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> Posted by Anita Gardeva
The SKS IPO, the need for client protection, Nicaragua’s “No Payment Movement” — it’s an exciting yet demanding time for microfinance leaders. As the industry matures, leaders have to make clear-headed decisions to steer their institution in the right direction.
The Harvard Business School (HBS) and ACCION are working together to make those decisions easier. The HBS-ACCION Program on Strategic Leadership for Microfinance connects microfinance executives with some of the world’s most experienced professors in leadership and strategy for social enterprises.
As this executive education program enters into its sixth year, we’re happy to announce that the application process for 2011 is open. The 2011 program is scheduled to take place April 25th-30th at the Harvard Business School campus in Boston.
In the past five years, the HBS-ACCION Program has been attended by over 100 executives from some of the world’s most prominent MFIs, including the Grameen Bank, SKS, MiBanco, BRI, Compartamos, and Equity Bank.
In addition to microfinance practitioners, this year the program invites applications from investors and regulators who work in expanding financial services at the bottom of the pyramid.
The program will focus on fundamental challenges of doing business in the low-income segment of the financial sector, including:
- succeeding in highly competitive financial sectors
- balancing a social focus with a commercial setting
- reaching new business segments
- evolving products and delivery channels
To learn more about the 2011 HBS-ACCION Program, click here. Applications can be downloaded here and submitted to . The deadline for applying is December 31st, 2010, but please note that space is limited and we are unable to accept applicants after the program is filled. If you would like to recommend someone for the program, please email and we can invite them to apply. In past years we have offered limited scholarships and hope to do so this year.
> Posted by Stephanie Dolan
Although the number of surveys focused on microfinance has proliferated in recent years, CGAP’s annual “MIV Survey Report” stands out as one of the industry’s original surveys designed to track trends in the microfinance investment market. CGAP recently published the findings of their fourth edition of the survey.
In 2010, 90 microfinance investment intermediaries (MIIs) responded to the survey, totaling approximately $7.6B in assets under management ($5.5B devoted exclusively to microfinance). This edition of the survey focused on financial performance, as well as funds’ practices related to the environment, social performance, and governance (ESG).
The survey’s findings confirm trends identified by other surveys and industry publications. Although still extremely active, the microfinance investment market, like so many other industries, has experienced a slowdown in growth and profitability. The rate of growth of MII assets under management slowed for the second year in a row and is expected to decline further. Returns have declined as well, partially due to excess liquidity on-hand given MFIs’ reduced demand for capital. In 2009, average net portfolio yields dipped to a historical low of 7.9% and the average net return for debt funds declined from 5.9% to 3.2% year over year.
However, it’s not all bad news: private equity funds are growing rapidly, which can contribute to improving long-term governance and oversight at MFIs; funds are increasingly aware of the risk entailed in their work and have increased provisioning practices for fixed income; and local investors are becoming more active, accounting for 31% of debt investments in 2009. Perhaps most exciting is the demonstrated increase in MIIs’ commitment to ESG practices, with 81% endorsing the Smart Campaign’s Client Protection Principles.
> Posted by Mr. Provocative
Even in the U.S. there is no set standard for calculating credit scores
Joe Nocera, a business columnist for the New York Times, recently published a piece about the frequency of unreliable credit scores. His experience should give the microfinance industry pause as it rushes to embrace the creation of credit bureaus.
Some microfinance practitioners want to move away from the traditional, high-touch (very imperfect) loan-officer evaluation of client creditworthiness to the use of information gleaned from credit bureaus as a key to managing portfolio risk. And ultimately it is hoped that more complete credit reports will create greater operational efficiency, allowing interest rates to drop. Furthermore credit bureaus will help protect against the growing plague of undetected multiple borrowings that hurt an MFI’s bottom line and allow clients to fall into over-indebtedness.
As David Roodman of the Center for Global Development argues in a June 1, 2010 interview on NextBillion.net, “Where credit bureaus are practical, they are definitely good things to create. It makes perfect sense that lenders need complete information about how much borrowers really owe.”
Yes, in a world where human beings can be counted on to input accurate, complete and up to date data. But what are the consequences for clients if this is unrealistic, even Pollyannaish thinking? Read the rest of this entry »
> Posted by Anita Gardeva
Smart Microfinance protects clients, businesses and the industry as a whole.
Word of the Week – Client Protection Principles: Standards of appropriate treatment that clients should expect to receive when doing business with a microfinance institution, as agreed upon by the microfinance industry-wide effort called The Smart Campaign.
