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> Posted by Ram Narayanan, Market Research Analyst, Symbiotics
Microfinance, a lead sector within the larger impact investing spectrum, has gained prominence from development-minded investors over the past decades. Initially, international funding in microfinance was generated largely from donor organizations, including public development agencies and private foundations. As the market gained traction, the role of private capital grew in importance as not only a means for microfinance institutions (MFIs) to reach scale, but also to increase their social outreach beyond what was possible with donor money.
Private investors and donor agencies thus joined efforts in creating microfinance investment vehicles, better known in the industry jargon as “MIVs” or more simply “microfinance funds.” MIVs act as the main link between MFIs and the capital markets and usually provide debt financing, equity financing or a combination of both to MFIs located in emerging and frontier markets.
The Consultative Group to Assist the Poor (CGAP) began to take interest in MIVs in 2003, a time where several of these vehicles saw the light, and before the investment boom which was witnessed by the sector with the announcement of the United Nations “2005 International Year of Microcredit.” However, the industry was still lacking common definitions, terminology and performance standards. In order to bring forward improved transparency on MIVs’ financial and social performances, a first market report on microfinance funds was produced in 2007 by CGAP, in collaboration with Symbiotics. The inaugural MIV benchmarking tool was thus born – based on a market survey containing a common set of definitions and reporting standards – a landmark that set the stage for regular, annual surveys carried out every year since then.
Fast forward 10 years, Symbiotics and CGAP have yet again partnered to develop a new extensive report (white paper) reflecting back on a decade of MIV operations, shedding light on their progress during the period 2006-2015. The recently released white paper co-authored by both organizations and entitled “Microfinance Funds: 10 Years of Research & Practice” carefully details major market trends.
> Posted by Virginia Moore, Communications Director, CFI
For the last 10 years, the Global Microscope on Financial Inclusion has systematically reported what it takes to create an enabling environment for financial inclusion. The good news is that the global financial inclusion community increasingly understands what works and is designing essential reforms. But the rate of progress is gradual and uneven, and in some areas, still lacking. The latest Global Microscope takes a closer look at what it takes to create an inclusive financial sector—and where intensive effort is most needed.
Tying for first place in the global rankings are Peru and Colombia, scoring 89 (out of 100). Second place is also a tie, with two Asian countries, India and the Philippines, each scoring 78. Pakistan earns third place with a score of 63. The spreads between first, second and third place are wider than they are between any other consecutive rungs in the index, but the top-ranking countries are in fact the same as last year. Peru, Colombia, the Philippines, India and Pakistan are longtime financial inclusion institutional and regulatory leaders.
> Posted by Pablo Antón Díaz, Research Manager, CFI
Scott Graham, Daniel Rozas, and Pablo Anton-Diaz at the “Preventing Overindebtedness in the Microfinance Sector in Mexico” panel, XV National Microfinance Summit, Mexico City, Mexico, November 2016
For the past decade, in part fueled by regulatory changes in the financial sector, there has been an explosion in the availability of credit to low-income individuals in Mexico. The Mexican microfinance sector has become increasingly concentrated and highly competitive. In 2015, the 10 largest microfinance institutions (MFIs) in the country represented 81 percent of the total market size, with more than 1,500 smaller MFIs sharing the remaining 19 percent.
> Posted by Tess Johnson, Project Associate, CFI
This post is part of a series examining the global phenomenon of de-risking and its impact on financial inclusion. To investigate this issue, CFI staff partnered with Credit Suisse Global Citizen Rissa Ofilada, a compliance lawyer based in the Philippines, to undertake a literature review and conduct interviews with key players in the conversation on de-risking.
NGOs, both large and small, are often on the front lines of humanitarian efforts, assisting people who are affected by conflict and terrorism. It is troubling that so many of these organizations’ efforts are hampered by de-risking. The funding and other forms of non-monetary aid that NGOs provide are directed towards addressing seemingly intractable problems – such as humanitarian conflict, forced displacement, natural disaster, and violent extremism – and yet, the de-risking behavior of banks, brought on in response to anti-money laundering and combatting the financing of terrorism (AML/CFT) regulation, often makes it difficult for these organizations to function and serve those who are most in need.
> Posted by Mark Napier, Director, FSD Africa
The following post was originally published on the FSD Africa blog.
Yesterday, Zambia’s central bank announced it had taken over a commercial bank, Intermarket, after the latter failed to come up with the capital it needed to satisfy new minimum capital requirements. Three weeks ago, a Mozambican bank – Nosso Banco – had its licence cancelled, less than two months after another Mozambican bank, Moza Banco, was placed under emergency administration.
At the end of October, the Bank of Tanzania stepped in to replace the management at Twiga Bancorp, a government-owned financial institution which was reported to have negative capital of TSh21 billion. A week before that, just over the border in Uganda, Crane Bank, with its estimated 500,000 customers, was taken over by the central bank, having become “seriously undercapitalised”. In DR Congo, the long-running saga of BIAC, the country’s third-largest bank, continued in 2016, forced to limit cash withdrawals after the termination of a credit line from the central bank. And in Kenya, Chase Bank collapsed in April, barely six months after the failure of Imperial.
> Posted by Anna Kanze, Chief Operating Officer, Grassroots Capital Management, and Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI
2016 has been dubbed “the year of IPOs” in India: as of September, there had been 21 initial public offerings (IPOs) worth nearly $3 billion, according to Indian news source Livemint. Among these are two high-profile IPOs for microfinance institutions (MFIs): Equitas Financial Holdings and Ujjivan Financial Services. IPOs are seen as the hallmark of commercial success, but in those industries like financial inclusion that are driven by social missions, inevitable questions arise over whether organizations can preserve their double bottom line priorities when they go public. The cases of these two Indian MFIs offer some answers to this increasingly pertinent question.
But before we get to that, let’s look at why these institutions went public in the first place.
Never waste a good crisis, right? In 2010, when the Andhra Pradesh crisis froze microlending in India, regulators and MFIs rose to the occasion and implemented measures that restored confidence in the microfinance industry and helped cement the social mission of microfinance in India. Most notably:
- Social Standards – In an effort to promote responsible lending, a group of the largest for-profit MFIs in the Indian microfinance sector formed the Microfinance Institutions Network (MFIN). MFIN developed a Code of Conduct by which members commit to client protection, ethics, and transparency, and the group began to “self-police” adherence to responsible lending principles.
- Credit Bureaus – The members of MFIN also collaborated with High Mark Credit Information Services to form the first credit bureau to track microfinance borrowing in India. All MFIN members contribute data to the microfinance credit bureau.