Under Secretary Maria Otero, Bill Barhydt, CEO if m-Via, Menekse Gencer, founder of mPay Connect, Ben Lyon, founder of FrontlineSMS, and Bart Stidham, a seasoned expert in the information and communications technology sphere.
The event will also hose four break-out sessions, led by speakers, on the following topics:
A. Remittances and Financial Inclusion
B. Food Security
C. Fostering Transparency and Security
D. Scaling Microfinance
For more details, see the agenda here.
To RSVP, please provide the following information by email to not later than July 30, 2010: the individual’s full name, date of birth, type of identification (valid driver’s license or passport) and its identification number, and whether there is a request for reasonable accommodation. Participants are also asked to indicate which two breakout sessions they would prefer to attend in order of preference.
> Posted by Michelle Romeu
ACCION International’s Nick Roose introduces the ACCION Ambassadors.
Earlier this month, the pilot class of ACCION Ambassadors set out for a summer of discovery. After completing a week-long intensive training, eight Ambassadors – hailing from six countries – started their placements at ACCION partner MFIs in India (Swadhaar FinServe), Mexico (Compartamos Banco) and Paraguay (Fundacion Paraguay). There, these Ambassadors are meeting with microentrepreneurs to document the impact of microfinance on their lives, as well as working to complete a customized long-term project for their host MFI. Project topics will vary from conducting an assessment of the local market to completing an analysis of external risks. You can follow the Ambassadors’ progress, as well as explore how MFIs are tackling poverty alleviation, at the ACCION Ambassador Blog.
> Posted by Anita Gardeva
Word of the Week – Affordability: Describes products for which the price is in line with the client’s ability to pay for them. A characteristic of quality financial services.
Affordability is considered one of the greatest barriers to access to financial services. Affordability pertains to the costs associated with using services, including both interest rates and fees. The term emphasizes a threshold (e.g. an “affordable” loan interest rate ), but as a broad concept it relates to products that provide a positive value for service. It is often thought of only in terms of credit, but as a broader concept (value for service) it also applies to savings, insurance and payments. For example, if the rate of return on savings is lower than inflation, the savings account does not retain the real value of the client’s savings.
Spotlight Fact: We have found that in Mexico the average real annual net return on savings accounts is -3.5% for popular sector savings accounts and -2.8% for commercial savings accounts, making it impractical for the average Mexican to deposit money in most banks.
Affordability has become a center-stage topic for the microfinance industry in recent times in the form of an ongoing debate about microfinance interest rates. We have provided some resources below that explore this complex topic:
Suggested Resources:
- Are Microfinance Interest Rates Excessive? (CGAP, February 2009)
- Banks Making Big Profits from Tiny Loans (Neil MacFarquhar, New York Times, April 13, 2010)
- Why are Microfinance Interest Rates so High? (Elisabeth Rhyne, Huffington Post, May 28, 2010)
For more financial inclusion terms, visit the Center’s interactive Financial Inclusion Glossary.
For more information, sign up for updates from the Financial Inclusion 2020 campaign.
Flickr credit: User is no longer active.
> Posted by Michelle Romeu
Laura Kozien introduces the ACCION family of Tweeters.
Aaah, Fridays. It’s everyone’s favorite day of the week for its (relatively) laid-back vibe, happy hours, and chances to sneak out early for weekends away. But for us Twitter nerds, it’s also Follow Friday (#FF or #followfriday), and our chance to get recommendations from friends on the latest and greatest Tweeters to follow.
So on this particular Friday, I’d like to take the opportunity to introduce you to some of my fellow ACCION Tweeters. Anyone in microfinance should be sure not to miss thoughts in 140 characters or less from these seasoned experts:
- @CFI_ACCION is the voice of the Center for Financial Inclusion at ACCION International. Follow them to be the first to know about new blogs and commentary from recognized microfinance expert, author, and CFI director Elisabeth Rhyne, as well as news and updates regarding financial inclusion initiatives and client protection in microfinance.
- For the scoop on U.S. microfinance and small business issues, follow me and other ACCIONista Tweeters at @ACCION_USA. You’ll get an insider’s look at our organization, access to client stories, and learn about new job and volunteer opportunities. You can also get local news from other U.S. ACCION affiliates at @ACCIONNM_CO_AZ (New Mexico, Colorado, and Arizona), @ACCIONchicago, and @ACCIONsd (San Diego).
- ACCION International recently joined the Twitterverse at @ACCION_Intl. You’ll get news from the field from ACCION Ambassadors, information on how to support the microfinance cause, and more.
- Want to help raise money for microfinance? Follow @microbikeACCION and learn how you can pedal against poverty and join a fundraising event in your area. The next event is October 1-3, 2010.
- ACCION communications expert Andy Sprung is always the first to know what the media says about microfinance—you can be the second by following him at @sprungpr
That rounds out the ACCION family of Tweeters—you can easily follow us all through our ACCION Network Twitter list. Who are your favorite microfinance experts to follow?
The Sponsors: (from left) Sanjay Sinha (EDA Rural Systems and M-CRIL), Robert Annibale (Citi), and Victoria White (ACCION International)
> Posted by Anita Gardeva
When we ask who are the key players involved in bringing about financial inclusion, investors are not the first to come to mind. But they do play an important role, and as I listened to the speakers during the Microfinance Cracking the Capital Markets, South Asia conference, held in Delhi last month, I heard them repeatedly say that they care about the same dimensions that the Center emphasizes in our financial inclusion vision.
The conference brought together investors, bankers, venture capitalists, microfinance leaders, and others to discuss the current challenges of the Indian microfinance sector. As they talked about the risks facing the industry, what they look for in investees, and how they view the future of the industry, they expressed a business case for pursuing financial inclusion in a comprehensive, holistic manner.
Product diversification. Conference participants agreed that an immediate risk facing the microfinance industry today (especially in India) is the mono-product business model. S. Viswanatha Prasad, Managing Director of Caspian Advisors, shared his prediction that value in the traditional single-product MFIs will dip because investors will be looking for product diversification. Other investors said that institutions that offer a range of products offer greater value to clients and are better positioned for long-term sustainability and profitability. Read the rest of this entry »
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