The Client Protection Principles include: 1. Avoidance of over-indebtedness; 2. Transparent and responsible pricing; 3. Appropriate collections practices; 4. Ethical staff behavior; 5. Mechanisms for redress of grievances; 6. Privacy of client data.
Spotlight Fact: The Client Protection Principles are evolving with the guidance of a Smart Campaign Task Force on “The Evolution of the Principles,” made up of microfinance industry leaders. One recent change added the words “and responsible” to the principle on transparent pricing to emphasize the need to keep pricing as affordable as possible consistent with institutional sustainability. The Task Force is working to broaden the principles so that they can be applied to the provision of all financial services, not only credit.
The Smart Campaign has gathered nearly 1,200 endorsers of the Client Protection Principles, representing 110 countries.
Suggested Resources:
- Smart Microfinance and the Client Protection Principles – an introduction and explanation of the principles.
- Getting Started Questionnaire: Client Protection Self Assessment for Microfinance Institutions – a tool for MFIs that are interested in operationalizing the client protection principles.
- Smart Lending: Client Protection in the Lending Process – how and where the client protection principles can be applied in the credit process.
- Implementing the Client Protection Principles: Guide for Investors – a tool for investors interested in supporting the industry’s implementation of the client protection principles.
For more financial inclusion terms, please visit the Financial Inclusion Glossary.
Flickr credit: Karen Roe
> Posted by Anita Gardeva
The number of clients served by the Indian microfinance sector has soared from 20 million to 70 million in just five years. The sector will likely add another 40 million clients in the next four years. That makes 110 million good reasons why all eyes are on Indian microfinance.
Those who are paying the closest attention are investors, who have a lot to gain and lose in this dynamic and rapidly changing sector. On June 23-24th, 2010 equity and debt investors, bankers, venture capitalists, and microfinance leaders gathered in India for Microfinance Cracking the Capital Markets, South Asia. Conference participants offered insights into the realities of the sector. Their opinions and observations included the following:
1. The credit mono-product can be risky: Investors made it clear that the Indian MFIs need to diversify and be innovative with their product range. The current dominant provision of a single product — group lending — creates risks associated with undiversified portfolios, weaker balance sheets, and long-term sustainability. Investors value MFIs that are able to address the needs of clients.
2. Regulation could hinder future growth: Participants asked what would happen if priority sector lending regulation — which is instrumental in capitalizing Indian MFIs — was removed. This is a possible scenario that could have a heavy impact on the industry. Microfinance practitioners were also concerned about a recent RBI draft regulation on securitization for NBFCs which could hinder the ability of institutions to access more capital and slow the growth of the entire sector.
3. The right MFI valuation is in the eye of the beholder: Investors can’t agree on whether or not Indian MFIs are overvalued. Some stated that not all risks are properly accounted for in the current valuations (which can be as high as six times book value)while others maintained that Indian MFIs have demonstrated that they are operating with a viable and highly successful model. Most agreed that the important question is not one of overvaluation, but of fair valuations.
Other themes that emerged included the importance of management, attracting private capital, managing growth, and understanding the future demands of the sector.
To learn more about these key themes, download the paper covering the conference highlights.
> Posted by Beth Rhyne
One cap can have a big impact
In a move that could prove challenging for India’s microfinance practitioners and serve as a warning for the industry worldwide, the Government of India last week directed public sector banks not to lend to MFIs with interest rates above 24 percent. While many Indian MFIs can offer services at a 24 percent interest rate and remain sustainable, this is a strong move in the direction of interest rate caps. Historically, caps have made it harder for providers to reach out to very poor and remotely located clients. Caps also tend to dampen product innovation and may create perverse incentives for the better-off to obtain loans more suited to the poor, crowding out credit to the low-income segment. There are better ways to make prices more affordable.
For more on the thorny issue of microfinance interest rates, I invite you to check out my recent Huffington Post article on the subject and for an in-depth look, to consult the Smart Campaign paper on responsible pricing.
For more information, sign up for updates from the Financial Inclusion 2020 campaign.
Flickr credit: Mykl Roventine
> Posted by Isabelle Barres
We at the Center for Financial Inclusion and The Smart Campaign are happy to see that a consumer protection agency in the United States is one step closer to being established. Today, President Obama appointed Harvard law professor Elizabeth Warren to lead the creation of the Consumer Financial Protection Bureau. The agency—which is Warren’s brainchild—will have the power to create and enforce regulations to ensure that banks and other financial institutions have established minimum protections for their clients. Around the world, the subprime crisis has led governments to create such agencies in a shared recognition that lack of client protection standards can have detrimental effects not only on the individual clients but on the entire national economy. Leaders in the microfinance industry have been thinking about this for several years. In fact, The Smart Campaign was partly an initiative to protect the industry from a similar crisis. We’d love to sit down with Ms. Warren and “talk shop;” perhaps we can learn from each other.
Flickr credit: italintheheart
> Posted by Michelle Romeu
BusinessWeek may focus on success, but in finance, you can learn just as much from failure. However, failures in microfinance have rarely been discussed openly in the industry – until now.
The Center for Financial Inclusion invites you to attend a talk on “Understanding Failures in Microfinance” led by Alex Silva, a microfinance pioneer who brings to the table more than 25 years of experience in international finance.
Calmeadow, the organization Mr. Silva directs, recently completed a project focusing on the lessons learned from 10 MFI failures in Latin America. In the coming months, the Center will take the project global – building on Calmeadow’s work to expand the scope of the research beyond Latin America.
The talk and accompanying wine and cheese reception will take place at the Center for Financial Inclusion, 1401 New York Ave. NW, Suite 500, Washington, DC, on Wednesday, September 22nd, from 5-6:30pm. Space is limited, so please RSVP by Monday, September 20th by contacting Michelle Romeu at . For phone-in access, please see below.
Mr. Silva is currently the principal partner, president and founder of Omtrix, Inc., a privately owned financial consulting firm. He is also manager of Antares Fund, a for-profit equity participation fund aiming to develop a secondary market for shares of microfinance institutions. He is also executive director of Calmeadow and representative of this Canadian NGO on the board of Africap, a fund specialized in providing equity and long-term funding to African MFIs.
Prior to establishing Omtrix, Mr. Silva worked for the Inter-American Investment Corporation, a multilateral financial institution, as head of its Central American office. He was executive director of ProFund Internacional, where he was responsible for the management of a regional investment fund specializing in equity investments in MFIs in Latin America and the Caribbean. He has been a board member of numerous MFIs in countries such as Nicaragua, Haiti, Venezuela, Mexico, Colombia, Ecuador, Peru, and Bolivia.
We look forward to seeing you at what promises to be a lively and trailblazing event!
If you are unable to join, we have set up a call-in number. Please feel free to call in to the number below, but also send us an email so that we know that you will be on the line.
Ready-Access Toll-Free phone number for North America: 800-747-5150
Ready-Access Toll-Free phone number for Colombia: 1-800-918705
In order to access the call, first dial your Ready-Access phone number. Then, enter the 7-digit access code: 3411830.
> Posted by Beth Rhyne
The news that Tilman Ehrbeck has been named CGAP’s new CEO is good news, indeed. Tilman has deep expertise in financial inclusion, having been one of the leaders in the financial sector practice area at McKinsey for several years, where he encouraged McKinsey to develop its focus on finance at the base of the pyramid. He spent the better part of the past five years in India observing first hand the tremendous changes in both microfinance and the financial sector at large and advised some of the sector’s key players. That experience will be one of many assets he will bring to CGAP. We at the Center for Financial Inclusion look forward to working with Tilman and with CGAP as he leads it forward.
> Posted by Michelle Romeu
In her latest Huffington Post contribution, Elisabeth Rhyne discusses how public and private funding for microfinance can be used to its full potential in bringing about financial inclusion.
The recent IPO of SKS Microfinance, India’s largest microfinance institution (MFI), was a watershed event whose ripples are affecting the public perception of microfinance. When an organization originally founded as a nonprofit first attracts some $75 million in successive waves of private equity capital and then raises $358 million in a public offering of stock, it seems natural to ask: is there any remaining role for donor funding — or for nonprofit engagement — in this industry?
Despite the fanfare associated with public listings that attract commercial money into microfinance, only a handful of the largest MFIs are traded on stock exchanges. Moreover, outside the MFIs’ home exchanges (Mexico for Compartamos, Kenya for Equity Bank, or India for SKS) these shares are generally only available to institutional investors. The vast bulk of the microfinance industry relies on socially motivated funding in a mix that includes grants, loans and equity investments. Anyone who wants to support microfinance can select from a multi-hued array of funding opportunities to find one that matches his or her wishes. Read more >
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